09/26/2012 02:49 pm ET Updated Sep 26, 2012

Obama Capital Gains Tax Policy Obscured By Romney Criticism

Mitt Romney's assertion in a "60 Minutes" interview Sunday that it was fair for a person earning $50,000 per year to pay a higher effective tax rate than the 14 percent he paid in 2011 ignited a good bit of criticism from Democrats in the days that followed.

The Obama campaign put out a web ad attacking Romney for having an insensitive worldview on taxes. President Barack Obama himself took a swing during a sit-down on "The View."

"I’ve just got a different vision about how we grow an economy,” he said. “I think … that you grow an economy from the middle out, not from the top down."

The attacks have largely obscured the fact that while Romney may think that lower tax rates on capital gains are fair, the president's plan includes only a modest increase. Obama has called for the capital gains rate to go up 5 percentage points, from 15 to 20 percent. (Romney has called for eliminating capital gains taxes for taxpayers with under $200,000 in income).

Obama's plan would put the level a bit over the average effective tax rate of middle class Americans, but not by that much. According to a Tax Policy Center analysis, the middle 20 percentile of income earners in America pay an average effective tax rate of 15.5 percent. A separate FactCheck.org article from 2010, however, said that if one includes federal payroll taxes, a teacher earning $50,000 who was single and had no children would have paid an effective tax rate of 25.3 percent.

So why not raise the capital gains tax rate higher than 20 percent? The first reason is that it may not be politically feasible to go higher. The second is that many Democrats have supported lowering taxes on capital gains in the past. One of them happens to be Vice President Joseph Biden, who was one of 92 senators in 1997 who supported President Clinton's balanced budget agreement which, in addition to making major changes to domestic policy, reduced the capital gains rate from 28 percent to 20 percent.

“As part of a balanced deficit reduction plan, President Obama and Vice President Biden are proposing to let the capital gains tax rate for the wealthiest Americans return to what it was under President Clinton and end the carried interest loophole that lets hedge fund managers and private equity executives like Mitt Romney pay a lower tax rate than many middle class Americans," said Obama campaign spokesman Danny Kanner.



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