WASHINGTON — The late, great Jessica Walter once said in her “Arrested Development” role as matriarch of the fallen-from-grace Bluth family: “I’d rather be dead in California than alive in Arizona.”
President Joe Biden’s tax proposals are about to put Lucille Bluth’s maxim to the test, as the White House pushes the biggest tax increases since President Lyndon B. Johnson was waging dual wars in Vietnam and on domestic poverty. It’s happening amid the thinnest of partisan margins for Democratic leaders and a midterm cycle some say is the GOP’s to lose, given redistricting and historical headwinds facing a president’s party.
There’s little institutional memory of the last tax increase anywhere near this size that Democrats carried alone, in 1993, and the midterm wipeout that followed; only 32 Democrats out of 268 currently serving in Congress were around for that experience.
“My very strong preference would be to do as much of this as possible in a bipartisan way, and one of the reasons you do that is so the blame game doesn’t happen as severely in 2022,” said former Sen. Mark Pryor, D-Ark., who lost in 2014 to Republican Tom Cotton.
Biden and top Democrats appear to be giving bipartisanship a go, for now. But they’re already laying plans for another filibuster-proof reconciliation bill to ram through their package on a party-line vote, as in 1993.
The pain would be concentrated in Democratic strongholds. Biden’s average margin of victory was almost 29 points in the 50 richest House districts by 2018 adjusted gross income, according to IRS data. Connecticut, New York, Massachusetts, California and New Jersey had the most millionaires per capita, and accounted for nearly 40% of U.S. millionaires’ total capital gains.
For those earning over $1 million, the top rate on capital gains and dividends would nearly double to 43.4%, the highest since the 1920s. In California, the rate would hit nearly 57%, the Tax Foundation estimates; in New York City, 58%.
Nearly a quarter of California’s individual income tax burden is already shouldered by those earning more than $5 million, with almost half of that group’s income coming from capital gains. California and New York households making more than $1 million account for roughly 40% of state individual tax receipts. In New York City, the figure is closer to 50%, even before Albany’s recent tax increase deal.
“If you have just 50 of the highest-earning people leave, it will have an effect,” said E.J. McMahon of the Empire Center for Public Policy in Albany. “And this is a policy basically telling people, ‘If you’re on the curb, jump off — get lost.’”
It’s not just coastal areas that will get hit, said the S Corporation Association’s Brian Reardon, who represents privately held firms.