A couple of months ago, Meg Whitman released a glossy magazine she called Meg 2010: A New California. (It wasn't very detailed. Every third page was just a picture of a farm or Meg Whitman wearing safety goggles. So a lot of the plan involves protecting your eyes from fruit.) But it did include seven little words that will cost our bankrupt state between four and six billion dollars:
ELIMINATE THE STATE TAX ON CAPITAL GAINS
This week, Meg issued the second edition of her magazine. She's tweaked it a bit since she won the Republican nomination, and as she tacks to the center. (Gone are a whole series of ideas for making life miserable for illegal immigrants, for instance.) But she's sticking by the single most expensive proposal of her campaign: The total elimination of the state income tax on Meg Whitman.
She's also made a teeny-tiny adjustment to the justification for cutting her own taxes to zero, and changed it from a sleazy trick to a blatant lie, but I'll get to that in a minute.
The thing you have to understand first is that California taxes two kinds of income the same way. Capital gains, like Meg Whitman makes, and wages, like a nurse makes. Last year, Meg paid 9.3% on whatever she earned from a billion dollar fortune, not counting what her charitable trust hid in the Cayman Islands.
A nurse making $47,056 also paid 9.3%
Sounds fair, right?
So here's Meg's new plan: The nurse still pays 9.3% but Meg Whitman pays 0.00%
(When the first report came out, I guessed that the plan would cut Meg's taxes in half. I got that number by looking up how the average rich person earns their money: about half from wages, half from investments. Meg promised to release her tax returns - that was March - and since she hasn't, I'm going with a higher estimate. I'm ready to guess that none of her income comes from wages. It all falls in the new tax-free category. Unless she has a shift at Del Taco we don't know about.)
Since we don't have Meg Whitman's tax records, and we'll be getting them when hell freezes over, we don't know how much her Rich Eat Free tax giveaway will save her. But we can guess.
Let's say Meg has her billion dollars in a Bank of America Growth Maximizer Savings Account. Last year, married, filing jointly, her California state income tax would have been $90,843. I'll bet Meg did a little better than that. She knows all those insider trading guys from Goldman Sachs. So let's say her investments paid about the same as ten-year treasuries. If she made 3.75%, her California state income tax was $4,295,230.
Under Meg's plan, it would go down to zero.
On average, a really experienced California nurse makes $62,400. Her state income tax is $2,032. Under Meg's plan, it would go down to $2,032.
Another way of looking at these numbers: Meg Whitman's tax cut will save Meg Whitman four million dollars a year, basically even if she just has her money buried in the stable. It will save the average working Californian sweet F all.
And it'll cost the state billions.
It's going to take a lot of TV ads to make that sound like a good plan.
--
Okay, so here's what's changed about the justification for the tax cut in the new issue of Meg Magazine.
ELIMINATE THE STATE TAX ON CAPITAL GAINS
California is one of a few states in the country that doesn't tax capital gains at a lower rate than traditional income.
This trick figure comes from the fact that in some states the tax on capital gains can't be lower than the tax on traditional income because they're both zero. Another way to look at this stat: 41 states tax capital gains and traditional income (wages) at the exact same rate. So by "a few" she means 4/5ths.
This is double taxation at its worst.
This is horseshit at its most specious. Everything gets taxed over and over. Meg pays the liar who writes lies for her. That's taxed. He pays the therapist who helps him live with the guilt. That gets taxed. The therapist buys liquor. That gets taxed. Double taxation isn't an economic argument. It's just something Frank Luntz made up one day to mess with Joe the Plumber's head.
California's tax treatment of capital gains is a major impediment to capital formation and investment in new jobs.
For example, if a billionaire didn't have to pay taxes, he could hire you to express his dog's anal glands. And you could pay taxes.
We should align California's tax treatment of capital gains with other competing states.
There's nothing to "align" with. There are no states - not a single one - where they tax income and don't tax capital gains.
I didn't think catching this slippery crap was a major piece of investigative journalism. All you need is a map, a dictionary and sense of decency. California taxes traditional income and capital gains at the same rate. Just like Nevada. You're free to not like it, but you can't say it's not fair, unless you change the facts.
So they did.
Here's how the paragraph reads in the new edition:
ELIMINATE THE STATE TAX ON CAPITAL GAINSCalifornia is one of a few states in the country that taxes capital gains at a higher rate than traditional income...
I give up.