Taxing the Wealthy

So what would you say if I told you there is a way to wipe out the entire state budget deficit, and it wouldn't cost one red cent for the vast majority of Californians?

We wouldn't have to turn kids away from college, kill transportation projects, leave cops and firefighters in the lurch, or take a stick to children, the elderly and the lame.

Twice now I've mentioned the proposal by two professors to put a temporary surcharge on wealth, and each time, readers have wondered if there's a petition they can sign.

Not yet. But let me give you the background.

"When we heard Arnold Schwarzenegger say the only way to do this was with a $15-billion bond measure, we wanted to come up with an alternative that wouldn't substantially change the lifestyle of any Californian," says Paul O'Lague, who teaches molecular biology at UCLA.

O'Lague and his pal John Bachar, who teaches statistics and probability at Cal State Long Beach, have been studying income taxes and wealth distribution for years, and hosting salons to hash out their ideas.

They came up with a proposal that puts a surcharge on California residents with an income above $200,000, including a joint filing in which husband and wife make that much combined.

The surcharge would start at 0.5 percent for light heavyweights making $200,000, and climb to 7 percent for bombers hauling in $5 million a year or more. All told, this $200k-plus group accounts for just 3.1 percent of all tax returns, but has 35.9 percent of total personal income in the state.

The surcharge would generate a fat $13 billion a year, because California has more millionaires per capita than any state. (And Golden State billionaires, who account for more than one-fifth of the nation's billionaires, have a net worth of $102.9 billion.) "How much money can you spend on yourself?" asked Bachar. He echoed his colleague's point that for the state's aristocracy, the hardship of a surcharge could mean having to settle for a $9.5-million mansion instead of a $10-million estate.

As some readers said, people making $200,000 aren't exactly rich in this day and age, and they're right.

But in 2000, Bachar said, 6,455 Californians made $5 million or more, and the average in that group was $15.6 million. We lost some of those millionaires after the dot-com crash, but we've gained some recently.

Not everyone turned cartwheels when I first mentioned O'Lague and Bachar's cage-rattling idea. I heard from the growing legions of trained chimps that can't get through a day without saying "no new taxes," even in a state that's in the middle of the pack in taxation.

Others called me a dope for a plan that would drive millionaires out of the state. But not all of them would leave. And if enough of them did, maybe it would burst the real estate bubble so more people could afford a house.

I also heard from readers telling me about all the hard work that goes into striking it rich. Some of them carped about having to keep shelling out for society's laggards and dregs.

First of all, for the super rich, a good chunk of their income doesn't come from working up a sweat. It comes from capital gains, dividends, stock options and other non-aerobic activities.

These folks have got shelters and deferrals and all sorts of tricks the average Joe doesn't have. Because of it, they control more of the nation's wealth than ever, but their share of taxes has been dwindling for roughly 20 years.

If you don't believe me, I refer you to a former colleague, David Cay Johnston, who has a new book on the subject. The title, not exactly subtle, is "Perfectly Legal, the Covert Campaign to Rig Our Tax System to Benefit the Super Rich -- and Cheat Everybody Else."

Johnston saw my reference to O'Lague and Bachar and called to say that in 2000, the 27,000 richest Americans had as much income as the bottom 96 million combined. And the gap is growing.

"The rich really are getting richer and the poor poorer," said Johnston, who writes about taxes for the New York Times. His book is filled with examples of the tax burden being shifted from the famously rich to average blokes.

No mystery there. Money, in the form of campaign donations, buys access. And access has meant that corporations and the wealthiest Americans have umpteen ways to shrink taxable income.

"The richest 1 percent are taxed more lightly than the middle class" when you add up all their tax and investment advantages, Johnston writes. "The same data show that the poor are taxed almost as heavily as the rich are -- and even more heavily than the super rich."

It seems all the more reason to consider the O'Lague/Bachar plan here in the Golden State.

To pick a California millionaire entirely at random, let's take Gov. Arnold Schwarzenegger, who's asking us to pay for a $15-billion bond measure and billions more in interest. For the sake of discussion, let's guesstimate that he made $15 million for the Terminator movie and other ventures.

He'd have a 7 percent surcharge, or a mere $1 million, added to his tax bill.

Would Schwarzenegger have to sell the mansion in Brentwood?

No.

Would he have to sell the jet or the fleet of Hummers?

No.

Would the kids get yanked from private school?

No.

The same is probably true for the rest of the state's thousands of millionaires.

Look, we don't have to balance the entire budget on their backs. But doesn't a combination of less borrowing, fewer program cuts and some tax hikes make more sense than what's being proposed?

Schwarzenegger and the rest of the high rollers would barely notice the sacrifice.

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