Posted by Aye on 3 March, 2010 at 5:00 am. 4 comments already!

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Once upon a time, Aesop wrote a fable about a Countryman who possessed the most extraordinary goose you can possibly imagine. Every morning when he went to visit the nest, the goose had laid one single beautiful, glittering, golden egg.

The Countryman took the eggs to market and soon began to get rich. But it was not long before he grew impatient with the goose because she gave him only a single golden egg each day. He was not getting rich fast enough and was becoming quite greedy.

Then one day, after he had finished counting his money, the idea came to him that he could get all the golden eggs at once by killing the goose and cutting it open.

But when the deed was done, not a single golden egg did he find, and his precious goose was dead.

The Countryman learned the hard way what the Government is about to learn as well.

For years now, we’ve heard the cries of “tax the rich”.

We’ve heard about those “evil millionaires” and “fat cat bankers.”

We’ve listened as people referred to the Bush tax cuts for all taxpayers as “tax cuts for the rich.” Of course, in reality, during the Bush years the tax burden actually shifted more heavily toward those with higher incomes and everyone who pays taxes received a tax rate reduction.

Now, we are hearing President Obama speak of increasing the taxes on those in the upper percentages of income. In 2007 those in the the top 10% of income brackets paid 71.22% of all of taxes collected by the Federal Government. The top 50% bears 97.11% of the burden.

President Obama plans to raise taxes on people making over $250k by over $1 trillion over ten years.

What happens when the tax rates grow into too much of a burden to bear?

What happens when government, the equivalent of Aesop’s Countryman, becomes greedy — wanting more and more and more?

Will the rich continue to allow themselves to be the bearer of the tax burdens of their society?

Or will the rich, the geese of the story, simply refuse to continue to participate?

Art Laffer, a supply side economist and member of President Reagan’s Economic Policy Advisory Board created what is known as “The Laffer Curve”:

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Mr. Laffer’s theory contends that as tax rates increase from zero, tax revenues will increase as well, until the rates reach a point at which the corresponding revenues begin to decline. The behavior of the taxpayer and their willingness, or unwillingness to allow themselves to be taxed directly influences the amount of tax revenue the government takes in based on the percentages in question.

The excessive taxation chickens are beginning to come home to roost in a number of areas around the country. Many states are beginning to reap the bitter fruits of the seeds they have planted.

Great Britain is demonstrating the Laffer Curve in action:

High earners will cost the public purse hundreds of millions of pounds through tax dodges as they avoid the new 50p rate of income tax, a minister indicated yesterday.

Lord Myners, the City Minister, said that the Treasury had “significantly reduced” its estimate of the revenue to be earned from the historic change.

He said that he believed that the new top rate, due to come into force this April, would still generate extra income from the wealthiest 2 per cent of the national workforce. But he cast doubt on whether the Treasury would pocket the £1.13 billion it has earmarked for 2010, and the £2.5 billion it hopes to raise in 2011. “We still believe it will be beneficial,” he said.

Lord Myners told peers that “behavioural consequences of the new higher rate of taxation” — shorthand for tax avoidance — had forced the Treasury to lower its expectations.

Montgomery County, Maryland is now discovering what happens when the wealth is no longer there to tax:

[O]fficials are wondering where all the millionaires have gone, as the shrinking pool of wealthy taxpayers is wreaking havoc on the county’s finances.

County officials recently pegged the budget deficit for the next fiscal year at $761.5 million. Much of the gap is caused by a drop in income tax revenue, and much of that drop is tied to a small number of wealthy county residents who lost money in a poor economy, died or fled the state’s new millionaire tax.

One of Maryland’s budget-balancing tactics – asking millionaires to pay more money to the state – appears to be backfiring as the number of the highest-earning taxpayers dwindles with the flagging economy.

A year ago, Maryland became one of the first states in the nation to create a higher tax bracket for millionaires as part of a broader package of maneuvers intended to help balance the state’s finances and make the tax code more progressive.

But as the state comptroller’s office sifts through this year’s returns, it is finding that the number of Marylanders with more than $1 million in taxable income who filed by the end of April has fallen by one-third, to about 2,000. Taxes collected from those returns as of last month have declined by roughly $100 million.

Did you catch the portions in bold?

“Millionaire taxes” are now becoming more popular throughout the country.

Oregon voters, for example [hi Mata], recently passed Measures 66/67 which raise taxes on those earning $250,000 or more per year as well as corporate taxes.

How will that work out for them? Well, only time will tell for sure, but the hints are scattered throughout the experiences of other states who have tried similar measures and the news isn’t good.

The State of New Jersey has lost $70B in wealth during five years as residents depart

More than $70 billion in wealth left New Jersey between 2004 and 2008 as affluent residents moved elsewhere, according to a report released Wednesday that marks a swift reversal of fortune for a state once considered the nation’s wealthiest.

Conducted by the Center on Wealth and Philanthropy at Boston College, the report found wealthy households in New Jersey were leaving for other states — mainly Florida, Pennsylvania and New York — at a faster rate than they were being replaced.

::snip::

“The wealth is not being replaced,” said John Havens, who directed the study. “It’s above and beyond the general trend that is affecting the rest of the northeast.”

This was not always the case. The study – the first on interstate wealth migration in the country — noted the state actually saw an influx of $98 billion in the five years preceding 2004. The exodus of wealth, then, local experts and economists concluded, was a reaction to a series of changes in the state’s tax structure — including increases in the income, sales, property and “millionaire” taxes.

Experts pointed to an abundance of anecdotal evidence to support the numbers. Ken Hydock, a certified public accountant with Sobel and Company in Livingston, said in this 30-year-career he’s never seen so many of his wealthy clients leave for “purely tax reasons” for states like Florida, where property taxes are lower and there is no personal income or estate tax. In New Jersey, residents pay an estate tax if their assets amount to more than $675,000. That’s compared to a $3.5 million federal exemption for 2009.

Several years ago, he recalled, one of his clients stood to make $60 million from stock options in a company that was being acquired by another. Before he cashed out, however, the client put his home up for sale, moved to Las Vegas, and “never stepped foot back in New Jersey again,” Hydock said.

“He avoided paying about $6 million in taxes,” he said. “He passed away two years later and also saved a huge estate tax, so he probably saved $7 million.”

Notice the bolded part again? New Jersey taxpayers are adjusting their behavior, their lifestyles, and even the part of the country in which they live, in direct response to tax policy.

Neighboring New York is not faring much better:

Households moving out of New York State had average incomes 13 percent higher than those moving into New York during the most recent year for which such data are available. In 2006-07 alone, the migration flow out of New York drained $4.3 billion in taxpayer income from the state.

Rush Limbaugh has “officially vacat[ed] New York after these stupid, punitive, massive tax increases.”

Rochester businessman and Sabres owner B. Thomas Golisano has now moved to Florida. He was paying $13,000 per day in taxes in New York.

Donald Trump is furious.

But it’s not just the wealthy who are being affected. “Those moving elsewhere had an average income of $93,264, some 28% higher than the $72,726 earned by those coming in.”
Noticing any trends or patterns yet?

The Government is killing the golden geese rather than nurturing them.

They are taxing their citizens to the point that they are either adjusting their behavior to reduce their exposure to taxation or, in many cases, they are simply fleeing to other, more welcoming, areas of the country.

Much like the revolt of the Kulaks, the producers in society are proving, once again, that they would simply rather not produce at all than to have the fruits of their labor confiscated.

During the Depression of 1920, we learned the value of drastic spending cuts as well as significant tax rate reductions.

Will the lawmakers and the politicians see the folly of their ways and learn from history? Or are they simply destined to repeat it?

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