No tax legislation can come through Congress without first coming through the Ways and Means Committee in the House. Yesterday that body and its counterpart, the Senate Finance Committee, held a joint hearing on tax reform and the tax treatment of capital gains. To judge by the opening statement of Ways and Means chairman Rep. Dave Camp (R-MI), tax reform is out of the question with the GOP in control of the House. Camp’s words were shot full of anti-tax ideology and an almost laughable ignorance.
Here’s an eye-opening sample:
As we consider the economic impact of the tax burden associated with capital gains, it is critical that we focus on the total integrated rate, which is nearly 45 percent, not just the statutory rate of 15 percent. The capital gains tax is often, though not always, a double layer of taxation. For example, in the case of shares of stock, a company’s income is first taxed at the corporate rate. Then, when shareholders of the company later decide to sell their stock, they are subject to capital gains tax on the sale. But the value of the stock they sell already has been reduced by the fact that the corporation previously paid out a portion of its earnings as taxes. So, even if we make current low-tax policies permanent, the top integrated rate on capital gains is actually 44.75 percent – a 35 percent first layer of tax and a 15 percent capital gains tax. If we allow current low-tax policies to expire, the top integrated rate on capital gains will exceed 50 percent.Here is the chairman of Ways and Means conflating a corporation’s income with an individual’s stock market capital gain—and stating, in all seriousness, that a tax on the corporation’s income is really a “35 percent first layer of tax” on the individual’s stock market gain. Where to begin to unravel this staggering piece of nonsense?
Let’s start by noting that a capital gain, by definition, is the difference between the basis price (the price paid for the stock in the first place) and the proceeds, the amount realized when the stock is sold. By definition, capital gains were never taxed before; by definition, capital gains never existed before.
Then let’s note that any relationship between a corporation’s money and an individual’s stock market capital gain is essentially non-existent; to infer that these monies are basically one and the same, and that a tax on one is a tax on the other, is simply absurd.
In passing, let’s also note that the 35 percent tax rate cited in the Camp statement is more than a little misleading. It’s the top corporate rate all right, but it’s paid by few U.S. corporations. Many U.S. firms are members, in fact, of Mitt Romney’s moocher class: they pay no federal income tax at all.
The last paragraph of Camp’s statement claims that “there are compelling arguments for providing a preferential tax treatment for capital gains.” Rep. Camp was a first-hand witness when those “compelling arguments” were rejected by the Simpson-Bowles fiscal commission, which called for equal taxes on all income: the same tax rates on capital gains and dividends as the tax rates on wages. As a member of Simpson-Bowles, Camp was one of those (including Rep. Paul Ryan) who voted “no”.
The prospects for tax reform with a GOP-headed Ways and Means? Not so good.