Remember Willie Sutton? He was the depressed-era bank robber who held up about 100 banks over a 40 year career. When asked why he robbed banks, he was famously reported as answering, “Because that’s where the money is.” I thought of old “Slick Willie” today as I was listening to reporting on the fiscal cliff.
The president’s point man, Tim Geithner, has been saying on weekend talk shows that higher taxes on the well-to-do must be a part of any resolution with Republicans.
Presumably the White House team thinks the wealthy are “where the money is.”
I’ve got some news. That strategy to soak the rich may just not work. Consider Britain. After Gordon Brown’s government announced a plan to levy a 50% income tax on people earning a million pounds or more, the number of folks in that category got decidedly smaller.
Check out these numbers. The number of millionaire tax filers in 2009 was 16,000. By 2010, that number had dropped to 6,000. The government had pinned its homes on raising 2.5 billion pounds in new revenues but the law of unintended consequences took hold. Suddenly, there were 60% less billionaires.
Here’s the impact on government coffers.
Before the law changed in 2009-2010, British millionaires contributed 13.5 billion pounds, or 9% of the total tax liability of all tax payers that year.
What happened after the law changed? Millionaire taxes raised 6.5 billion pounds, or less than 4.5% of the total tax liability. Did 10,000 billionaires leave the country? Did wealthy people move some income into 2009 to get the benefit of a lower rate? Did they all get stung by a weak economy?
Look, any or all could have happened. The story is a warning signal for politicians in the United States; if they truly think to finance entitlement nation on the backs of the wealthy. They’d better think again. It’s just not that easy. We’d be better off creating a fairer tax system in which everybody has some skin in the game rather than trying to find “where the money is.”
By the way, how much do you think Slick Willie got away with in 40 years of robbing banks?
Just $2 million.
Gerri Willis is the host of "The Willis Report" (5PM/ET), a primetime program that covers the leading financial and political stories of the day and their impact on consumers. Click here to see more from Gerri Willis.