Nelson Rockefeller's Deepest, Darkest Secret: Not As Rich As People Believe

By Sam Pizzigati, Too Much: A Commentary on Excess and Inequality. Posted January 8, 2009.

"The major reason the New York State budget is out of balance today," Wittner noted last week, "is that, for the last thirty years, the state has been cutting the tax rate for the top income New Yorkers."

Governor Patterson is actually opposing efforts to enact a "millionaire's tax," despite polling data that show New Yorkers overwhelmingly favoring, by a 78-to-18 percent margin, higher taxes on anyone making over $1 million a year.

In Washington meanwhile, pillars of fiscal rectitude are also talking "sacrifice" for ordinary families and ignoring the sizeable sums that raising taxes on the wealthy could raise.

Last week, at a forum hosted by the prestigious Urban Institute, two former directors of the Congressional Budget Office -- Rudolph Penner and Robert Reischauer -- declined to offer support for even a modest hike in the top tax rate on the nation's highest incomes.

Powerful Washington public policy insiders like Penner and Reischauer typically advance a variety of reasons for opposing higher taxes on society's most financially favored. Higher taxes on the rich, they argue, choke off incentives for investment and limit economic growth.

Higher taxes on the rich, the argument continues, only serve to shove the wealthy into tax evasion mode. Facing high rates, the rich plow their money into unproductive tax shelters and scheme to skirt taxes by any means necessary.

The actual economic evidence offers scant support for any of these claims. In the 1950s and 1960s, decades of high taxes on the wealthy, America's economy grew just beautifully. Average Americans enjoyed unprecedented prosperity.

Earlier this year, economists Christian Weller and Manita Rao updated the evidence on economic growth and progressive tax rates. The two University of Massachusetts at Boston researchers crunched global data for 1981 through 2002 and found "no evidence that progressive taxation adversely affects economic stability by reducing growth."

Nobel Prize-winning economist Joseph Stiglitz has been trying to deliver that same message. Given a choice between cutting programs for working families and raising taxes on the rich, he told New York state leaders last spring, "economic theory and evidence give a clear and unambiguous answer: it is economically preferable to raise taxes on those with high incomes."

What about the notion that higher tax rates merely give the rich an incentive to evade taxes? If higher tax rates do indeed increase tax evasion among the rich, then lower tax rates should decrease that evasion. But today's lower tax rates on high incomes have put no dent on the tax games wealthy people play.

Federal prosecutors are now charging that one bank alone -- the Swiss UBS -- helped awesomely affluent Americans hide $20 billion in income from the IRS from 2000 to 2007. Two other major banks, in those same years, helped the wealthy conceal as much as another $30 billion.

The rich, in short, don't like to pay taxes at any rate. They don't use public services, and they resent having to pay for them. The best antidote to that resentment? Have the IRS, as Pulitzer Prize-winning tax commentator David Cay Johnston suggested last week, hire more auditors.

See more stories tagged with: taxes, wealthy, progressive tax, economic growth, tax evasion

Sam Pizzigati is the editor of the online weekly Too Much, and an associate fellow at the Institute for Policy Studies.

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