Mitt Romney garnered considerable media attention by his rambling answer to the question of whether or not he would make his tax returns public. While Mitt should have just said “yes”, he eventually noted that he probably paid at a tax rate of about 15%. He did note that he probably paid a higher percentage on his speaking fees, but he said he didn’t make much from that-a mere $374,328 last year.
While the capital gains tax caps at 15%, income tax caps at 35% (for those who have a taxable income of over $388,350). By way of comparison, a person who earns $8,701-35,350 pays 15% income tax. Naturally, the actual percentage will vary based on factors such as deductions. However, it is certainly interesting that someone like Romney (who makes a fortune from capital gains) pays at the same rate as a person who makes vastly less by working.
The stock justification for this disparity is that it is intended to promote investment and that investment drives the economy. However, the fact that other income (like paychecks) can be taxed at much higher rates would seem to indicate that working for a living is regarded as less important than receiving profits from investments. This does seem to be something of a mistake: after all, without people actually doing things, there would be no point for the capital investments. That is, there would be no actual things to invest in (well, other than the arcane results of financial engineering). As such, if the low tax rates on capital gains are intended to promote investment, it would seem that comparable tax rates should be placed on other income to encourage people to work.
After all, it has been common for politicians and pundits to claim that higher tax rates on capital gains will destroy job creation because job creators will be de-motivated from investing. However, that logic would seem to entail that the higher tax rates on other income should also de-motivate people. That is, people should stop working because of the higher tax rates. Perhaps this explains the unemployment numbers-just as the pundits predicted, taxes have destroyed their motivation to create value. In fact, if the pundits are right, it is a wonder that anyone who makes more than $35,350 goes to work at all-after all, they have to pay more than 15% and this is the level that is apparently deemed to be the maximum percentage that investors can tolerate.
This disparity not only indicates the perceived value of work versus investment, but also the political influence. Those who derived most of their income from capital gains (like Mitt Romney) tend to be wealthy and generally tend to have far more influence than those who merely work for a living. Also, there is the obvious fact that the folks who write the laws tend to be heavy investors as well. As such, the tax laws are written to benefit the wealthy-which is hardly shocking. While the wealthy do have to pay some taxes, even this modest burden is seen as grotesquely unfair by some of them and some of their stalwart allies (who also tend to be wealthy). Romney is a natural poster boy for the incredible disparity in American incomes and his various comments nicely show the disconnect between most of the top 1% and the rest of America.
I still remember the guy who claimed that work was actually a trade–I do something for you, and you give me money–and not income, so he refused to pay any income taxes. He went to jail.
Reminds me people who manage investments (not sure on the specifics of what types exactly) and their sweet “we’re not paid income, we are paid dividends” deal they have with the government so their tax bracket is automatically lower.
Also, Mike beware of the difference between tax bracket and effective tax rate. People in a specific tax bracket will never pay percentage in tax (unless they somehow earn exactly the largest amount possible in the smalled bracket and that brack forces you to pay $) simply because of how tax brackets works.
Anon makes a good point about the people who get paid a fee for managing money–these fees should be treated as regular income, and not dividends or capital gains.
On the other hand, I think we need to be careful not to go overboard in terms of demonizing the financial sector. I think a strong case can be made that innovations in the financial sector have contributed greatly to the overall wealth of our society.
Finance does have a role. But finance needs workers more than workers need finance.
I don’t need to demonize the financial folks-many of them have glued on the horns themselves.
Yet these people should be held to the highest ethical standards, and when they are dishonest they need to go to jail.
“. . .they need to go to jail.”
Agreed. Can that happen without clear, relevant, enforceable (and enforced) regulations in place based on those ethical standards?
I have no problem with “clear, relevant, enforceable (and enforced) regulations” — I just wish we had some.
Unfortunately there are very few clear things about the financial sector itself which doesn’t really promote “clear” regulations unless you want to be accused of “anti-business” or “anti-progress” (progress in the financial industry’s sense of creating new products that few people understand at all).
We’ve had since early in the Nineteenth Century to get it right.
I’d be willing to bet that what anon says @1:12 (the “anti-business” or “anti-progress” argument) has, since the very beginning, been a factor in the failure to establish the kinds of regulations I’ve described.
This is more typical of my experience with government regulation:
Sharon Smiley had worked for 10 years as a receptionist and administrative assistant at a Chicago real estate company until she was fired for skipping lunch one day. After a two-year battle, an appeals court in Illinois has found that denial of her unemployment benefits was “clearly erroneous.”
Smiley, 48, punched out of work for lunch Jan. 28, 2010, but remained at her desk to finish a project assigned by a manager because she did not plan to eat that day, she said.
Smiley, who had passed her 10-year anniversary with the company more than a month before, said another manager told her it was time for her to go to lunch and step away from her desk, but she refused. That manager observed Smiley working on a spreadsheet on her computer, answering the phone and responding to questions by people who approached her desk, according to a filing from the appellate court of Illinois.
Her former employer, Equity Lifestyle Properties Inc., did not return a request for comment.
The company’s human resources director then became involved, explaining that hourly non-exempt employees were required to take a 30-minute lunch break, a policy that had been in the company handbook for 10 years, according to the filing. Not following the policy would be a violation of Illinois’ labor laws, the HR director said.
http://gma.yahoo.com/chicago-woman-fired-doing-lunch-wins-unemployment-claim-145926016–abc-news.html
“This is more typical of my experience with government regulation. . .”
Very typical! Why I’d say 70-80- even 90% of my experiences with government regulation have proven government to be inefficient and or ineffective, or both. Hell, I’m often shocked how many owners of businesses, large and small, can wade through all those regulations and still survive — let alone make millions upon millions of dollars a year–and they have time left over to avoid killing or injuring or destroying the quality of life of 60-90% of our citizensry! What saints they are.
Yet somehow most of the interstate bridges I travel over don’t collapse. And I can still drive down at least half our highways and walk down most of our streets without dodging dead bodies by the millions. It’s a miracle I tell you!
Obviously, anyone who criticizes excessive government must want no government at all.
Depends on how they criticize it., I guess. Saying the Sharon Smiley story is “typical of your experience with government regulation” seems, honestly, to be what I would label ‘non-constructive generalizing criticism’ that seems, again in my opinion, to have more of a “no government at all” tone than a “criticiz[ing] excessive government” tone. Again, just my opinion. 🙂
I’m sure that if you gave it some thought, you’d find many many more examples among your everyday experiences in the supermarket, on the highways, etc. that would indicate that “typical” local, state, and federal government regulations are quite necessary and beneficial.
Perhaps all I’m quibbling about here is your initial use of the word “typical”. That’s simply not credible.
I suggest changing
“This is more typical of my experience with government regulation:”
to
“This is more typical of my experience with excessive government regulation.”
We all should agree that there’s excessive government regulation. How could there not be excessive regulation when there are, for example, 50 states creating 50 different sets of regulations for automobile inspection? When there’s no systematic effort to eliminate local, state, and federal regulations that are out-of-date? Of course there’s excessive regulation.
And as I’m certain I’ve argued on here before, there are some of those “excessive regulations” that are “excessive” to some and not to others. One man’s meat and all that. I’d volunteer to be the final arbiter on which regs are absolutely necessary and totally effective and which are not, but I’m busy volunteering at the food shelter. Come to think of it, if we could trust all human beings to have good judgment and “volunteer” to do the right thing in every circumstance we’d need no regulations at all. Yeah, that’s the answer!
You have to remember when people say “excessive regulations”, what they really mean is that they want to get rid of the ones they disagree with while possibly adding more of the regulations they want. Not that there are actually “too many” in number or “too demanding” of somebody (unless it requires them personally to have to do something).
It goes without saying that there is no such thing as too much government regulation. In fact, life would be better if the government micro-managed–no, make that nano-managed–every aspect of one’s existence.
Well, there is obviously such a thing as too much regulation.
Especially in the bedroom and its immediate environs. . . 🙂
Yes, obviously.
Magus
And let’s get our facts straight. Here are some facts about Buffett’s secretary:
The IRS publishes detailed tax tables by income level. The latest results are for 2009. They show that taxpayers earning an adjusted gross income between $100,000 and $200,000 pay an average rate of twelve percent. This is below Buffet’s rate; so she must earn more than that. Taxpayers earning adjusted gross incomes of $200,000 to $500,000, pay an average tax rate of nineteen percent. Therefore Buffet must pay Debbie Bosanke a salary above two hundred thousand.
We must wait for further details to learn how much more than $200,000 she earns. The tax tables tell us about average ranges. For all we know she earns closer to a half million each year, but that is pure speculation.
I have nothing against Debbie Bosanke earning a half million or even more. Buffet is a major player in the world economy. His secretary deserves good compensation. At her income, however, she is scarcely the symbol of injustice that Obama wishes her to project.
http://www.forbes.com/sites/paulroderickgregory/2012/01/25/warren-buffetts-secretary-likely-makes-between-200000-and-500000year/
Facts are indeed stubborn things…
Since the top marginal rate on taxable income (which kicks in when taxable income exceeds $379,150) is 35%, it’s impossible that Ms. Bosnak’s claim that she pays a tax rate of 35.8 % applies to her taxable income. Since taxable income is always less than total gross income, the claim is even less credible for that measure.
Despite these factual inconsistencies, Bosanek doubled down, putting herself forward as the face of Obama’s tax inequality mantra:
“I just feel like an average citizen. I represent the average citizen who needs a voice…Everybody in our office is paying a higher tax rate than Warren.”
If she’s really paying a marginal rate of 35%, she’s earning over $379,150 per year in taxable income, which places her in the top 1% of income earners nationally. If this is true, Ms. Bosanek is anything but an average citizen. An average citizen–say someone who earns the median salary of a secretary to a CEO, which is $67, 791, according to a 2011 survey conducted by Certified Compensation Professionals–pays a much lower effective tax rate on taxable income than Ms. Bosanek. Assuming this average citizen took about $15,000 in deductions, she would pay an effective tax rate of 17% on taxable income of $52,791, the same rate Mr. Buffett claims to be paying.
http://broadsidebooks.net/2012/01/25/buffett-and-his-secretary-cant-get-their-story-straight-on-taxes/
I’ll bet you $10,000 that you’re right.