"Corporations are people, my friend... of course they are.
Everything corporations earn ultimately goes to the people.
Where do you think it goes."
Companion Pieces:
Warren Buffett on "Class Warfare":
http://www.nytimes.com/2006/11/26/business/yourmoney/26every.html
http://www.nytimes.com/2006/11/26/business/yourmoney/26every.html
Buffett interview: “All my secretaries pay a higher tax rate than I do.”
Mitt Romney:
(Accidental) class traitor?
Posted by Ezra Klein - 01/18/2012
To be fair to Mitt Romney, it's not his fault that he pays a 15 percent tax rate. This isn't some complex, accountant-driven tax scam. First, it's the fault of President Bill Clinton and a Republican-led Congress who, in 1997, lowered the capital gains rate from 28 percent to 20 percent. Second, it's the fault of President George W. Bush and a Republican Congress, which lowered the rate to 15 percent in 2001. As far as we know -- and we haven't seen his full tax returns yet, so all this is provisional -- Romney is paying the tax rate that our duly elected representatives told him to pay. If we don't like the law, it's the law that needs to be changed.
But if I were a rich investor paying 15 percent every year, I would be a bit peeved at Romney for running for president in the first place. We had a good thing going, man! Most people think the tax code is, on the whole progressive. They know there are higher marginal rates than the ones they pay. And most people don't spend much time thinking about the implications of the fact that many of the richest Americans in the country make their money through investments rather than wages.
In fact, the code does not end up being progressive. Or at least not as progressive as we think. The Congressional Budget Office collects data on the "total effective federal tax rate." That's the tax rate that people actually pay to fund the federal government. It includes not just income taxes, and capital gains, but payrolls taxes and excise taxes. And what it shows is that the tax coe is progressive at the lowest levels and regressive at the highest levels. The middle class, however, ends up having a bad time of it.
In 2007, taxpayers making less than $34,000 paid a 6.4 percent tax rate. Those making between $34,000 and $50,000 paid 13.5 percent. between $50,000 and $75,000, the rate rose to 16.3 percent. So far, so progressive.
But then the progressivity just...stops. If you make $75,000 to $103,00, you're paying 20.8 percent. If you're making between $103,000 and $142,000, you're paying 21 percent. If you're making between $142,000 and $353,000, you're also paying 21 percent. If you're making more than $353,000, your tax rate actually falls a bit, to 20.7 percent. And if you're one of the 400 richest taxpayers in America, your rate falls all the way down to 16.6 percent -- in no small part due to capital gains taxation. (Data -- and a graph -- here.)
(Chart: Center for American Progress)
This, by the way, actually overstates the progressivity of the total taxes most Americans pay, as state and local tends to be more regressive. Add them in and the share of the tax burden paid by the poor and middle class rises.
There are good policy arguments for taxing capital gains at a lower rate. David Frum makessome of them in his column today. There are also good arguments against it. Warren Buffett has been making them for a long time. But the conversation Romney's taxes will kick off is whether there's a good policy argument for the rich to pay such low effective tax rates amidst a code that is supposed to be, and widely thought to be, progressive, and in a time of skyrocketing inequality. The realization that Romney is paying 15 percent now may end up being a major reason he, and others who make the bulk of their money, are not paying 15 percent five years from now.
Top stories
1) Mitt Romney's effective tax rate is near 15%, report Phil Rucker and Lori Montgomery: "Mitt Romney bowed to political pressure on Tuesday by promising to release his federal income tax returns, while estimating the rate he pays at about 15 percent and placing himself among the wealthiest Americans who earn most of their money from past investments. Romney’s disclosure underscored the Republican presidential front-runner’s discomfort with talking about a key aspect of his biography — his money — and reignited the debate over whether his multimillionaire status makes it hard for him to relate to middle-class Americans. Romney’s Democratic and Republican opponents alike pounced on his revelation by saying he has benefited from a basic unfairness in the tax structure. And as President Obama looked to Romney as his likely general-election opponent, the White House and its allies tried to stoke populist anger over income inequality by casting Romney as an out-of-touch multimillionaire. Romney seemed to strike another clumsy note when he described his income from speakers’ fees — about $370,000 in a single year — as 'not very much.'"
WONKBLOG EXPLAINS: How, exactly, is Mitt Romney’s tax rate so low? .
@BCAppelbaum: It seems implausible that Mitt Romney does not know (or could not ascertain) his actual effective tax rate.
@nickconfessore: Nota bene: Romney's economic plan would extend the Bush-era 15% rate on capital gains.
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