The Free Lance

Why is Romney’s 15 Percent Not Enough?

Let’s be clear, I would never vote for Mitt Romney. For any office. But the attacks on him for somehow paying too little in federal income tax reveal a bias in favor of social levying via punitive tax rates.

At the heart of the attacks on Romney is the notion that it is somehow unfair — a “loophole” — for capital gains income to be taxed at a 15 percent federal rate  instead of the higher rates — 28, 31 percent and up — applied to ordinary income. Of course, properly understood, the correct rate for capital gains should be zero.

This is because any taxation of capital gains represents double taxation. Income has to be earned, tax paid on it, and some portion of the after-tax proceeds invested in order to generate a return or gain. If somehow the income was not taxed — as can be the case with our current crazy-quilt tax code full of credits, exemptions, phase-ins, incentives — that is a failure of the personal and corporate income tax codes and an argument for a flat or consumption tax.

Further, complaints about Romney somehow “avoiding” tax by using Cayman Island-based funds as investment vehicles are hypocritical on their face. Avoiding tax is not the same as evading it; one is legal and one is not. If Romney’s critics really mean to argue that Americans have a duty to always pay the maximum possible income tax under the law they need to say so. And then also condemn 401(k)s, charitable giving, investment in low income housing, college savings plans, certain kinds of insurance and other benefits for employees, and the entire universe of tax reducing “loopholes” which perforate the current tax code.

Finally there is matter of what constitutes a “fair” tax rate. The Occupy Wall Street folks — at least the smart ones — were loathe to put a number on their tax rate preference. This is because punitive taxation — rates of 60, 75 percent and up — expose the social leveling at the heart of their critique of American society. Besides those punitive numbers are far greater than the modern total household tax burden in the US, which has been around 40 percent.

The largest chunk of that tax burden is the federal portion, which has bounced around the 30 to 35 percent effective tax rate level for the nation’s top 1% of income earners for decades now. Most U.S. households paid around 20 percent of their income to the feds each year.

Is that not enough? More importantly, suppose the feds took twice as much in tax from Romney’s capital gains. Would that money be put to better uses by Washington? If so, why not take all of Romney’s capital gains?

And if it is good policy to confiscate Romney’s capital gains, what about everyone else? How rich is “too rich” — and at what point does the government get dibs on everything?