Zohran Mamdani and the Tax-Hike Death Spiral
Burden the wealthy too much and they flee. That’s how socialists run out of other people’s money.
By Allysia Finley
Say this for Zohran Mamdani, New York City’s probable next mayor: At least the young socialist Democrat is candid about his intention to hike taxes.
Not so the state’s other Democratic leaders, who for years have paid lip service to making New York more hospitable for the wealthy and businesses while they do the opposite.
“I don’t want to lose any more people to Palm Beach,” Gov. Kathy Hochul said in June, one month after extending a tax hike on the state’s top earners.
“We’ve lost enough.”
Yes, New York has.
A report by the nonprofit Citizens Budget Commission this summer found that New York’s share of the nation’s millionaires fell 31% between 2010 and 2022.
The state and city would have collected some $13 billion more in personal income-tax revenue in 2022 had the share of millionaires kept pace with other states.
In 2019 Gov. Andrew Cuomo jeered in response to calls by progressives to raise taxes on the wealthy: “ ‘Tax the rich! Tax the rich!
Tax the rich!’ We did.
Now, God forbid, the rich leave.”
Two years later, Mr. Cuomo signed a law hiking taxes on the rich, increasing the combined state-and-city top rate to 14.8% from 12.7%.
God forbid, more rich left.
The former governor, running for mayor as an independent, recently defended the tax increase to the Journal editorial board.
It was a “temporary Covid tax increase because we were broke.
We closed the whole economy,” he said.
“There was nothing to trim and we had no revenue.”
Really?
State tax revenue had increased 9% between 2018 and 2020.
When Mr. Cuomo signed the tax increase in 2021, Democrats in Washington had just enacted a $1.9 trillion Covid relief bill that included $19 billion in direct aid for New York City and state, plus tens of billions more for mass transit, healthcare and schools.
And whose fault was it that the economy shut down?
Mr. Cuomo’s 2021 tax hike, like others before it, didn’t solve the state’s chronic fiscal problems, which stem from bloated welfare programs and rich benefits for government workers.
State Comptroller Thomas DiNapoli in August forecast a $34 billion deficit over the next three years—the largest as a share of state spending since the 2009 financial crisis.
This is despite frothy stock prices and frenzied financial deal-making that have buoyed Wall Street trader bonuses, capital-gains realizations and state income-tax collections.
The high times won’t last.
They never do.
When markets eventually correct, New York Democrats will be hankering for another tax fix to feed their spending habits.
Mr. Mamdani would need state approval to raise income taxes in the city, and Gov. Hochul has been cagey about whether she would go along with his proposal to impose a 2% surcharge on income over $1 million.
That would raise the top rate to 16.8%, by far the highest in the country.
A tax hike looks to be inevitable as long as Democrats control Albany.
Some Democratic legislators are admitting as much, though they are trying to deflect political blame to Republicans in Washington.
By their telling, federal spending “cuts” to Medicaid will soon leave them no choice but to hike taxes.
In truth, federal Medicaid spending continues to grow.
The GOP tax bill this summer merely ended the all-you-can-eat Medicaid buffet for states.
Democrats’ problem is that their insatiable spending appetite will always exceed the means to pay for it.
Raising taxes only drives away the businesses and wealthy taxpayers governments need to finance their generous welfare states.
Consider California. After revenues plunged during the 2008-09 financial crisis, Democrats rallied voters in 2012 to approve a supposedly temporary tax hike, which added three new income-tax brackets and raised the top rate to 13.3% from 10.3%.
Several years later, Democrats asked voters to extend the tax hikes through 2030, which they did.
A 2023 paper by Stanford economist Joshua Rauh found that out-migration by California high earners accelerated after the 2012 hike.
Reported taxable income by wealthy denizens who didn’t leave also declined, perhaps because they used other means to shield their income from higher taxes or reduced their business activity in the state.
The tax hikes thus raised 56% less revenue than expected.
Farther north, Democrats in Washington state in 2021 enacted a 7% capital-gains tax on high earners.
(The state otherwise has no personal income tax.)
Spending has outpaced revenue as rich Washingtonians, including Amazon founder Jeff Bezos, have left.
To close a gaping budget hole, Democrats this past May raised the capital-gains rate on top earners to 9.9%, increased the gross receipts tax on service businesses by 20%, hiked the estate tax to 35% from 20%, and expanded the sales tax.
Yet the state’s revenue estimates have declined by $412 million since the tax hikes were passed.
So Democratic lawmakers are talking of hiking taxes again.
Rinse and repeat.
The problem with socialism, as Margaret Thatcher observed, is you eventually run out of other people’s money.
Eventually, Mr. Mamdani will discover that too.
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