Tax Increases Yield Less Revenue Than Expected

This is not a surprise to anyone who understands the relationship between tax rates and tax revenue:

This year, New York's deep-pocketed rich were required to dig even deeper to help shore up state finances.

They now pay higher taxes on their income and on limousines and yachts, more to enter a horse in a race and more to dabble in real estate. Meanwhile, many are losing millions from the closing of business tax loopholes and those making over $1 million are losing tax deductions others get.

It even costs more to hunt foxes or pheasants and have their taxes prepared.

Now, a half-dozen states in this recession-driven movement are nervously eyeing New York to see if it's wise to demand so much from people rich enough to have a second home in less taxing states — and for whom a change of address can be its own tax break.

Early data from New York show the higher tax rates for the wealthy have yielded lower-than-expected state wealth. Gov. David Paterson, who had always warned targeting the rich could backfire, fears that's just what happened.

Paterson said last week that revenues from the income tax increases and other taxes enacted in April are running about 20 percent less than anticipated.

Increased taxes on an activity will result in less of that activity. It works that way all the time. Do you want more capital gains taxes? Don't increase rates, cut them. Cutting rates makes people more inclined to engage in capital creation activity, and the result will be an increase in real revenue.

It worked when JFK tried it. It worked when Reagan tried it. It worked when Bush tried it.

But in the world of lefty economics it's more important to punish achievement rather than do the smart thing economically.