President Obama has come out swinging, as the USA struggles to get its financial act together. A nearly $500 billion jobs bill has now been followed by a proposal to raise taxes on Americans making more that $1 million a year. Those on the left love the idea; those on the right have labeled it class warfare. In an effort to invoke an extremely rich dude who has strongly advocated that rich people pay more in taxes, Obama has taken to calling it the "Buffett Rule," after billionaire investor Warren Buffett.
I just want to know how much money it would bring in. And at a local level, roughly how many people in Southern California would get hit with the new tax, in the event that it actually gets passed. This isn't Kansas, after all — if you live in or around Los Angeles and San Diego, you are in a major millionaires region. In 2009, the Los Angeles metro area had almost 234,000 millionaires, according to statistics cited by the LA Times. I figure LA has even more now.
Washington Post blogger Ezra Klein has broken down some of the possible millionaire tax plans that have been floated in the past. The most aggressive of these, which would establish a new series of tax brackets for earners pulling in more than $1 million, was put forward by Illinois Democrat Rep. Jan Schakowsky. It could bring in a trillion bucks in ten years.
Los Angeles doesn't have the richest millionaires, in terms of income or net worth. But we're respectable. Let's just look at income. Beverly Hills reports an average of $1.4 million, which places it comfortably within the top 20 of millionaire neighborhoods for 2011. Those folks pay the current top rate of 35 percent now, but under the Schakowsky plan they'd go to 45 percent.
So you have to ask: Should millionaires gladly support this tax (taking inspiration from Buffett) or recoil in horror? Well, it depends on how millionaire they really are. If you're a millionaire in LA, living around other millionaires, a significant chunk of your income is going toward your millionaire lifestyle. This is particularly true if you're a millionaire who hasn't yet begun to draw serious money from capital gains — profits flowing from investments, which are taxed at a lower rate than money coming from, basically, wages.
It would certainly be patriotic for these struggling millionaires to collectively recalibrate their lifestyles so that the nation (and for that matter the state of California) can fix up its financial house. But they might run into some problems when they try to get the banks holding their mortgages and the private schools educating their kids onboard with the sacrifice. In fact, you could argue that taxing those who live in the lower reachers of millionaire-dom, particularly in millionaire-dense places like LA, would be counterproductive because those millionaires are categorically not the frugal "millionaire next door" types, but millionaires who are spending heftily and keeping the economy going through this very rough patch.
What makes more sense is to focus on capital gains. This is where super-wealth resides — where money is used to make more money. If you favor low tax rates on capital gains — and at 15 percent, they're now pretty low — you usually argue that the money will be invested and used to create jobs and grow the economy. It's clearly failed to do that since the financial crisis. So the case is now strong for raising the cap gains tax and using the revenue from what appear to be nothing more than passive wealth accumulation to pay its fair share and help solve the country's financial mega-riddle.
Bottom line is that the Obama millionaire tax sounds good, but it could be a tough sell, especially in places where millionaires actually live and make a substantial contribution to the economy. If we really want to attack the problem of wealth hiding from its responsibility to help remedy long-term unemployment and meager growth rates, we need to go after truly big money — capital gains riches that are currently not creating enough productivity to power us out of the Great Recession and its aftermath. Tax capital gains at the same rate as regular income — this was how we did things back when Ronald Reagan was president, by the way — and we'll be a long way toward restoring confidence in the economy.
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