Romney may not like government, but he loves its tax subsidies

Former Massachusetts Gov. Mitt Romney has at long last revealed his tax rate, which he says is “probably closer to 15 percent than anything,” largely because his income “comes overwhelmingly from some investments made in the past, rather than ordinary income or earned annual income.”

Two points. One, generally speaking this isn’t a product of the ingenuity of Romney’s expensive tax accountants. Over the past 30 years, Congress has gradually lowered the top tax rate on capital gains from 40 percent in 1977 to the preferential rate of 15 percent today. In fact, the only significant increase in the capital gains tax rate in the last few decades was when it was paired with an even larger tax cut for high-income earners, a reduction in the top rate for ordinary income from 50 percent to 28 percent. (It should be noted, however, that Romney does benefit from the carried interest loophole, a defect in the tax code that allows private equity and hedge fund partners to reclassify their compensation as capital gains and thereby enjoy the 15 percent rate on all of their income, not just their capital income. But this loophole only exists because capital income enjoys a preferential tax rate in the first place.)

Second, this is a tax rate that most Americans would love to pay. According to the Tax Policy Center, an average family of four pays about 20 percent of its income in federal taxes (taking into account the employer-side payroll tax). This family’s tax rate will likely rise further if, as Romney’s tax plan calls for, the recent expansions of the EITC, the Child Tax Credit, and the Hope Credit (renamed the American Opportunity Tax Credit) are allowed to expire. Speaking of the Romney tax plan, 80 percent of its benefits would go to taxpayers like himself with income over $200,000—the same people that already disproportionately benefit from the preferential tax rate on capital income.

This gets to a more fundamental question: Why is the government favoring Romney’s income over that of most Americans? After all, it’s not like he’s been working recently—he’s been running for president for the better part of five years. And even if he did have the time to actively manage his investments, he’s not able to because they’re in a blind trust. As for the risk factor, sure he’s risking his capital, but he’s not bearing any more risk that most households in this economy face. So tell me again, why is it so important for the government to subsidize rich people like Romney at the expense of average American households?


  • Jassetts01

    It isn’t.

  • Rkurts

    that answer would be the same for the bank bailouts (too big to fail), big oil subsidies and I am sure I could ramble on. I do hope we get some intelligible answer before the end of the world.

  • http://profile.yahoo.com/DX6KW5M72CXWS3AE33RNJTMBQI GioW

    The formal reasoning is that that dividends and Capital
    gains taxes amount to double taxation, since corporations have already paid
    taxes on their earnings, and they are now just distributing the remaining
    profits.
    The practical effect differs. The corporations. especially if they have
    divisions domiciled in Tax havens (mailbox 903), are successful in paying no or
    minimal taxes, so that facts don’t match the theory of double taxation.

    My solution, which everyone will hate is to do away with corporate income tax.
    Then companies that can use tax havens won’t be favored over the ones that
    don’t. The double taxation argument becomes moot, and dividend and capital
    gains income can be charged at the same rate as everyone else, 35% if the
    income is high.

    The Democrats will hate my proposal now because they believe that corporations
    should contribute – true, but they don’t, and none of Obama’s advisers know how
    to actually change corporate behavior.

    The Republicans will hate my proposal now because now the justification for
    their favorite loophole has been removed.

    The Tax havens will hate me because now there is no reason for corporations to
    use them, the corporations might as well leave their earning in the US, and maybe invest them there.

     

    • Ethan Pollack

      GioW, thanks for the comment. There is, in fact, another reason to be skeptical of your proposal: tax avoidance. If the corporate rate is zero, I could just self-incorporate into Ethan Pollack LLC and have my employer pay that corporation instead. Not only would we lose massive amounts of revenue to this tax avoidance scheme, it would likely be extremely regressive as well, as the lower the income, the less likely it is that the worker is in a position to renegotiate his employment arrangement into a contracting position.