If there’s one thing about a bad idea in politics, it’s that someone probably has had it before, and lessons learned have been promptly forgotten.
Case in point: The progressive calls for taxing those in the top income bracket at rates between 70% and 90%. Though the top 1% paid more in individual income taxes (37.3%) than the bottom 90% combined (30.5%), according to Bloomberg, which examined 2016 returns, that still leaves them with too much loot to suit the pols jockeying for Class Warrior of the Week honors. Nothing drives the point home on a campaign stop like the righteous cudgel of “it’s time for the wealthy to pay their fair share.”
But while some of those doing the punitive math are old enough to remember the early ’90s, a cautionary tale from the time seems to have been lost.
It was the first half of George H. W. Bush’s presidency, and the Milton-born man brought to the White House a springer spaniel name Millie, the penchant for shouting “Vic Damone!” to mark a win (usually at golf) and the promise of “no new taxes.”
That last one was a legendary gaffe. To ease a $200 billion budget deficit, Bush, with support of congressional Democrats, imposed a 10% luxury tax in 1990 on swanky goods, including yachts, expensive cars, luxury planes, jewelry and furs, in addition to other tax hikes. Sen. Ted Kennedy backed the move, in the spirit of getting the rich to pay their fair share.
It was not a “Vic Damone!” moment. The rich, it seemed, could make do with their old yachts and get another winter’s wear out of the mink and put the brakes on posh spending. Which in turn hurt those who make and sell posh things.
That luxury tax soon destroyed 7,600 jobs in the yacht industry, 330 jobs in the jewelry business and 1,470 jobs in aircraft manufacturing, according to the Joint Committee on Taxation. The lost jobs cost the government more than $20 million of income-tax revenue and cost the treasury another $2.7 million in unemployment compensation, according to a study by Republicans on the Congressional Joint Economic Committee.
And that was in the first year.
Bush repealed the luxury tax in 1992, again with bipartisan support.
If a 10% tax on a limited group of items can have that deleterious an effect on industries and jobs in such a short period, imagine the curdling consequences a 70% or 90% tax rate on high-income earners would have on the economy. “Soak the rich” may be a great slogan to spray paint on one’s skateboard, but someone has to manufacture, sell and provide the goods that would inevitably go unpurchased when said rich are duly soaked. Yachts, furs and jewelry, no doubt, but you can add the construction, travel, restaurant and a variety of service industries to those that would inevitably bear the brunt of spending cutbacks.
The tax spoils of the top tier are earmarked for free-for-all programs touted by some Democrats running for president. Sen. Bernie Sanders’ “Medicare for All” plan, paid for by tax hikes, including a higher rate for the rich, would up government health spending by $32.6 trillion over 10 years, according to the Mercatus Center at George Mason University in Virginia.
Sen. Elizabeth Warren’s free college and student loan forgiveness plan would cost approximately $1.25 trillion over 10 years, and puts her proposed Ultra-Millionaire Wealth Tax on the hook for the bill.
Back in ’91, the Joint Committee on Taxation predicted $31 million would roll in every year from that 10% luxury tax. The reality check came to $16.6 million, for anyone interested in a lesson on speculative budgeting.
