Mitt Romney's ultra-low tax rate on his ultra-high income is reviving questions about the breaks and perks that the wealthiest of the 1% receive from the rest of us. One of these is a special low tax rate for investments -- as if anyone needed special tax incentives to induce them to make a bundle.
High Incomes At The Top
How much does Romney make? We won't know until we get a chance to see his tax returns -- if we do -- but Romney described his $374,328 income from speaking fees last year as "not very much." If $374K is "not very much" of his income ... well ... at least we can understand why he feels he can casually make $10,000 bets as if he was just pulling a dime from his pocket.
In his post What Mitt's Taxes Could've Paid For (If Not For Those Cushy Tax Breaks), Richard Eskow writes,
1,470 households made more than a million dollars and yet paid nothing -- zero, zip, nada -- in Federal income tax in 2009.
...The top 25 hedge fund managers in the U.S. made $22 billion in 2010.
Low Taxes At The Top
Mitt Romney's admission that he probably pays a 15 percent tax rate shows us what is going on. For you or me, when our taxable income passes about $35,000, we start paying a 25 percent rate, much higher than Mitt pays on his millions on income. (That doesn't mean we pay 25 percent on money up to $35K, which is what most people think. It means any additional money we make after the $35K is taxed at that higher rate. If we make $35,001 we only pay an increase of ten cents. That's how tax brackets work.)
Lots Of Money To Use To Attack The Deficits
This special low tax rate on capital gains is sucking a lot of money out of We, the People's ability to pay for our schools, military, infrastructure, etc, which is part of why we are borrowing so much. How much? Continuing to steal from Richard Eskow's post,
As we wrote earlier, eliminating these tax breaks would add as much as $44 billion to our bottom line in the next ten years. Or to put it another way:
Ending cushy breaks for these 25 billionaires could also reduce the deficit by as much as $44 billion. Paging all deficit hawks!
In 2008 the taxable income of everyone earning above $100,000 was $3.4 trillion. If we concentrate our tax reform on the upper end of that spectrum -- the Romneys, not the folks in the $100-$400 thousand range -- we know that every percentage point in increased collection comes out to another $34 billion per year. That ain't chicken feed.
Why The Low Capital Gains Tax Rate?
The justification for a special tax rate for gains from investing capital is supposed to be to provide an incentive to invest. But there is already a really good incentive to invest: to make a bundle of cash. Piling a special "incentive" on top of making a bundle of cash creates market distortions -- moving investors away from deciding where to put their money based on the value and merits of the investment and toward tax-reduction schemes.
The necessary precondition for investing capital is having capital. So a tax break on the return from investing capital is by definition a break for the well-off. Here is the reality: capital gains are taxed at a lower rate because most of the income of the 1% is from capital gains, and most of the income of the 1% is from capital gains because the tax rate is lower. The "incentive to invest" should be making a good investment, period.
I'll bet you $10,000 that getting rid of this tax break helps fix the deficit, and leads to a saner investment climate. (Of course, I'm kidding, I think that is a lot of money.)
This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
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We need to simplify our tax code, while increasing the sliding scale rate to tax the ultra-rich much higher than they are today, as history shows us where it should be in our successful years of long ago.
Our economy and our businesses are stagnating due to the ultra-rich hoarding record amounts of wealth. That money needs to be circulating in our economy, and creating more jobs.
ALL money is "already taxed" including the money you pay your plumber with, and the plumber also pays taxes on that income.
Lower cap gains taxes certainly don't increase revenue. They might move it to different years, except at a lower rate, so actually the cost revenue.
Just because there are multiple layers of tax doesn't make it right. Earning enough to keep pace with inflation is hard enough taxing gains at 30-40pct makes it that much harder to fund retirement.
Cap gains revenue went up after the rate was lowered. It may be due to realizing the gains sooner but what happened before? Either the gains went unrealized, which left capital unproductive or the gain was avoided through tax havens.
On the passive side one can differentiate between primary investments in companies and assets that generate jobs and new growth and secondary and speculative trading.
On the active side it is a plus.Many entrepreneurs start with nothing, face a 95% fail rate, stress, underpayment for long periods and if they are lucky they succeed and so does the rest of society. Jobs, new business, new opportunities.
So yes lets REFORM the capital gains rate. Lets not just get out our ideological sledge hammer like the other side.
The author questions why we need to provide an incentive to invest. If he bothered to look at the components that make up GDP he would see that the segment that is down the most in our economy compared to periods of growth is private investment. It is those investments that expand businesses and increase employment.
Are you saying that we don't need to pay for roads and schools and military?
The federal, state, and local government takes in $5 trillion per year. We don't have enough to pay for those things with that much money? You know how much that is? Only 3 countries including ours have GDPs higher than that. It is 8% of world GDP and we have 4% of the world's population. Our government takes in twice as much from its citizens on average than the average person even produces worldwide. Yet this isn't enough money? It has to spend more than this by some 20% borrowing from future generations while implying that some "don't pay their fair share"? It seems like people in that situation are just trying to shift blame. Get people to ignore their waste.
How is that different from investing that $1 in oil futures?
Income is income. It should be equitably taxed.
If it was, my bucket making profits would be taxed less, since I wouldn't be subsidizing the tax obligations of oil futures investors.
Unlike my fine, American made buckets, your argument does not hold water.
In regards to taxes on corporations and small businesses I agree with you. The way that they are taxed AND all the bureaucracy discourage job growth in the private sector. How many people would start a new business or expand an existing one, but don't because it isn't worth the hassle of complying with bureaucratic red tape or it isn't worth the risk because the taxes reduce the potential benefit of taking the risk.
You may also have leveraged that asset any number of times to secure capital for other investments, deriving value from it there, too.
During the period you offer, real wages for most Americans were infation-adjusted flat to reduced. For those whose earnings are derived from investments, their inflation adjusted income has increased significantly.
We should get rid of stock options. it's a rip off of the government and of shareholders.
First low capital gains rates are set that way for a very simple reason. Inflation! If you purchase an asset for $100, hold it for 10 years and sell it for $130 how much money did you make? To the tax man you made $30. But if inflation is running at 3% annually then you actually lost almost 5% on your investment. Add in the 15% tax rate and you lose about 9% on your investment.
Summary: With 3% Annual inflation and 15% capital gains you need a 10% return just to break even on a 10 year investment.
Why no outrage over the 51% of households who paid no federal income tax? Why no outrage over the 90% of those households that get money back they never paid in?
Seems to me being worried about ~1400 households vs 60,000,000 households is a bit odd.
Then look at how upside down this country is. Everyone would need to start paying 20% MORE of their income in taxes.
The "Freeloading 50%-ers is a complete canard, and you know it.
You are confusing "tax avoidance" for "tax eligibility". 50% of American Households earn less than $4,000 per month to cover housing, food, clothing and everything else. Half of them do it on less than $2,000 per month for a family of four.
If you took ANY 1,400 frm that pool of 60,000,000 and offered them $1,000,000 and then told them they had to pay 99% of it in taxes, every one of them would jump at the chance, since it would double or quadruple their current earnings. Offer them 1/10th of that $1 million ($100K) and tell tax them 50% and they are still well ahead.
How many of the children living in those 1,400 households went to be hungry because there wasn't enough food to feed them?
The "Apples are round and horse droppings are round, so they must be the same thing, right?" argument is laughable on its face.
Cut it out, already.
By the way, when you go to work, you risk losing your *LIFE*. Granted, some jobs are much more dangerous than others, but...
You're upholding, wittingly or otherwise, that working for a paycheck is a lowly and inferior form of making money than is idle investing and legalized gambling.
eg lose money on a rental property but sell at a profit
vast intellectual & other resources are devoted to arguing the toss over this - its a bigger drain on the economy than u think
but... inflation has to be taken into account - what no govt wants to fess up honestly about