Leftist Tax Schemes Bash the Rich, but Depend on Their Success

Government officials want as much revenue as possible so it can spend it with wild abandon. There will never be enough to satisfy them.

Nineteenth century historian Thomas Carlyle called economics "the dismal science" because of its predictions about scarcity and poverty. Those are immutable features of all societies, which explains why his snarky term remains widely used. Modern economics writer Thomas Sowell captured the same idea, but expanded upon it. "The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it," he wrote. "The first lesson of politics is to disregard the first lesson of economics."

In other words, even though the laws of economics are as unchangeable as the laws of physics, the laws of politics remain unchanged, too. Elected officials will always promise more free stuff for the populace that is affordable once, they say, the rich pay their "fair share." They claim the increased tax rates and new spending will not have any ill effect on the economy, either. These old ideas are making a big comeback as the Democratic Party's progressive wing expands its influence in Washington, D.C. Free-market folks need to start pushing back.

I promised not to pay attention to U.S. Rep. Alexandria Ocasio-Cortez, the lefty Democratic Congresswoman from New York, given that her half-baked ideas do not merit serious debate. However, conservatives have picked on her every move, thus turning her into a star. So now we have no choice but to pay attention when she says, "I do think a system that allows billionaires to exist when there are parts of Alabama where people are still getting ringworm because they don't have access to public health is wrong," as she recently told a reporter.

We actually are discussing whether the government should allow the existence of billionaires. Here is an economic conundrum. The progressive experiment depends on wealthy people's continued economic success. California, which smugly touts itself as the national resistance to the Trump administration, is particularly dependent on tax revenues from billionaires and capital gains taxes. Earth to Ocasio-Cortez and others who share her views: Those universal healthcare proposals that California Democrats are cooking up could not move forward if not for the large share of wealthy people existing in the Golden State.

A CNBC News report from late December focused on how that month's stock-market drops were "very bad news" for California's state budget. The market has largely recovered, but the article noted a fact we should all keep in mind: "(T)he state's top 1 percent of personal income tax earners—roughly 164,000 tax returns—generate about half of the personal income taxes in California." That sounds like they are paying well beyond their "fair share."

No wonder the Franchise Tax Board zealously polices whether high-income Californians who claim to have moved out of state actually have moved their permanent residences elsewhere. No wonder state officials noticed when 138 residents fled after voters approved Proposition 30 tax increases in 2012. That is a small number in a state with nearly 40 million people, but it matters if they are particularly wealthy. Last year, even Democratic legislators expressed concern after the federal tax bill reduced deductions for wealthy Californians.

This progressive approach to income taxes is reminiscent of their approach to tobacco taxation. They want fewer billionaires to exist and want to level the playing field by approving punitive, confiscatory tax rates. Every time they increase these income-tax rates, however, the state becomes more dependent on the revenue from the wealthiest people. Likewise, lawmakers pass more tobacco taxes to discourage smoking, but instead the states have become addicted to tens of billions of dollars in revenue from their sales. A CBS report from 2012 found that only 3 percent of the money from taxes and settlements were funding anti-tobacco programs.

Here are some more dismal truths. Government officials want as much revenue as possible so it can spend it with wild abandon. There will never be enough to satisfy them. In California, record-setting revenue has not stopped the calls for new taxes—on commercial properties, for instance—to fund ever-more costly programs.

Government is like rust. It never sleeps. Thinking of Ocasio-Cortez's statement, maybe it is more like ringworm: it keeps spreading unless one takes definitive steps to stop it. Returning to the old days of super-high tax rates is a fool's errand. As the Cato Institute's Chris Edwards wrote, "globalization has dramatically changed the economy over recent decades," leading to movable tax bases that can escape the clutches of the big spenders.

Increasing the top rate from 37 percent to 70 percent, as Ocasio-Cortez and other progressives now are proposing, means a massive wealth transfer from the private to the public sector. This is the new big push from the left. The right deserves brickbats, too, given the Trump administration's soaring deficits and its own costly spending priorities. This is a dismal situation, but I prefer Sowell to Carlyle. The problem is politics, not economics.

This column was first published in the Orange County Register.

Steven Greenhut is Western region director for the R Street Institute. He was a Register editorial writer from 1998-2009. Write to him at [e-mail].