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?