Saturday, June 23, 2012

Robin Hood Tax on Millionaires Doesn't Work

Democrats and President Obama continually call for "Robin Hood" and other arbitrary taxes on millionaires. It is a political tactic that ignores the fact that Robin Hood was returning unjust taxes from the government to the people. Undeterred, left-wing celebrities have joined the Robin Hood Tax campaign.

The campaign defaces dollar bills by drawing a hat and mask on George Washington's portrait. The defacement will be unrecognizable, but any green smudge is a success to those who do not understand the Robin Hood story.

The actual Robin Hood story is "Rob from the rich (GOVERNMENT) and give to the poor (TAXPAYERS)." A story Ronald Reagan summarized when he said, "government is not the solution to our problem; government is the problem." Maybe the Tea Party should put tricorn hats on dollar bills to have some fun at the expense of the progressives.

Lets look at an example of a "millionaire," "Robin Hood" or "1%" tax scheme:

The Wall Street Journal reported in March 2010 that after passing a millionaire surtax nearly one-third of Maryland's millionaires had gone missing, thus contributing to a decline in state revenues. The state comptroller's office final tax return data for 2008 reported on the first year that higher tax rates applied. The number of millionaire tax returns fell sharply to 5,529 from 7,898 in 2007, a 30% tumble. The taxes paid by rich filers fell by 22%, and instead of their payments increasing by $106 million, they fell by some $257 million.

Theoretically this is how the world works:
  • The idea, popularized by economist Arthur Laffer and writer Jude Wanninski in the 1970s and '80s, is simple. Tax rates of zero percent produce no revenue, for obvious reasons. 
  • Rates of 100 percent produce zero revenue, as no one bothers making the money that falls into that bracket knowing it would all be taken away. 
  • There is some rate in-between the two extremes that maximizes revenue. Go above it and tax revenue falls because people are dissuaded from working; go below it and tax revenue falls below the optimum.
From the above referenced Wall Street Journal article:
Yes, a big part of that decline results from the recession that eroded incomes, especially from capital gains. But there is also little doubt that some rich people moved out or filed their taxes in other states with lower burdens. One-in-eight millionaires who filed a Maryland tax return in 2007 filed no return in 2008. Some died, but the others presumably changed their state of residence. (Hint to the class warfare crowd: A lot of rich people have two homes.)

A Bank of America Merrill Lynch analysis of federal tax return data on people who migrated from one state to another found that Maryland lost $1 billion of its net tax base in 2008 by residents moving to other states. That's income that's now being taxed and is financing services in Virginia, South Carolina and elsewhere.


Macauley said...

Hello. I'd like to note that the so-called "Robin Hood"tax currently in the news is NOT a millionaires surtax. It's a 0.3 or 0.5 % tax on Wall Street financial transactions.

A totally different kettle of fish. Therefore regardless of the merits of your argument against other taxes on the wealthy, it's a straw man.

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