The Rich Really Are Different: Their Incomes Fluctuate More

Robert Frank points out that a lot of the reason states are in so much trouble is that many have become incredibly dependent on high earners for their tax revenues:

Nearly half of California's income taxes before the recession came from the top 1% of earners: households that took in more than $490,000 a year. High earners, it turns out, have especially volatile incomes--their earnings fell by more than twice as much as the rest of the population's during the recession. When they crashed, they took California's finances down with them.

Mr. Williams, a former economic forecaster for the state, spent more than a decade warning state leaders about California's over-dependence on the rich. "We created a revenue cliff," he said. "We built a large part of our government on the state's most unstable income group."

New York, New Jersey, Connecticut and Illinois--states that are the most heavily reliant on the taxes of the wealthy--are now among those with the biggest budget holes. A large population of rich residents was a blessing during the boom, showering states with billions in tax revenue. But it became a curse as their incomes collapsed with financial markets.

This is one of the reasons that we can't fix all our budget problems with higher taxes on the rich--if we do that, revenues are going to collapse dangerously every time there's a recession.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

The Blacksmith: A Short Film About Art Forged From Metal

"I'm exploiting the maximum of what you can ask a piece of metal to do."

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Video

Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."

Video

An Ingenious 360-Degree Time-Lapse

Watch the world become a cartoonishly small playground

Video

The Benefits of Living Alone on a Mountain

"You really have to love solitary time by yourself."

Video

The Rise of the Cat Tattoo

How a Brooklyn tattoo artist popularized the "cattoo"

More in Business

Just In