President Obama met with leaders of left-leaning organizations, including Mr. Van Roekel, to discuss the “fiscal cliff.” After the meeting, Mr. Van Roekel appeared on Neil Cavuto’s Fox News show to discuss the budget deficit. Mr. Van Roekel told Mr. Cavuto that he had recommended taxing the top 2 percent more to deal with the problem. Mr. Cavuto then correctly explained that taxing the top 2 percent could not solve the problem because even with the increase, spending would still be growing far faster than revenues — primarily because of entitlement programs. After some back and forth, Mr. Van Roekel could not identify one item in the budget that he was in favor of cutting and kept insisting the problem could be solved only by taxing the top 2 percent, even though Mr. Cavuto again correctly and clearly explained that even taxing the top 2 percent at a 100 percent rate would not produce enough revenue because entitlements are growing faster than the economy. Mr. Van Roekel appeared to be unable to grasp this rather simple concept.
When you first study physics and economics, you learn the difference between constants and variables. You also learn there are very few constants — the speed of light being one. Most everything is a variable, in that most everything is affected by other things or actions. A majority of the leaders and voters in California seem to have missed this basic lesson. They voted for a whole host of new taxes, including increasing the state’s income tax to more than 13 percent. For most of these tax increases, the political leaders made the assumption that people will stay put and pay these taxes — hence, big revenue gains. But how likely is this? Gov. Jerry Brown has, in effect, said that state personal income is a constant rather than a variable. If you multiply a higher tax rate by a constant income you get a bigger number and — voila — more tax revenue. However, state personal income is variable, which Mr. Brown will learn in a painful way. People can move either their personal or economic activity to another state, another country or even cease working in the above-ground economy. California will continue to lose economic market share and its budget problems will only get worse. Read full column
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