Meg Whitman’s Voodoo Economics

At a time when California faces an annual budget deficit of $20 billion for the next three years, it would seem particularly reckless and nonsensical to propose a huge tax cut for the rich. But that is precisely what Meg Whitman is doing. Revealing her intention to govern California for the benefit of corporations and the rich and without regard to how that impacts everyone else, Whitman wants to eliminate the state capital gains tax, even though it brings in about $10 billion per year.

George Skelton took a look at Whitman’s plan and slammed it as “risky”:

Who pays the tax?

* People with adjusted gross incomes exceeding $500,000 pay 82% of the total capital gains tax. For them, 38% of their earnings comes from investment profits.

* These $500,000-plus earners amount to only 1% of taxpayers — or about 150,000 returns — but provide 48% of the total personal income tax.

* People with more than $200,000 in adjusted gross incomes — 4.4% of filers — provide 93% of the capital gains tax.

This is very clearly a tax cut benefiting wealthy Californians, who have no need of such a cut – especially when working Californians are struggling to afford to get to work thanks to Arnold Schwarzenegger’s mass transit cuts, struggling to afford health care thanks to cuts, and struggling to ensure their kids get a quality education, thanks to Arnold’s classroom cuts.

Another $10 billion hit to the state budget would mean $10 billion more in cuts to schools, transit, and health care. That’s money going out of the pockets of the working-class and middle-class and into the already fat profits of the wealthy.

How does Whitman justify such a naked transfer of wealth? Skelton again:

Whitman says that eliminating the tax would “spur innovation, which we have to own in California.”

But, I note, many people realize investment profits merely by buying and selling stock. That hardly induces innovation.

“Right, I agree with that,” Whitman says. But she adds that it is important to stimulate the creation and selling of companies, “to make it more attractive to live here, to keep people here, to keep companies here and them expanding here.”

This is complete and utter nonsense. California is in serious financial and economic trouble because over the last 30 years we have gone from a state that makes things to a state that manages money and profits off of rents. The former model of economic activity enables broadly shared prosperity; the latter model merely enables concentration of wealth and instability for everyone else. Which is of course exactly what we’ve seen happen in California.

A capital gains tax cut does nothing – absolutely nothing – to spur long-term job growth in California. In a globalized economy, those investors would be benefiting from profits made elsewhere in the world. It would reinforce, not reverse, the incentive for California companies to follow Carly Fiorina’s lead and offshore (or as she called it, “rightshoring”) jobs in order to increase corporate profits and shareholder returns.

There is no reason whatsoever to believe that this capital gains tax cut would create a significant number of jobs in California, aside from maybe hiring a couple more salesmen and mechanics at the Jaguar dealership or a few more seasonal staff at the Pebble Beach golf resort. Stable, prosperous, widely-available middle-class jobs are simply not created through these policies, as the last 30 years have proved.

Unfortunately, Skelton falls for Whitman’s approach:

I’d suggest we start by cutting the capital gains rate by a third, or maybe half. Not completely erase it.

This is just sad. But at least Skelton has helpfully provided the numbers that we need to show Californians how damaging Whitman’s reverse Robin Hood tax policies truly are.

3 thoughts on “Meg Whitman’s Voodoo Economics”

  1. “That’s money going out of the pockets of the working-class and middle-class and into the already fat profits of the wealthy.

    How does Whitman justify such a naked transfer of wealth?”

    This is the polar opposite of what’s happening. We’re not talking about money earned by the working and middle-class being transferred to the wealthy.  Capital gains tax takes money earned by the wealthy and redistributes it to those in need. Meg Whitman is proposing a halt to the naked transfer of wealth, not the other way around.

    I’m not opposed to a capital gains tax. Having the wealthy pay a higher share is the only feasible way for society to fulfill its moral obligation to care for those with the least among us.  We should, however, be honest with ourselves when debating these issues. It’s tempting to frame the debate as the rich stealing from the poor, but in the end this bastardizing of the facts can only serve to throw shrapnel into the marketplace of ideas.  

  2. Cutting tax for “capital gains” had a massive and disproportional benefit to the class that has the ability to structure their compensation packages.

    Cutting capital gains taxes means that the richest pay a smaller share of their income than the middle class.

    Class warfare by Meg Whitman.

Comments are closed.