Tuesday, June 24, 2014

In N.J., a Flat Tax, Not a “Millionaires Tax,” is the Fairer Solution

New Jersey is in the throes of a major “budget crises,” and, led by State Senate President Stephen Sweeney and Senate Majority Leader Loretta Weinberg, the Democrats have proposed a “solution”—levy a so-called “millionaires tax” to balance the budget; a tax increase on annual incomes above $500,000. In a dueling pair of New Jersey Star-Ledger Sunday op-eds, two correspondents took opposite sides in the debate. The topic question: If a “millionaires tax” is implemented, “Will the wealthy flee N.J.?”

State Senator Joe Kyrillos argues a millionaires tax would inspire the wealthy to move out of the state, not only depriving the state of the expected revenues but also the jobs these economically successful individuals and their capital create and maintain. Gordon MacInnes, president of New Jersey Policy Perspective, argues that “The wealthy exodus is a myth.”

But both writers miss the fundamental moral point: It is simply wrong and unfair to target a small group of state residents for discriminatory tax increases simply because they are the most economically successful. There are several reasons for this.

For one thing, the budget crisis was created by politicians elected by a majority of state voters. It's simply wrong to dump the budget "fix" on a tiny minority of state residents.

For another thing, NJ’s income tax is already among the most confiscatory in the nation for high earners, with the rates starting at 1.4% and topping out at 8.97% for incomes over $500,000.

Furthermore, the wealthy have already been hit with two millionaire’s taxes in the last decade. As MacInnes points out:

In 2004, New Jersey increased the top income tax rate on households reporting more than $500,000 in income from 6.37 percent to 8.97 percent. This initial “millionaires tax” is still on the books, and was supplemented by a temporary one-year tax increase on incomes greater than $400,000 in 2009.

The most egregious aspect of the millionaires tax is the spectacle of a government targeting a small minority.

But we get the government we elect. A millionaires tax is popular in NJ, according to polls. In March, 63% favored such a tax. In other words, for most New Jerseyans, “Raise taxes, but only on the other guy,” is fine and dandy. But I consider such a sentiment morally corrupt.

But I wonder what that poll would look like if we had a flat tax.

I consider an income tax to be immoral and un-American. But if we’re to have one, the least unfair kind is a single rate on all incomes—a flat tax. I have taken this stand on a national level for both personal and corporate income taxes, and I support it on the state level.

So imagine if NJ had a flat tax—of, say, 5%—on all taxable income. The only way to raise taxes would be to raise the rate; which means, raise taxes on all taxpayers. What would then be the poll results? The same poll cited above asked respondents if they favored a hike in the gasoline tax. 72% opposed. Likewise, 71% oppose a tax hike on water consumption. Yet, 63% support a millionaires tax. Why the discrepancy? Could it have something to do with the fact that taxes on gas and water would hit almost everyone, but a millionaires tax will hit only a fraction of 1% of the people? If NJ had a flat income tax, does anyone doubt that the poll would show similarly overwhelming negative results on a question concerning a hike in the income tax, rather than register 63% support?

But the hypocrisy of voters is not the worst of it. A government should never have the power to levy coercive taxes. But, since it does, those taxes should be as fair (or least as unfair) and non-discriminatory as possible. A government of, for, and by the people means all of the people—every single individual. All individuals should be treated equally before the law. That is a feature of capitalism. It could never be fully achieved in our mixed economy—our mixture of free market capitalism and government controls. But, a flat tax would be a big moral improvement.

Related Reading:

Education in a Free Society—C. Bradley Thompson

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