New Jersey Battles Over Millionaire Tax

Think about all the income I earn and my businesses earn.  The sales and profits that are generated 24 hours a day, 7 days a week, 365 days a year.  Guess what?  The taxable income could have belonged to the state of New Jersey.  However, the cost of living, driven in part by the state tax rates, were too high for my liking so I left after roughly five years.

Now, the New Jersey legislature wants to pass a tax that will hit 16,000 millionaires by taking 10.75% of their income above $1 million per annum in order to avoid cutting out-of-control state spending.  Despite having one of the highest consolidated tax basis in the nation (state, property, sales, etc.), New Jersey is running a 37.4% deficit when measured against the current budget!  Could it be because, according to one estimate I read last year, employees of the state of New Jersey earn roughly twice what their private-market counterparts do when factoring in pension benefits, health care, and other considerations?

I always find it amazing when people who are not rich tell people who are rich what they will do when a tax passes.  Most of the comments I’ve read are along the lines, “the rich can’t move so they will have to pay.”  Ha!  You’re kidding, right?  You realize that most income for the wealthy doesn’t come from jobs that require you to show up to a physical location, but rather from dividend and interest income on private holdings, whether those be stocks, bonds, privately controlled businesses, real estate, or intellectual property such as copyrights, trademarks, and patents.

Most lower class and even some middle class people don’t understand cause and effect of economics.  For example, when Maryland passed a special tax on millionaires a few years ago, the legislature forecast an additional $106 million in revenue.  Instead, roughly 33% of the millionaires left the state and made their summer vacation homes in low-cost states their primary declared residence.  Instead, revenue came in $200 million short of the year before the tax was passed!

How I Would Fix the National Tax Code

On a national level, If I could re-write the tax code, I would do the following:

• Pass a Constitutional amendment allowing for a flat national sales tax of 22% maximum on all purchases across the board and abolish the income tax.  Families earning under $50,000 from all sources combined would be eligible for a rebate of all estimated taxes they paid in a given year.  This income level is likely to spend all of their revenue on food, shelter, education, etc., so it is going right back into the economy.
• Congress would not be able to run a deficit unless authorized by a 2/3 majority during a time of War.

That means that most people wouldn’t have to file income taxes.  If you wanted to save and invest, you would have all of your money to do it, but when you went to buy a house, or a car, or a pencil, you would pay taxes at that time.  You wouldn’t have to worry about the elected representatives trashing our national balance sheet because they would be forced to live within their means.  For non-profits, the lack of tax-deductible status shouldn’t matter because people would have more cash in their pockets and are going to still support the causes about which they care.

This, of course, would mean a ton of accountants at H&R Block and comparable firms would have to change their business strategy, but they could be put to work in more productive fields.  On a civilization-building basis, time, energy, and brain power devoted to calculating fees to the government is a net loss when it could be used to create better cost efficiencies for engineering projects, new technology, etc.

Furthermore, it would remove the tax debate from national elections.  Congress wouldn’t have the ability to go above a pre-determined cap.  Think of how much more we could focus on if that were taken out of the equation because everyone knew that we had to live within a set budget.

Related posts:

1. States Surrounding Illinois React “with Glee” at Folly of Massive Tax Increase
2. My Thoughts on New Jersey Governor Chris Christie on Solving the New Jersey Budget Deficit
3. Illinois Considers Raising Income Tax Rates by 75% to Deal with Massive Debt
4. The Generation Skipping Transfer Tax Is Evidence of How Perverse the American Tax System Has Become
5. In the 8 Years Since the Bush Tax Cuts, Tax Revenues Increased 21.42% but Government Spending Increased 72.27%.
6. President Obama Proposes 50% Payroll Tax Cut for Workers and Small Businesses
7. How to Marry a Millionaire – An Economic Update on the 1953 Film
8. I’m In Love with the Millionaire South Korean Coffee Goddess Grandma
9. Health Care Reform Taxes Will Hit Top 1% of Households
10. Investment Taxes Matter More Than You Think