As pointed out in another diary, Ann Romney is ordering her husband's faithful flock to 'dig deep' like never before. Considering that many of the 53% are still suffering the ravages of the Bush Recession, one wonders how much deeper they can dig the hole left them by Republicans during the past 30 years. That, however, is another tale for another day, as this diary focuses instead on one of those Big Lies frequently told by conservatives.
I'm sure you've heard this one before. Mitt Romney merely repeated one of the standard talking points of the right when he told Scott Pelley the following during their interview on Sunday:
And one of the reasons why the capital gains tax rate is lower is because capital has already been taxed once at the corporate level, as high as 35 percent.Yes, you've probably heard that one before. But did you know that it is a bald-faced lie? Here's why: Capital is not taxed. Read that statement again if you were too busy spitting out a mouthful of coffee for it to register. What I'm saying is that capital is not taxed in the way Mitt claimed, not at the corporate level, not at 35 percent, not at any percent.
In its simplest form, capital is defined as "financial resources available for use". From a business perspective, this generally refers to cash on hand and the factories, machinery and equipment owned by the business. That capital is used to generate something that IS taxed: Profits.
Income, in other words. Corporate profits (i.e. total earnings less expenses) are taxed because, plain and simple, they are income. Note the distinction. Capital is NOT taxed. Profit IS taxed.
So why did Mitt Romney say capital is taxed? Because he's lying. And also because of a long-standing Republican determination to make business profits untaxable.
Ok, EdG, you're saying. We all know that stocks are capital investments, and stocks are taxed even though you say capital is not taxed. Well, think about that for a minute. When are stocks taxed? Stocks are taxed when they are sold at a PROFIT. In other words, if you're a good investor who buys low and sells high, the income from your stock sale is taxed, although it is taxed at a lower rate (the capital gains rate) than most other types of income.
Let's put this in Mitt Romney terms. Mitt, or his "blind trust", goes to the stock exchange and buys 10,000 shares of Apple Computer at $600 per share, which is an investment of $6,000,000. This six million dollars is NOT taxed, because it is capital. A year later, Mitt sells the stock for $650 per share, realizing a profit of $500,000 less expenses. This five hundred thousand dollars IS taxed, because it is profit. Simple, right? Capital: Not taxed. Profit: Taxed.
Let's look at it another way. Suppose that Apple Computer sells 10,000 shares of stock at $600 each. That is $6,000,000 coming into Apple's hot little hands. Is it taxable? No. It is not taxable because it is not profit. People who purchase Apple shares directly from Apple are essentially loaning money to Apple, in hopes that Apple will invest the money in new products that generate profits (taxable!) that Apple shares with investors through dividend payouts.
On the other hand, Apple Computer does not benefit directly from Mitt Romney type transactions. Shares that are traded on a stock exchange are a sale from one private party to another private party. As noted earlier, any capital gain on that sale is taxable because it is profit to the seller. Apple cannot use that money to invest in products and it has little control over the price of shares sold on the open market.
So where do we stand? Capital is not taxable while profit is. Mitt Romney's income is taxable because it is profit. It has not been taxed at the corporate level, instead it is taxed at the personal capital gains rate paid by Mr. Romney.
And that, of course, raises the question of why Mitt Romney's income is taxed at a lower rate than your income or my income. It is taxed at a lower rate because rich people like Mr. Romney have convinced Congress to treat it as though it is better than your income. Bottom line, though, is that Mitt Romney's income was never "taxed once at the corporate level", so his whole premise is a lie.
Now, I will point out as I conclude this diary that this is a simplified explanation of corporate earnings, capital, stock, Mitt Romney's income, and the other topics discussed herein. I also glossed over stock dividends, which are another matter altogether and can, to some extent, be considered as doubly taxed. But in summary, capital is not taxed while profits are taxed. And anyone who claims otherwise is lying.