The limits of taxing "the rich". (Scan).

"Soak the rich" rhetoric has been part of American political discourse for as long as I can remember. Democrats and liberals usually insist that the rich should pay more taxes. But the tax dilemma of California Governor Gray Davis shows there are practical limits to this strategy.

Governor Davis, of all people, recently called attention to the fact that the rich already pay most of the income taxes in California. And he noted that California's tax revenue has become extremely volatile precisely because the incomes of rich people fluctuate up and down a lot.

The state's treasury did very well during the dot-com boom, when California collected enormous taxes on capital gains and other investments. But this December, after he was safely re-elected, Davis began arguing that California needs a source of revenue that is not dependent on such volatile sources of income. We can't allow the welfare of the entire state to rely upon the fortunes of a handful of very rich people, he suggested.

You might ask why California needs more money. Unfortunately, Governor Davis spent the flood of tax revenue that came in during the dot-com boom--adding 44,494 new state employees to the payroll. Now that the incomes of the very rich have dropped off sharply with the stock market, Davis is frantic for new funds. (Cutting state government is barely on his radar screen.)

I was intrigued as to where a liberal Democrat like Davis might be going with his warning that pressing the rich harder wasn't the way to go. After all, at the very moment he said this, Democrats at the national level were attacking George Bush for being too easy on the wealthy.

But the bare facts show what motivated Davis. Both in the state of California and at the federal level, the reality is that the rich pay the lion's share of taxes. In California, taxpayers with adjusted gross incomes over $100,000 make up the top 11 percent of ...