The miracle on easy street: Top tier accepted tax message

by Dane Smith, Growth & Justice • Another big projected state budget shortfall will soon be revealed to us. And sure as lake ice in December, there will be solemn declarations that we dare not punish the successful and that it is simply unacceptable to restore even modestly higher tax rates on top-income households in Minnesota. Before the knee-jerking begins, please take a look at some startling results from Election Day exit polls in Minnesota. A high-profile candidate- who openly and clearly said he would raise federal income taxes on the very wealthiest households - actually performed almost as well among those same top-income voters as he did in the general electorate, according to the CNN exit poll results from Minnesota.

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Among Minnesotans with incomes in excess of $200,000, Barack Obama got 54 percent of the vote and John McCain 46 percent. McCain, with concerted counter-attacks against “redistribution” and damaging Joe the Plumber, did a little better among the larger affluent group, which might be described as “merely well off.” Among those with incomes between $150,000 and $200,000 (about 5 percent of those polled) McCain won by 53 percent to 46 percent. And among all voters who said they earned more than $100,000 (about a fourth of the voters polled) McCain and Obama were almost dead even, nationally (49 percent to 49 percent) and in Minnesota (McCain 50 percent, Obama 49 percent). Let’s reassess this historic moment. Obama told the wealthiest people in America - without too much blaming or overt class hostility - that he would raise taxes on those making more than $250,000. He explained that it would be needed to restore fairness and the long-term economic security and health of the nation, and that investments were needed for the public good. And the wealthiest voters turned around and voted for him, almost in proportion to his overall victory margin. A consensus has long held, even among progressive opinion leaders, that it is suicidal to be perfectly honest in election campaigns about the need for tax increases, no matter how reasonable the case, no matter how clearly one explains that taxes have been cut too deeply, no matter if wealthy folks pay a lower percentage of federal-state-local taxes overall, no matter if the common good really is at stake. Walter F. Mondale’s bold assertion in 1984 that both he and Ronald Reagan would raise taxes - but that Reagan was not honest enough to say so - is the most frequently cited example of the futility of honesty. One of the lessons of history is not to get too dogmatic about the lessons of history. And commentators have been prolific trying to figure out why Obama out-performed previous Democrats by such wide margins among the most affluent.. His personal popularity among voters with higher incomes and educational attainment, as well as with people of color, the young, and those on the lower end of the income scale, has been the source of wonder from the beginning of his campaign some 18 months ago. His following among the elites even allowed some conservatives to label him as the elitist in the race, an interesting leap considering an upbringing and personal circumstances that were far less advantageous than his key opponents in the primary and general elections. The shock and awe at the wealthy’s voting behavior spawned a Newsweek headline, “What are Rich People Thinking,” and writer Daniel Gross wondered in print whether somebody might be writing a book “What’s the Matter with Greenwich?” (Or “What’s the Matter with Wayzata,” to localize.) The Greenwich reference is a take-off on the seminal book, “What’s the Matter with Kansas,” which explored why voters in red states actually tend to be worse off economically and benefit more from the federal government and the public sector than blue states, yet harbor anti-government sentiments and vote against their own economic interests. Surely, lots of complex, inter-related, personal, cultural and economic factors explain why the top-enders ignored the warning that their taxes likely would be increased. Some speculate that wealthy folks don’t think Obama will or can follow through on his promise. Others say the collapse of stock prices and deep deterioration in the economy simply overwhelmed all other factors. But one obvious possibility is that wealthy Americans and Minnesotans are coming around to the idea that their long-term economic interests are not served by growing inequality and inflexible, anti-tax, anti-government policies. Wall Street Journal columnist Robert Frank, author of the book “Richistan,” an exploration of the culture and the explosive growth of the super-rich households, surmised that “the wealthy, like many voters, may have placed a higher emphasis on the state of the nation than the state of their wallets. Even though their taxes may be going up, their greater priority may be…to fix the economy, education, health care, the wars in Iraq and Afghanistan, and overseas relations.” More than two years ago in Minnesota, some 200 very successful, affluent, and far-sighted Minnesotans took out a full-page newspaper ad, in which they boldly stated: “We Can Afford to Pay More State Taxes: And We Can’t Afford Not To.” This effort was sponsored by Growth & Justice, the think tank where I now work. We argue that the historic tax cuts of the late 1990s, especially the steep income tax reductions, have resulted in less fairness and a debilitating disinvestment in the public good, in the human capital and infrastructure that made for a flourishing Minnesota model of widely shared prosperity. Our public sector now is about 7 percent smaller than it was in the prosperous ‘90s and our ranking on total public revenues as a percentage of income has fallen to about 30th place, down toward Kansas levels. This week, we will be told by state budget forecasters that we could be $2 billion to $4 billion short of revenues over the next two years. And immediately, some will say that tax increases are “off-the-table” as a solution and that any further obligation by top-end earners will be bad for the economy. The 2008 exit poll results strongly suggest that many actual citizens in that group think otherwise. As the Wall Street Journal’s Frank put it: “Like Warren Buffet, some of the wealthy may feel it is time to raise their own taxes for the betterment of the country (and that) a shared sacrifice among the rich is necessary to get the American wealth-creation machine moving again.” Dane Smith is the president of Growth & Justice. A non-partisan advocate for fair taxation and smart public investment, Growth & Justice believes a sustainable economy provides the foundation for a just society. Originally published on 12/1/08.