A leading liberal think tank analysis shows the Biden overall tax plan would shred the president’s 2020 campaign pledge that taxes would not be increased “by one thin dime” for anyone making less than $400,000 a year.
According to the Tax Policy Center, if Biden’s combined tax initiatives became law this year, 75 percent of middle-class families would see the amount they pay in taxes increase in 2022, and that 95 percent of middle-class families would pay more in taxes by 2031. At the same time, Biden Treasury Secretary Janet Yellin is refusing to rule out the restoration of special interest tax breaks that would disproportionately benefit the ultra-wealthy.
Testifying recently before the House Committee on Ways & Means, Yellin refused to say whether the president and his advisers would move ahead on demands by Democratic governors like Andrew Cuomo (NY) and Phil Murphy (NJ) and members of Congress from the blue states that state and local tax payments be made fully deductible on federal returns once again. The provision known as SALT was capped from the tax code in the 2017 Tax Cuts and Jobs Acts as a “pay for” that made it possible for other rates to be reduced.
When asked whether Biden would support eliminating the cap if it was included in any compromise infrastructure package. Yellen said, “I’m not going to negotiate here on behalf of the president.”
Biden policies, some lawmakers say, are forestalling the onset of a full-blown recovery caused by the pandemic-related lockdowns that plunged the U.S. closer to financial disaster than at any time since the so-called great recession of 2008.
“Through the first five months of this year, the Biden Administration added 500,000 fewer jobs than the last five months of 2020 – some of which were during the height of Covid cases and deaths. A half-million jobs short. And due to inflation, real wages have declined since President Biden took office,” Brady said in a statement.
The White House has repeatedly denied this is because the enhanced unemployment benefits authorized at the beginning of the lockdown period have been allowed to continue. A study recently published by the Committee to Unleash Prosperity’s Steve Moore, Casey Mulligan, and E.J. Antoni shows the relationship between the two to be direct and economically harmful, a view shared by Federal Reserve Chairman Jerome Powell who has made clear he believes these benefits have discouraged workers from returning to work and harmed recovery.
While Biden policies may be cooling job growth here at home, they’d incentivize job creation and fuel an expansion overseas – especially if the president’s agreed-upon among the G-7 plan for a global minimum corporate tax is eventually adopted.
The 15 percent GMT, which must be approved by Congress before becoming law, would make it better to be a foreign worker or company than an American one. If it’s imposed, it would incentivize U.S. companies to move U.S. jobs overseas and to “offshore” themselves which, before the 2017 Tax Cuts and Jobs Act’s creation of a global intangible low tax income provision was a common occurrence in the American market.
The proposal the Biden administration has endorsed holds out the prospect of a global tax code in which American companies operating overseas have to pay higher taxes than their foreign competitors. This would give foreign competitors an advantage to target American companies and jobs and erode the U.S. tax base. As Brady described it, The White House is “leading a global race to the bottom” for America’s competitiveness and our workers.
California’s high tax, generous welfare state policies, and the dominance of progressive politics have combined to create an environment causing voters to leave the state at can only be described as an alarming rate. For the first time since statehood in 1850, California is losing rather than gaining a congressional seat as a result of the decennial census and the ensuing reapportionment of the 435 districts in the U.S. House of Representatives among the 50 states. It’s an alarming reality for the state Ronald Reagan and his sunny optimistic brand of growth-oriented conservatism once called home.The economy is in the doldrums, and not just because of the strict lockdowns instituted by Democratic Gov. Gavin Newsom in the face of the coronavirus pandemic. Even with that, the state budget surplus for 2021 is projected to exceed $75 billion which, instead of being returned to the taxpayers through tax relief, is likely being socked away for the day when it’s needed to bail out the generous social welfare programs and government employee pensions the Democrats trade in exchange for votes to keep them in power.“California used to be a place where everyone wanted to live, but now California has become a place where people want to leave,” Brandon Ristoff, a policy analyst with the California Policy Center told Center Square driven out by “bad policies on the economy, education and more.” State-to-state migration data recently released by the U.S. Department of Internal Revenue (IRS) shows a net loss of nearly 70,000 households plus – which works out to about 165,000 taxpayers and their dependents – between 2017 and 2018.If that’s not bad enough, lawmakers in Sacramento now must worry about the impact of their departure on future budgets since they took nearly $9 billion in adjusted gross income with them when they left, The Epoch Times reported.Like New York City, California working hard to drive its tax base out of the state. Longtime residents are retiring elsewhere. Younger voters are leaving to pursue job opportunities in other states. Major businesses are relocating. Too many people, especially those who make up the middle class, are adversely affected by the high cost of living there – especially the housing market which is soaring to unaffordability for so many people – are now finding the Golden State an impossible place to live.Where are they going? Texas and Nevada – which have no state personal income tax, and Arizona – where the governor and members of the GOP-controlled state legislature are exploring ways to get rid of it.
-Texas experienced a net inflow of 72,306 taxpayers and their dependents, and a gross income boost of some $3.4 billion.
-Nevada welcomed 49,745 California taxpayers and their dependents, along with a gross income of $2.3 billion.
-Arizona saw an estimated 53,476 Californians relocated to Arizona, bringing with them around $2.2 billion in gross income.
Some policymakers still refuse to believe tax rates matter, that they have no incentive effect. Economist Arthur Laffer – developer of the famous “curve” that bears his name – proved they do. California has a state-local effective tax rate of 11.5 percent, the 8th highest in the nation in 2019 according to a recent Tax Foundation study. The effective state-local tax rate in Texas is 8 percent, in Nevada, it’s 9.7 percent, and in Arizona it’s 8.7 percent, making them (in order) 47th, 45th, and 29thout of 50.A 2018 Cato Institute report also showed the relationship between state-local tax effective rates on out-of-state migration. Tax-related motivations could be inferred from the Census Bureau data, The Epoch Times reported, citing the think tanks’ observation that some of the questions asked of people choosing to relocate show the incentive effect at work.“The Census Bureau does not ask movers about taxes. But some of the 19 choices may reflect the influence of taxes. For example, people moving for housing reasons may consider the level of property taxes since those taxes are a standard item listed on housing sale notices. Similarly, people moving for new jobs may consider the effect of income taxes if they are, for example, moving between a high-tax state such as California and a state with no income tax such as Nevada,” CATO said.If California doesn’t change its ways soon, it may find it has taxed its way into default. Illinois and New Jersey are in similar straights. There’s a lesson here for Democrats and Republicans in Washington who, despite the apparent end of the pandemic, still spend like there’s no tomorrow. If they continue to do that, there won’t be.
If President Joe Biden gets his way, the business of filing taxes in 2022 will be more complicated, more expensive, and more progressive than they’ve been in about 40 years.
Biden didn’t say much about taxes during the 2020 campaign besides his promise that those making less than $400,000 a year would not see their tax bill rise by “one thin dime.” The proposals he’s put forward as “payfors” for infrastructure, COVID relief, and other new spending programs are riddled with new taxes and hike existing levies to the point one can safely say the era of “tax and spend” has returned, in a punitive, almost vengeful way.
As the Committee to Unleash Prosperity observed Monday in its free daily Hotline, the top 5 percent of U.S. income earners pay half of all income taxes while the top 1 percent – the left’s favorite whipping post – pay more than 40 percent of the total tax intake. Meanwhile, as the chart below shows, the bottom half of income earners have an effective federal tax that’s close to zero – even when payroll and gasoline taxes are factored in. Quoting the Cato institute’s Chris Edward, “Joe Biden’s comments about the rich having low rates are clearly off base. The highest earners have tax rates twice the income of those in the middle and almost ten times the rates at the bottom.”
Biden’s plan to “soak the rich” is more about politics than economics. The numbers don’t add up and, if his tax cuts are enacted at the same time the United States is trying to emerge from a prolonged, lockdown induced recession, the results could be inflationary and job-killing rather than spark renewed growth in the economy as the 2017 Tax Cuts and Jobs Act did. Nonetheless, the Democrats are, as a party, committed to TCJA’s repeal in its entirety and, in the process, violate Biden’s campaign pledge.
Republicans on the House Ways and means Committee said Monday that if Biden gets his way on TCJA, it will do families “real harm” even at the median income level. A family of four with a household income of $73,000 could expect to see its federal taxes increased by $2,000. A single parent with one child should plan to pay $1,300 more.
Additionally, the committee said, the child tax credit would be cut in half as would the standard deduction, millions of middle-class households would again have to pay the Affordable Care Act individual mandate tax, and the American corporate tax rate would once again become the highest in the industrialized world.
The policies of tax and spend reached their apex in the 1970s under Jimmy Carter. America literally can’t afford to go back. The inflation alone would have a potentially ruinous impact on government discretionary spending. No Democrat who claims to be a moderate could go along with Biden’s plan to undo any part of tax-cutting, job-creating law Congress passed in 2017 – especially given what the president has planned for phase two. The prudent force forward is to keep the rates where they are, reduce overall federal spending, and let the U.S. economy boom. There will be plenty of money later to do the things we’ve already put off doing over the last four years, economists say, once the country is flush again.
As slogans go, “build back better – which Joe Biden used to define his 2020 bid for the presidency – lags well behind “Happy Days Are Here Again,” “Make American Great Again,” and “I Like Ike” in clarity and vision. It’s not even close to “It’s the economy, stupid,” the unofficial campaign mantra of Bill Clinton’s successful run in 1992.
What Biden’s been doing during his first one hundred suggests even he didn’t understand what he meant. If he planned to create millions of new jobs – good jobs at good wages with good benefits as the Democrats used to say – the April jobs report indicates he’s failing.
What’s gone unreported is that jobs that are coming back – and there are some – are coming back as lockdowns are ending. The economic downturn that appears now to be ending was not the product of an expected downturn in economic activity but the direct result of state-by-state lockdowns that forced businesses to curtail operations or close as part of an ill-conceived effort to slow the spread of the coronavirus.
To supplement lost income, the Pelosi-led Congress joined first with Donald Trump and then with Biden to put the nation on relief. It’s no wonder, therefore, that business leaders are complaining they can’t find people to fill the jobs they have available once the Washington politicians incentivized joblessness instead of work by extending and enhancing unemployment benefits. It should be obvious that when you pay people not to work, they won’t work but somehow the experts in D.C. missed this.
Biden and the Democrats are nevertheless still all in. They said their $1.9 trillion “American Rescue Plan” would save the economy. Instead, it looks like it’s dragging it back down while inflation, a monster the U.S. Federal Reserve was thought to have tamed, is once again rearing its ugly head. The price of goods and services on which the American people rely are increasing, suddenly and sharply, as the impact of trillions in new spending during the pandemic comes home to roost.
Now, according to the Washington Post and other outlets, the Democrats are having trouble building support for their latest $4 trillion tax and spend program. Moreover, Democratic Congressional Campaign Committee Chairman Sean Patrick Maloney, D-N.Y., is now warning the White House its planned tax hike “could hurt vulnerable House Democrats up for re-election in 2022.”
It’s an important message for Biden – who’s apparently sending it back marked “Return to Sender.” The president, it seems, remains intent on raising taxes on as many people, goods, and services as he can convince Congress to accept.
Biden’s initial proposal to take the corporate tax rate from 21 percent to 28 percent landed with such a resounding “thud” he was forced to offer up 25 percent as a compromise. Even so, that would still move the United States back into an uncompetitive position with the world’s other industrialized economies. What is being omitted thus far from the discussion is that, when state-corporate levies are added in, the average U.S. combined national and subnational tax rises to 25.77 percent.
At 25 percent, what Biden has now put on the table, the combined rate would be 29.5 percent, higher than what is levied by China and higher than the average rate for countries in the OECD.
Moreover, says Americans for Tax Reform, a non-partisan group opposed to tax increases, “Workers, consumers, and shareholders will bear the burden of an increased corporate tax rate. Such a hike will cause businesses to invest less in the United States and more overseas, resulting in fewer job opportunities and lower wages for American workers:”
According to ATR:
–A Treasury Department study estimated that “a country with a 1 percentage point lower tax rate than its competitors attracts 3 percent more capital.” This is because raising the corporate rate makes the United States a less attractive place to invest profits.
–A 2012 Harvard Business Review piece by Mihir A. Desai notes that raising the corporate tax lands “straight on the back” of the American worker and will see a decline in real wages.
–A 2012 paper at the University of Warwick and University of Oxford found that a $1 increase in the corporate tax reduces wages by 92 cents in the long term. This study was conducted by Wiji Arulampalam, Michael P. Devereux, and Giorgia Maffini and studied over 55,000 businesses located in nine European countries over the period 1996-2003.
–Even the left-of-center Tax Policy Center estimates that 20 percent of the burden of the corporate income tax is borne by labor.
Biden’s insistence the corporate tax be raised, the cornerstone of his economic plan, will not create jobs, reduce debt, or bring increased revenues into the U.S. Treasury. It will however be a boon to almost every one of America’s competitors in the global marketplace.
As people all over the United States send their forms into the IRS, they’re probably seething over President Joe Biden’s repeated assertions that Americans are willing to pay more in taxes. In a recent interview with ABC News this week, he predicted that he would get Democrats in Congress to vote for what would be the first major federal tax increase since 1993.
Biden’s view is no doubt shaped by cognitive dissonance. He wants to raise taxes, so he believes the American people are behind him. His opinion on the subject is likely reinforced by the oft-repeated observation coming from thought leaders and other political influencers that the pandemic has created conditions favorable for passing a tax hike.
Part of this is a question of who’d pay for it. Everyone is always for a tax increase if it means lower debt or higher spending so long as they’re not the ones whose taxes go up. Few people think of themselves as “rich,” so calls for higher taxes on the wealthy don’t bother them. Everyone is generally happy when someone else pays the bill.
Pollster David Winston looked at the issue in early April and found, by a margin of 2 to 1, “voters do not believe the statement that because of what happened with Covid, I am willing to pay more in taxes.” Consider that carefully. Federal spending to fight Covid and blunt the impact of the lockdowns imposed by the states has added well over $4 trillion to the national debt – some say it’s more like $6 trillion – yet most voters are unwilling to fork over their dough to close the gap between what went out and what’s coming in. (By the way, that “gap” isn’t nearly as big as people have been made to think. A lot of states are ending the year in the black even without the money from Washington and, in D.C., federal revenues are just about what they were projected to be before Covid hit).
In the Winston survey, the biggest supporters of a tax hike are, no surprise, liberal Democrats – but they are willing to see their tax bill go up by what he calls “a very weak margin” of 43 to 36 percent. Only a third of moderate Democrats go along with the idea while 47 percent say they don’t. Interestingly suburban women, a targeted group for both Democrats and Republicans in the next election, say they disagree with the statement 20 percent to 55 percent as do most Republicans (70 percent) and most independents (53 percent).
A newly released Rasmussen Reports national telephone and online survey generally backed up the Winston Group findings. Its poll had 64 percent of likely U.S. voters saying they oppose increasing taxes while just 22 percent supported the idea and 14 percent said they were not sure.
The Rasmussen reports data also showed 45 percent of voters saying the current level of federal taxes “is already too high” while just 13 percent said they were “too low.” Another third – 33 percent – aligned themselves with the mythical Goldilocks saying, after the Trump tax cuts of 2017 that the current level of taxation is just “about right.”
Now, here’s where it gets interesting. President Biden has taken to saying Republican voters support his plans for the country even if GOP members of Congress reject it. Maybe – but what he doesn’t say is that – at least as far as taxes are concerned – members of his own party aren’t getting in line behind him.
“Whether or not congressional Democrats go along with Biden’s plan,” Rasmussen Reports said, “Democratic voters appear to feel differently. Only 19 percent of Democratic voters say the current level of federal taxes is too low, while 34 percent of Democrats say taxes are too high and 38 percent say the level of federal taxes is about right.”
Unsurprisingly, Biden’s wrong about the GOP voters too, at least on taxes. “Among GOP voters 56 percent say the current level of federal taxes is too high,” the survey found with, “just 9 percent say they’re too low and 29 percent say the level of federal taxation is about right. Unaffiliated voters are nearly five times more likely to say current federal taxes are too high (48 percent) than too low (10 percent).”
Despite what the New York Times lets prominent leftwing Keynesian economists write on its op-ed pages, there isn’t a lot of sentiment for raising taxes in America on anyone. The people are opposed to higher taxes on income, on gasoline, and just about everything else he’s proposed raising taxes on – tax hikes that would all break his campaign pledge that anyone making less than $400,000 per year wouldn’t see their taxes go up by “one thin dime.”
Joe Biden made a lot of promises during his truncated run for the White House. One of them, that he wouldn’t be Donald Trump, he’s kept. The others, most of which were grounded philosophically in the idea he was a moderate Democrat – an image the mainstream media cheerfully did its best to confirm, have gone out the window.
On economics, on cultural issues, even on foreign policy he’s not just reverting to the positions taken during the Obama years. No, he’s breaking new ground in so many areas it’s clear he’s trying to be a transformational president rather than the caretaker who brought us all together he suggested time and again that he’d be.
His latest foray into the grand schemes of central planning is his lately-much-discussed infrastructure proposal that’s starting to look like “the green new deal” – which he said repeatedly he wasn’t for – plus a lot of other things.
What he wants to do is bad enough. How he plans to pay for it is even worse. Now, the whole business is carrying with it an estimated $2 trillion price tag, a figure that is ambitiously modest. It’s going to cost a lot more and, as if the Democrats ever need a reason to do it, he’s going to suggest a slew of new taxes and tax hikes to get the money.
According to an analysis of the proposal released Tuesday by Americans for Tax Reform, the starting point for Biden will be an increase in the top corporate tax rate from 21 percent to 28 percent alongside the introduction of a 21 percent global minimum tax, an idea beloved by European advocates for enlarging the welfare state to end tax competition between nations.
If that were not bad enough, he’s also calling for a doubling of the capital gains tax to almost 40 percent, imposing a second death tax by ending step up in basis, and raising the top individual income tax rate to 39.6 percent.
What he wants is tax reform in reverse. The right way to do it is to broaden the base and cap or eliminate deductions the way Reagan and Trump did it. In both cases that acted as rocket fuel to a moribund U.S. economy. What Biden is proposing to do will choke off growth and reduce incentives to save and invest – making America more like Japan in the process, a big economy with no appreciable growth.
“Biden’s tax hikes,” ATR said, “will hit Main Street small businesses hard. Small businesses that are organized as pass-through entities (sole proprietors, LLCs, S-corps etc.) pay taxes through the individual code and will be hit by Biden’s plan to raise the top income tax rate to 39.6 percent.”
Moreover, the group said, the increase in the corporate rate – if Biden gets what he is said to want – will cause utility bills to go up. “Utility customers bear the cost of taxes imposed on utility companies. Utility companies pay the corporate income tax. Corporate income tax cuts drive utility rates down, corporate income tax hikes drive utility rates up. When Republicans enacted a corporate tax rate cut, utilities across the country lowered their rates.”
What that means is higher taxes for just about everyone, shattering his promise that those making less than $400,000 a year (even if that’s by household and not individually, a distinction the then-former vice president never made on the campaign trail) “Inclusive of state taxes and the Obamacare 3.8 percent Obamacare tax, Californians would face a capital gains rate of 56.7 percent, New Yorkers would face a capital gains rate of 52.2 percent, New Jerseyans would face a capital gains tax rate of 54.14 percent.”
That makes it clear why Democrats from those and other high-tax states are adamant about repealing the cap the Trump tax reform put on the deductibility of state and local taxes also called “SALT.”
Without the SALT cap, taxpayers in well-run red states end up subsidizing the inefficiency, bloat, and wasteful spending in the poorly run blue states like New York and Illinois. That may be outrageous but it’s also Biden policy – and what the Democrats stand for. Taking money from the people (and states) that have it and oversee it responsibly to subsidize those who manage what they have poorly if at all.
As ATR points out, the proposed Biden’s corporate tax hike would make the U.S. top rate higher than Communist China’s 25 percent, a nation not thought likely to join in the effort to establish a global minimum corporate tax. What the president is proposing is an incentive for American companies to move to China rather than bring their operations home, something the coronavirus pandemic demonstrated “IRL” might be a good idea whose time has come.
The Democrats used to criticize the GOP for supporting tax cuts for any reason. Now the worm has turned. Mr. Biden and the Democratic Party are now for higher taxes for any reason, the health of the U.S. economy be damned. His tax plan is a bad policy – bad for everyone, except maybe China.
Now that she’s a member of the tax-writing Senate Finance Committee, Massachusetts Sen. Elizabeth Warren plans to give the progressive agenda a boost by introducing a bill that would create the nation’s first-ever tax on total assets.
This so-called “wealth tax” would consider anything and everything owned by a taxpayer in computing the taxes owed. More than double taxation – which is taxing the same income twice as happened with the Death Tax – the taxes the former Democratic presidential candidate wants to put on the books would essentially tax savings, investments, and real property over and over and over again.
According to some early static estimates, Warren’s proposal could generate as much as $2.75 trillion per year – but that does not take into account any change in behavior that might occur on the part of the taxpayers on whom it would be assessed.
A study recently released by the non-partisan American Action Forum found a wealth tax would lead to a decrease in innovation and investment, drive down wages and cause unemployment and produce a $1.1 trillion shrinking in U.S. gross domestic product over the first ten years of its existence. In subsequent decades, GDP would be smaller by about $283 billion, a 1 percent annual decrease from current projections.
The Warren plan would impose this new tax, published reports indicate, on taxpayers with assets above $50 million at a top rate of 6 percent per year while giving the U.S. Internal Revenue Service far greater power than it currently enjoys. With a wealth tax on the books, the IRS would have to hire thousands of new agents and auditors to keep track of all the assets held by those of whom the tax falls, to account for them, and assign them proper valuation at tax time.
Also included in the draft of Warren’s plan circulating through the nation’s capital is a 40 percent “exit tax” to be imposed on anyone who seeks to leave the United States permanently and is reminiscent of the so-called “tax” forced upon Jewish individuals and families seeking to emigrate from Nazi Germany in the years prior to the onset of World War II.
There are some, even in Warren’s own party, who doubt the plan is legitimate.
“We are tax law professors who identify as liberal Democrats, donate to Democratic candidates, publicly opposed the Trump tax cuts, and strongly support higher taxes on the affluent,” Daniel Hemel and Rebecca Kysar recently wrote in the New York Times. “We are worried, though, that leading figures in our party are coalescing around an idea whose constitutionality is doubtful at best.”
Warren’s plan is one of several under consideration on Capitol Hill that, on paper, raise tremendous amounts of money for the U.S. government. Unlike tax changes that achieve such ends by stimulating economic growth, however, her plan would simply redistribute income already earned, long a progressive objective.
To date, there has been no comment from the Biden Administration on the Warren wealth tax or any of the similar proposals under consideration. For his part, President Joe Biden remains committed to his promised repeal of the Tax Cuts and Jobs Act in its entirety. If he’s successful, that would violate his repeated campaign pledge in which he vowed no American family making less than $400,000 per year would see their taxes go up “by one thin dime.”
California businesses are leaving the state in droves. In just 2018 and 2019—economic boom years—765 commercial facilities left California. This exodus doesn’t count Charles Schwab’s announcement to leave San Francisco next year. Nor does it include the 13,000 estimated businesses to have left between 2009 and 2016.
The reason? Economics, plain and simple. California is too expensive, and its taxes and regulations are too high. The Tax Foundation ranks California 48th in terms of business climate. California is also ranked 48th in terms of regulatory burdens. And California’s cost of living is 50 percent higher than the national average.
These statistics show why California’s business and living climate have become so challenging. But the frustrations that California entrepreneurs face every day present a different way of understanding their relocation decisions.
Erica Douglas, a young tech entrepreneur, moved her company, Whoosh Traffic, from San Diego to Austin, Texas, a few years ago. Here is what she had to say:
“I’m leaving you. I’ve struggled with a government that is notoriously business-unfriendly—with everything from high taxes on earning to badgering businesses to work more to comply with bureaucracy. I paid enough in California income tax in one year alone to hire another worker for my business. And you charge me $800 annually as a corporation fee, when most states charge just a few dollars.”
Not surprisingly, California businesses tend to relocate from the counties with the highest taxes, highest regulatory burdens, and most expensive real estate, such as San Francisco, and they tend to relocate to states where it is easier to prosper. Texas imposes just a 0.75% franchise tax on business margins, compared to California’s 8.85% corporate tax. As if this large difference weren’t enough of an incentive to leave, the city of San Francisco imposes a 0.38% payroll tax, and a 0.6% gross-receipts tax on financial service companies. Yes, if your business is in San Francisco, not only are your profits taxed by the state, but your payroll and your output are taxed as well. Not to mention that Texas has no individual income tax, compared to California’s current top rate of 13.3%, which may rise to 16.3% soon, and which would apply retroactively.
Speaking of California entrepreneurs leaving the state, there is Paul Petrovich. If you live near Sacramento, chances are your life has been made easier by Paul. He is a major commercial real estate developer whose projects include facilities involving Costco, Target, Walmart, McDonalds, Wells Fargo, and Verizon, among other major firms. But Petrovich has announced he will soon be leaving. For . . . drumroll please . . . Texas.
You see, California is discussing a wealth tax that may hit Petrovich. Known as AB 2088, lawmakers are so proud of this 0.4% tax on wealth that they proudly market it as “establishing a first-in-nation net-worth tax” that “will generate $7.5 billion in revenue.” Complicated as all get-out, it involves not just financial assets but real estate, farmland, offshore holdings, pensions, art, antiques, and other collectibles. Europe tried taxing wealth, and it has failed, leading almost all countries to abandon it. And the idea that it will generate $7.5 billion in revenue is laughable, though it will create additional income for tax attorneys and CPAs. The state also intends to make this law follow you for up to a decade should you leave. Clever politicians? Maybe, but just how will they convince other states to cooperate once you relocate? Not to mention whether this future provision is constitutional.
I am surprised that Petrovich stayed in California so long. As a developer specializing in developing infill projects, meaning developing unutilized or underutilized land, he has been involved in many lawsuits challenging his right to develop.
One has involved a mixed-use development project that includes a Safeway supermarket, senior living, shopping, and a gas station on a site of a former railway station, polluted and abandoned. What is not to like? For the city council, it is the gas station.
Petrovich has been involved in a legal battle over this project since 2003. All over a gas station. Twenty lawsuits and over $2 million in legal fees later, Petrovich appears to be winning, and winning against a city council that broke the law.
A state appeals court recently ruled that the Sacramento City Council denied Petrovich a fair hearing several years ago by acting in a biased manner. Sacramento Superior Court judge Michael Kenny wrote that one councilman demonstrated “an unacceptable probability of actual bias” and failed to have an open mind. The court found that the councilman was trying to round up votes against the gas station before it came before a hearing. Rather than accepting this ruling, the city council will appeal. They appear to be doubling down not only on bad behavior but on wasting resources as well .
Readers often ask me how California politicians have changed over time. An important and often overlooked factor is that politicians now have personal agendas that they aim to impose on other Californians, often without transparency or accountability. This is what is going on now with Petrovich, and is what is going on with AB 5, the new law that prevents many Californians from working as independent contractors that began on January 1. Voters must begin to hold politicians accountable for this if California is ever able to reform.
Mr. Petrovich, if you leave, I will be sorry to see you go. Your developments made life much easier and more prosperous for thousands. Thanks for your service. Your potential departure will be a loss for all of us.
Joe Biden likes to claim his plan to repeal the Trump tax cuts won’t cause most Americans to see their taxes rise. That’s wrong, say both a famed rapper and a noted anti-tax activist – a position backed up by a newly released study that also projects wages for an average American household will decline if his plan is enacted.
An analysis of the Biden plan released by Grover G. Norquist’s Americans for Tax Reform said the passage of Biden’s plan would lead to a top marginal rate of more than 60 percent on many households and small businesses.
This news did not sit well with the rapper 50 Cent – commonly known as “Fitty” – who threw his support to President Donald Trump, saying on Twitter “Yeah, I don’t want to be 20 Cent. 62 percent is a very, very bad idea.”
Under the Biden plan higher earners like the rapper, who was born Curtis James Jackson III, who are New York City residents could see their top rate go as high as 62 percent. “Are you out of ya (expletive deleted) mind?” he said through his social media account.
A separate study by Boston University economics professor Laurence J. Kotlikoff for the non-partisan Goodman Institute looked at the tax and Social Security changes that would occur under the Biden plan found that wages would decrease by $1,000 per year for households with income of $50,000 and by $2,000 per year for a two-earner couple making $100,000. Additionally, because the $400,000 threshold in the former vice president’s plan is not indexed, couples who start out with a modest income in their 20’s could end up “paying the Biden tax by the time they are in their 50’s.”
The Goodman study also found the tax discriminated based on age, with younger entrepreneurs facing “six times the extra burden on retirees with the same income in their 60’s, living off accumulated wealth.”
Biden has vowed to steeply raise personal income taxes and impose an additional 12.4 percent payroll tax (along with a doubling of the capital gains rate to 40 percent). New York has an 8.82 percent income tax and New York City takes another 3.876 percent. Ironically, his plan would have the biggest impact on taxpayers in blue cities and states – his base of support in the upcoming election – because they typically impose a higher tax burden on their residents.
“50 Cent speaks the truth when he says no one should have 62 percent of any dollar they earned taken by government. 50 Cent speaks not just for rappers but for millions of small businessmen and women who would be hit by the high tax rates threatened by Biden and New York,” Norquist said.
Other studies that have looked at the Biden plan, including those from The Tax Foundation, the Tax Policy Center, and Penn/Wharton all projected taxes will rise on all income groups if the Biden plan becomes law.
The California Legislature is back from its summer recess and has frantically resumed its quest for new revenue sources.
One of the latest ideas is Assembly Bill 1253. This proposed legislation would add new income tax brackets for high earners on top of the existing ones.
Income between $1 million and $2 million would receive a one percentage point surcharge, bringing the marginal rate to 14.3 percent. Those earning between $2 million and $5 million would pay an additional three percentage points, and those earning over $5 million would pay an additional 3.5 percentage points, bringing their marginal rates to 16.3 percent and 16.8 percent respectively.
This plan constitutes a continuation of California’s soak-the-rich approach to raising revenues.
While some seem to believe that high earners can provide unlimited resources, the evidence from prior tax hikes suggests that the introduction of these tax rates is not even likely to raise revenue for the state. At the same time, it will hammer job creation.
The problem is that high earners do not simply sit there and take it when the state goes after their income.
In a detailed study of the 2012 California ballot measure that raised the top state rate to 13.3 percent, Ryan Shyu and I found that just two years later, the state was only collecting 40 cents of every dollar that it had hoped to raise from the tax increase.
High income taxpayers affected by the 2012 tax increase suddenly began to flee the state at higher rates, especially to zero tax states like Nevada, Texas, and Florida.
Even more importantly for the state budget, those that stayed began declaring considerably less taxable income than they would have otherwise, apparently either scaling back their productive activities or engaging in tax avoidance.
The economist Arthur Laffer has famously argued that there is a tax rate beyond which a government’s revenue will decline if it raises taxes further, due to the disincentive effects of high taxes.
While the federal government may be helped by limits on what American citizens can do to escape federal taxation, state governments tread on much thinner ice when faced with the ability of taxpayers to move their residences and their earnings generation to other states.
In 2012, California was at least still at the point where raising top income tax rates led to some increase in near-term revenue, albeit with grave long-term consequences.
Today, however, the state is starting from a 13.3 percent tax rate that is the highest in the nation.
Furthermore, Congress has since moved to protect federal taxpayers against bloated state spending by placing a $10,000 cap on state and local tax deductions as part of the 2017 Tax Cut and Jobs Act.
So while the blow of a 3 percentage point tax increase in 2012 was strongly cushioned by deductibility against top-bracket federal rates, California taxpayers today would feel the full force of this proposed round of increases.
Once taxpayers have responded by voting with their feet, reducing their business activities, and re-upping with their tax attorneys, the state will likely lose revenue if it attempts to increase rates.
To make matters worse, Sacramento’s narrow focus on tax revenues ignores that fact that this tax avoidance behavior will lead to job losses. These rates also apply to business income to non-corporate entities (such as partnerships and LLCs) which account for over half of all employment in the US.
In another study, Xavier Giroud and I found that each percentage point increase in individual tax rates that the average state implements leads to losses of up to 0.4 percent of all non-corporate jobs in the state.
Starting from California’s already astronomical top rate, the impact would be expected to be even larger.
These job losses will negatively impact the well-being of Californians and further reduce state tax revenues.
California’s approach to relying on the taxation of top earners has sown the seeds of its own destruction. The top 0.5 percent of taxpayers pay over 40 percent of individual income taxes in the state.
Officials are blaming COVID-19 for the budgetary havoc, but this structure means that in any downturn, California revenues will tank due to the excessive reliance on both the ordinary income and capital gains of top earners.
If the Legislature is interested in promoting economic growth and prosperity in the California, and securing the state’s own fiscal future, it should reject further top income tax rate increases.
Instead, it should work towards putting the state back on a path towards being a competitive place for high-income individuals and businesses to locate their economic activity.
"This is the flip side (of) tax the rich, tax the rich, tax the rich. The rich leave, and now what do you do?" said New York Governor Andrew M. Cuomo on Feb. 4
After the Trump tax cut went into effect one year ago, we predicted that the Trump tax reform would supercharge the national economy but could cause big financial problems for the highest-tax states: New Jersey, Illinois, Connecticut, and New York.
The capping of the state and local tax deduction at $10,000 raised the highest effective state tax rates by about 66% (for example, in New York City, the rate on millionaires rose from about 8% to 13.3%). In New Jersey, the highest rate has risen from 7.5% to 12.75%.
Now, we have Andrew Cuomo conceding that the trend of rich people moving out of New York has caused the loss of $2.3 billion of tax revenue in Albany’s coffers. Cuomo called this tax change “diabolical.” We think it was a matter of tax fairness. No longer do residents of low-tax states have to pay higher federal taxes to support the blob of excessive state/local spending and pensions in the blue states.
As we predicted, the wealthy are fleeing these states. The new United Van Lines data were just released that are a good proxy for where Americans are moving to and from. Guess what four states had the highest percentage of leavers in 2018: 1) New Jersey, 2) Illinois, 3) Connecticut and 4) New York. Even high-tax California had more Americans pack up and leave than enter.
Ironically, liberals like Cuomo who argued for years that businesses don’t make location decisions based on taxes in their states are now forced to admit that the cap on the state and local tax deduction (which primarily affects the richest 1%) is depleting their state coffers. The rich change their residence by moving for at least 183 days of the year to low taxers such as Arizona, Florida, Tennessee, Texas and Utah.
We advised Cuomo and other blue state governors to immediately cut their tax rates if they wanted to remain even semi-competitive with low-tax states. They are doing the opposite. Connecticut, Illinois and New Jersey have led the nation in tax increases on the rich over the last three years, while “progressives” have cheered them on.
Last year, legislators in Trenton went on a taxing spree, raising the income tax on those making more than $5 million a year to 10.75% — now the third-highest in the country — and then enacting a health care individual mandate tax on workers, a corporate rate increase and an option for localities to impose a payroll tax on businesses. And they are still short of cash. Idiotically, these tax hikes were passed after the state and local tax deduction cap was enacted, thus pouring gasoline on their fiscal fires.
How has this worked out for them?
In addition to New York’s fiscal woes, the deficit in Illinois is pegged at $2.8 billion (with a $7.8 billion backlog of unpaid bills), and Connecticut faces a two-year $4 billion shortfall despite three tax increases in five years.
New Jersey has a $500 million deficit this year (even after the biggest tax hike in the state’s history) and Moody’s predicts that gap will widen to $3 billion over the next five years. This is all happening at a time when most states have healthy and unexpected surplus revenues due to the Trump economic boom and the historic decline in unemployment.
A Pew study published late last year on which states are bleeding the most red ink ranked New Jersey worst, Illinois second worst and Connecticut seventh worst. New York was also in the bottom 10.
Let us state this loud and clear in the hopes that lawmakers in state capitals across the country are paying attention: The three states that have raised their taxes the most now have the worst fiscal outlook.
Worst of all, things don’t look like they are going to get better in any of these states.
Last fall, Connecticut, Illinois and New Jersey voters elected mega-rich Democratic Govs. Ned Lamont, J.B. Pritzker and Phil Murphy, who have promised to sock it to the rich — the ones who haven’t yet left. In Illinois, Pritzker would eliminate the state’s constitutionally protected flat tax so that he can raise the income tax on the rich by as much as 50%. After raising income taxes three times in the last five years, Connecticut’s legislature now wants to raise the sales tax rate. No one in any of these progressive states even dares utter the words tax cut. In just one decade, New York lost 1.3 million net residents; Illinois 717,000, New Jersey 516,000 and Connecticut 176,000. California has lost 929,000.
There is also a useful warning for the soak-the-rich crowd of progressives in Washington. If a rise in the state tax rate from 8% to 13% because of the state and local tax deduction cap can have this big and immediate negative impact, think of the economic carnage from doubling of the federal tax rate from 37% to 70% as some want to do. The wealthy would relocate their wealth and income in low-tax havens like Hong Kong, the Cayman Islands and Ireland. That would do wonders for the middle class living in those countries.
We are sticking with our warnings from last year. If the four states of the Apocalypse — Connecticut, Illinois, New Jersey and New York — do not reverse their taxing ways and choose to keep making things worse, these once very rich and prosperous states will see thousands more rich taxpayers leave. The politicians in these states just don’t seem to understand math. A soak-the-rich tax rate of 8%, 10% or even 13% on income of zero yields zero income when the wealthy leave the state. Cuomo was right: The bleak outlook for the four states of apocalypse is “as serious as a heart attack.”
By Chris Edwards • National Review
Senator Elizabeth Warren is pushing a wealth-tax plan on the presidential campaign trail. She is promising that her tax would counter a rigged political system and raise enough money to pay for universal child care, a Green New Deal, student-loan relief, Medicare for All, and more housing subsidies.
Warren’s tax would be an annual levy of 2 percent on “net wealth” — meaning wealth minus debt — above $50 million and 3 percent on net wealth above $1 billion.
Wealth-tax supporters do not seem concerned about the likely damage to economic growth. But they should know that from a practical standpoint, wealth taxes in other countries have raised little money and have been a beast to administer.
More than a dozen European countries used to have wealth taxes, but nearly all of these countries repealed them, including Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, the Netherlands, Luxembourg, and Sweden. Wealth taxes survive only in Norway, Spain, and Switzerland.
By Victor Davis Hanson • The National Review
Californians brag that their state is the world’s fifth-largest economy. They talk as reverentially of Silicon Valley companies Apple, Facebook, and Google as the ancient Greeks did of their Olympian gods.
Hollywood and universities such as Caltech, Stanford, and Berkeley are cited as permanent proof of the intellectual, aesthetic, and technological dominance of West Coast culture.
Californians also see their progressive, one-party state as a neo-socialist model for a nation moving hard to the left.
But how long will they retain such confidence?
California’s 40 million residents depend on less than 1 percent of the state’s taxpayers to pay nearly half of the state income tax, which for California’s highest tier of earners tops out at the nation’s highest rate of 13.3 percent.
In other words, California cannot afford to lose even a few thousand of its wealthiest individual taxpayers. But a new federal tax law now caps deductions for state and local taxes at $10,000 — a radical change that promises to cost many high-earning taxpayers tens of thousands of dollars.
If even a few thousand of the state’s 1 percent flee to nearby no-tax states such as Nevada or Texas, California could face a devastating shortfall in annual income.
During the 2011-16 California drought, politicians and experts claimed that global warming had permanently altered the climate, and that snow and rain would become increasingly rare in California. As a result, long-planned low-elevation reservoirs, designed to store water during exceptionally wet years, were considered all but useless and thus were never built.
Then, in 2016 and 2017, California received record snow and rainfall — and the windfall of millions of acre-feet of runoff was mostly let out to sea. Nothing since has been learned.
California has again been experiencing rain and cold that could approach seasonal records. The state has been soaked by some 18 trillion gallons of rain in February alone. With still no effort to expand California’s water storage capacity, millions of acre-feet of runoff are once again cascading out to sea (and may be sorely missed next year).
The inability to build reservoirs is especially tragic given that the state’s high-speed rail project has gobbled up more than $5 billion in funds without a single foot of track laid. The total cost soared from an original $40 billion promise to a projected $77 billion. To his credit, newly elected governor Gavin Newsom, fearing a budget catastrophe, canceled the statewide project while allowing a few miles of the quarter-built Central Valley “track to nowhere” to be finished.
For years, high-speed rail has drained the state budget of transportation funds that might have easily updated nightmarish stretches of the Central Valley’s Highway 99, or ensured that the nearby ossified Amtrak line became a modern two-track line.
California politicians vie with each other to prove their open-borders bona fides in an effort to appeal to the estimated 27 percent of Californians who were not born in the United States.
But the health, educational, and legal costs associated with massive illegal immigration are squeezing the budget. About a third of the California budget goes to the state’s Medicare program, Medi-Cal. Half the state’s births are funded by Medi-Cal, and in nearly a third of those state-funded births, the mother is an undocumented immigrant.
California is facing a perfect storm of homelessness. Its labyrinth of zoning and building regulations discourages low-cost housing. Its generous welfare benefits, non-enforcement of vagrancy and public health laws, and moderate climate draw in the homeless. Nearly one-third of the nation’s welfare recipients live in the state, and nearly one in five live below the poverty line.
The result is that tens of thousands of people live on the streets and sidewalks of the state’s major cities, where primeval diseases such as typhus have reappeared.
California’s progressive government seems clueless how to deal with these issues, given that solutions such as low-cost housing and strict enforcement of health codes are seen as either too expensive or politically incorrect.
In sum, California has no margin for error.
Spiraling entitlements, unwieldy pension costs, money wasted on high-speed rail, inadequate water storage and delivery, and lax immigration policies were formerly tolerable only because about 150,000 Californians paid huge but federally deductible state income taxes.
No more. Californians may have once derided the state’s 1 percent as selfish rich people. Now, they are praying that these heavily burdened taxpayers stay put and are willing to pay far more than what they had paid before.
That is the only way California can continue to spend money on projects that have not led to safe roads, plentiful water, good schools, and safe streets.
A California reckoning is on the horizon, and it may not be pretty.