A Heavy Hand

The problem with government intervening in the economy is that you often don't get what you expect.

Government inserts its hand into the proceedings and the end result is not what we were told would occur.

This often happens when the government decides that it needs to put more taxes on the "rich".

It targets the rich but the impact often falls on everyone else.

I am old enough to remember when President George H.W. Bush (breaking his "no new taxes" pledge) and the Democrats put a luxury tax into effect as part of a deficit reduction compromise package in 1991.

This tax was levied on material goods such as watches, expensive furs, boats, yachts, private jet planes, jewelry and expensive cars. Congress enacted a 10 percent luxury surcharge tax on boats over $100,000, cars over $30,000, aircraft over $250,000, and furs and jewelry over $10,000. The federal government estimated that it would raise $9 billion in excess revenues over the following five-year period.

The law was repealed less than two years later as thousands of workers lost their jobs in these industries. What happened? Instead of paying the tax the rich just stopped buying expensive cars, boats, aircraft, furs and jewelry. The tax did not hurt the rich. It did result in thousands of workers losing their jobs who made and sold these things to the rich.

The little revenue that was raised was more than offset by the taxes that disappeared as a result of the lost wages and the unemployment benefits that had to be paid to the workers who paid the price with their jobs.

The great economist Walter E. Williams explains why unintended consequences are so common when the "rich" are targeted in these tax raising schemes.

Congress repealed the luxury tax in 1993 after realizing it was a job killer and raised little net revenue. Why did congressional dreams of greater revenues turn into a nightmare? Kennedy, Mitchell and their congressional colleagues simply assumed that the rich would act the same after the imposition of the luxury tax as they did before and that the only difference would be more money in the government's coffers. Like most politicians then and now, they had what economists call a zero-elasticity vision of the world, a fancy way of saying they believed that people do not respond to price changes. People always respond to price changes. The only debatable issue is how much and over what period.

There is no better example of this right now than what is occurring in the New York City real estate market.

The New York Post recently reported that house prices in Manhattan are in a "near free fall" amid the imposition of new taxes on high end properties.

The implementation of an increased "mansion tax" on city homes that sell for $1 million or more became effective July 1. A previous 1% transfer tax on these homes has been increased to a progressive tax based on value that ranges to a high of 4.15%. A state transfer tax on homes that sell for $3 million or more was also increased from .4% to .65%.

The median price for homes across Manhattan has declined 17% compared to this time last year.

All of this comes on top of the fact that 25% of all the condos built in Manhattan over the last six years are unsold.

Many of the condos that are selling are being purchased by investors who are then putting the condos on the rental market. It is estimated that 30% of newly built condos that have been sold are being used as rentals.

Of course, the limitation of the deduction for state and local property and income taxes has clearly also had a major impact on the New York real estate market. Many just do not want to pay the taxes and put up with hassles that liberal policies are doing to New York City and its environs.

For example, New York City has recently updated its legal guidelines to make it discriminatory to use the terms "illegal alien" or "illegals" to refer to someone in the country illegally. Offenders can be fined up to $250,000 for each violation if they discriminate in employment, housing or other public facilities.

How would you like to be an employer in New York City? You are violating federal law if you hire an illegal alien but you can be fined $250,000 by the city if you refuse to hire one? Is it any wonder good, law abiding citizens want to leave.

Bloomberg reports that almost 300 people are leaving the New York City area every day. This is the most of any metro area in the country. It is more than double what it was a year ago.

Forbes reports that 1 million people have fled New York City's metro area in the last nine years.

Where are they going? Places with lower taxes, more jobs, lower housing prices, less government regulation and fewer hassles. Florida, Texas, North Carolina, Arizona, Tennessee are all popular destinations. What do they have in common? These states all went to Trump and the GOP in the last election. Florida, Texas and Tennessee also have no individual income tax

Of course, we now are hearing from the Democrats that a wealth tax is the answer to our problems. We will make the rich pay their "fair share" and all will be well.

When government inserts its hand into something you can be sure the effects will be felt far and wide with impacts much beyond what is promised.

The government has a heavy hand when they do anything.