Never let it be said I back down from a fight, even when it’s the other team’s game, played by the other team’s rules, and for the benefit of the wrong person.
And that definitely went through my mind when U.S. News & World Report asked me to contribute to their “Debate Club” on the topic of “Should Mitt Romney pay higher taxes?”
I’m not a Romney fan, and it irks me to defend good tax policy on behalf of someone who is incapable and/or unwilling to make the same principled arguments.
But my job is to do the right thing and bring truth to the economic heathens, so I agreed to participate. And I’m glad I did, because it gave me a chance to try out a new argument that I hope will educate more people about the perverse impact of double taxation.
Let me know what you think of this approach, which asks people whether they would think it would be fair if they couldn’t take credit for withheld taxes when filling out their 1040 tax return.
Capital gains taxes and dividend taxes are both forms of double taxation. That income already is hit by the 35 percent corporate income tax. So the real tax rate for people like Mitt Romney is closer to 45 percent. And if you add the death tax to the equation, the effective tax rate begins to approach 60 percent. Here’s a simply analogy. Imagine you make $50,000 per year and your employer withholds $5,000 for personal income tax. How would you feel if the IRS then told you that your income was $45,000 and you had to pay full tax on that amount, and that you weren’t allowed to count the $5,000 withholding when you filled out your 1040 form? You would be outraged, correctly yelling and screaming that you should be allowed to count those withheld tax payments. Welcome to the world of double taxation.
By the way, if you like my argument, feel free to vote for my entry, which you can do on this page.
I won my previous debate for U.S. News, so I’m hoping the keep a good thing going. As they say in Chicago, vote early and vote often.
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My apologies for asking my previous question in the wrong place.
[…] Explaining The “Great Deal” Of Capital Gains Capital gains taxes and dividend taxes are both forms of double taxation. That income already is hit by the 35 percent corporate income tax. So the real tax rate for people like Mitt Romney is closer to 45 percent. And if you add the death tax to the equation, the effective tax rate begins to approach 60 percent. Here’s a simply analogy. Imagine you make $50,000 per year and your employer withholds $5,000 for personal income tax. How would you feel if the IRS then told you that your income was $45,000 and you had to pay full tax on that amount, and that you weren’t allowed to count the $5,000 withholding when you filled out your 1040 form? You would be outraged, correctly yelling and screaming that you should be allowed to count those withheld tax payments. Welcome to the world of double taxation. via danieljmitchell.wordpress.com […]
Future News:
A spokesman for President Obama anounced today the 5th and final version of the tax policy known as the “Warren Buffet Rule”:
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After many go-arounds and backtracks, we have produced a rule which incorporates the fundamentals of economics and politics, the Buffet Rule #5. We don’t see this as waffling or ignorance, as so often accused, but as a careful reworking of a complicated issue in light of public response.
Buffet Rule #5 is that the last tax levied on income must be at least 30%, and that no taxpayer can take deductions which give him or her more than $100 in tax reduction.
We want a country where a superficial, or if you will, a political look at personal incomes always yields the joy that we are taking a “big bite” out of the income of anyone making a profit. We have attempted to exempt people making a salary, and to plug all of the loopholes by which greedy entrepreneurs could convert profits to salary. Doing this in 834 pages is an accomplishment of sophisticated government
There is still much pushback from the states. They say they won’t be able to sell their bonds if the state interest deduction is a maximum of about $500, and of course, state bond interest is currently taxed at 0%. Our opinion is that patriotic citizens will continue to buy state bonds, even at the new 30% tax rate on that interest. You are certainly a fat cat if you are rich enough to own a state bond, so get over it.
Some critics loudly claim that we will ruin our economic future. We seriously doubt that these people can see into the future. What are they, witches and palm readers? We certainly can’t see into the future, and we have all the data. We will do the right thing, the heartfelt thing, the political thing, and bite into the profits of the rich.
To the rich who threaten to stop working, we say bring it on. We don’t understand what you do at your desks and phones every day, and we don’t think that we will miss what you supposedly do. Stop investing your money out of greed, and instead invest for charity and the prosperity of our great nation.
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Regarding your article on double taxation you might make explicit that the second tax on dividends is in fact a tax on a stream of income or in the case of capital gains a tax of a transfer of a source of an expected stream of income. The moneys invested to generate this income had already been taxed either at the prevailing income tax rate, or at the corporate income tax rate. This purchased stream of income is a good which equitably should be treated no differently from the good derived from the purchase of a vacation home or a large screen TV.
Go a little further,
…the combined tax rate for individual xxx is 45% so that he can reinvest the money (typical) so that the delayed compensation funds can keep serving the people.
As you have correctly pointed out, capital (I.e. people who accept delay in their compensation) is essential to wealth formation, even in Marxism.
And for the individual subject to the wealth tax the final rate is 60% and the sucker hasn’t even touched it. He earned it a d then invested (ie delayed his gratification) until he died still uncompensated for his original work. Meanwhile the public gets the benefit of his capital invested over an entire lifetime. Is there much wonder why people don’t save and spend instead? Raising taxes on spending will be making bad policy worse. The pitchforks will be further enslaved to the redistribution Vito Corleone they created, thinking he was their friend. The pitchforks are now in line to get VAT. Because the pot of gold aggregately held by the rich is not nearly as big as people think and redistribution to European levels will kill the American dream. Once the collective monster has killed the productive, it will finally feed on the flesh of the non-productive who created it in the first place, as a HopNChange shortcut to prosperity. The dream always ends badly.
I have made this argument in defense of Romney despite his frustrating choice to not make the argument himself.
However, I have been countered with what is referred to as the “carried interest loophole.”
It is not clear to me whether they are referring to the current tax returns or Romney’s income from a decade ago. In either case I find it difficult to defend.
I attempted this rather clunky response
which has at this point gone unanswered.
How do I defend against the carried interest charge?
Your analogy makes no sense to me. The concept of double taxation is easy enough to understand once one realizes, as I did not, that dividends a company pays out cannot be deducted as a business expense (i.e., deducted from income before taxes are applied), but are instead paid out of after-tax income.
Actually, our entire tax system is chock-full of double (and more) taxation, resulting from the fact that tax is usually (or perhaps always) applied at every stage of production. For example, the manufacturer of nylon (or whatever material it is) pays taxes to produce it, then a maker of seat belts pays taxes to produce a seat belt from that nylon, then a car manufacturer pays more taxes when he puts the seat belt in a car and sells it.
I really thing it is a sound and thorough argument that most people could easily understand . I too am no fan of Mitt Romney but felt compelled to defend him from unsound attacks on his “unfair” tax rates.I have argued on my site about this and the class warfare that politicians create through the tax code.
If anyone likes the articles are here at these links.
http://thetgbreport.com/2012/01/24/income-tax-v-captial-gains-tax/
http://thetgbreport.com/2012/01/26/taxes-dont-help-create-wealth-and-prosperity/