REVIEW & OUTLOOK
McGreevey's Millionaires
If you make $500,000, you've got New Jersey's governor seeing double.
Maybe it's New Jersey's version of the New Math. But Governor Jim McGreevey has made it official: People in the Garden State who earn $500,000 a year are now "millionaires."
Alas, this doesn't mean that things are so good that people are about to double their incomes. To the contrary, it means that if you make $500,000 you qualify for the new "millionaire's tax" Mr. McGreevey is betting the Democratic-controlled legislature will approve. Given what we're seeing in Virginia and hearing from John Kerry at the national level, what's going on in New Jersey today looks like a rehearsal for what will happen if Democrats retake the White House come November.
Let's put aside the obvious: That the tax hikes passed by a Democratic Governor in Virginia and now proposed by Mr. McGreevey violate pledges not to raise taxes made by each during their respective campaigns. We've not been shy about faulting Republicans from Connecticut and Ohio and Alabama who've also sold tax increases as solutions to their states' fiscal woes, often breaking their antitax campaign vows too. The thing to note about the Democratic proposals is that they are part of a political strategy to raise taxes by pretending they will do so only on the rich.
Look at Mr. McGreevey, who no doubt remembers that it was the tax hikes imposed by New Jersey's last Democratic governor, James Florio, that delivered the state to Republicans in the early 1990s. He recognizes that New Jerseyans now pay the highest property taxes in the nation, and that they've risen 14% in the two years since he's been Governor. But instead of seeing this as a burden that inhibits growth and opportunity, his choice is to keep property taxes high, offer rebates to make people feel a little better while plotting to jack up the rates elsewhere. Thus the "millionaire's tax" ruse.
The McGreevey proposal would raise the top marginal income tax rate to 8.97% from 6.37%, and he defends it by claiming it would apply only to 28,000 people, or 1% of all Jersey taxpayers. But people who earn that much tend to be highly mobile and can leave the state for lower tax climes. When they do, revenue comes in lower than expected, so the higher rates are gradually applied to more people as incomes rise ("bracket creep") or as "millionaire" is defined ever lower.
Back in 1992, Bill Clinton also campaigned for a "surcharge" on millionaires. Cut to February 1993. Here is the lead sentence in the Reuters story about his first big economic speech after winning election: "U.S. President Bill Clinton's plan to seek higher taxes from everybody making more than $30,000 a year means even George Bush underestimated how far Clinton would take tax hikes if elected." His tax proposal ended up slapping his "millionaire surcharge" on anyone who earned more than $250,000.
Mr. Kerry's similar promises to reverse the Bush cuts by targeting only the "rich" suffer from the same illusion that there are enough millionaires to finance the spending ambitions of the political class. But there never are. Just as the estate tax was designed to hit only the Rockefellers but has ended up engulfing mom-and-pop storeowners, so the "millionaire's tax" always creeps down sooner or later to soak the middle class. Because politicians know that's where the real money is.
