The LA Times has a predictable response to California Assembly Democrat’s proposal to raise income taxes on high earners:

The centerpiece of the plan presented by Assembly Speaker Fabian Nuñez (D-Los Angeles) is a $3-billion boost in education spending to be financed in part by a $1.8-billion increase in income taxes for the wealthiest Californians. It’s not a bad idea …

Yes, it is. As we pointed out yesterday, the proposed tax increase will finance approximately nothing, since the taxed will alter their behavior. The Assembly Democrats’ proposal is simply an expansion of the state’s deficit.

For a more sophisticated analysis, we turn to the Sacramento Bee’s Dan Weintraub:

In their budget presentations today, the Assembly Democrats claimed that their spending plan would leave the state $1.7 billion better off than the governor’s plan at the end of the next fiscal year. But $1.5 billion of that difference came from optimistic revenue projections involving state taxes, local property taxes, and federal funds. And if those hopes come true, they would be as true for Schwarzenegger’s budget as for the Democrats. So to be fair, any comparison between the two ought to credit those gains to the governor’s side of the ledger as well. That pretty much wipes out the difference in the bottom line between the two. And another $1.4 billion of the difference comes from the Democrats’ belief that they can raise the sales tax to pay for transportation with a simple majority vote in the Legislature, a move surel to be challenged in court if it ever happened. Take that maneuver away and the Dems are about $1.2 billion worse off than the governor — after raising taxes.

And even that analysis assumes that the Democrat’s projected tax revenue increase is realized — which it won’t. If the Democrats really wanted to increase revenue — rather than stage a stunt — they would decrease marginal rates:

(A 2000 study) by Jonathan Gruber (of MIT) and Emmanuel Saez (UC Berkeley) found an average elasticity of 0.4, which they think is about the mid-point of recent study results. Therefore, a tax cut creating a 10-percent increase in the after-tax share on marginal income will result in a 4-percent increase in taxable income. Gruber and Saez found substantially larger elasticities at higher incomes, indicating that the largest efficiency gains come from cutting the top tax rates. (source)

It would be nice if California’s largest newspaper called the Democrats on this absurd bit of theater. But that would require them to get past their instinctive reaction: “Increase taxes … good idea!”

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This entry was posted on Thursday, June 2nd, 2005 at 10:25 am by A Senior Administration Official and is filed under California Schemin', Los Angeles Times, Media, Your Tax Dollars In Action. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.