So Mitt says he pays about 15% in taxes. I'm sure what he meant was, "The nominal tax rate for the vast majority of my income, which is derived from capital gains, is 15%. Of course, with deductions, tax shelters, offshore havens and various other loopholes, my effective tax rate is probably close to 0%, but who let the dogs out?"
Which of course raises the question:
Why do we even have a special capital-gains tax rate in the first place?
I'mma guess that the original rationale given for the lower-than-regular-income tax rate was that it would encourage investment in business.
So let's assume that you buy that rationale - although it is far from universally accepted. But let's just say that, okay, we want to encourage investment in companies, and one way to do that is to give a special break to those who invest in companies.
That sounds great. I think it's swell that when someone invests in a company by giving that company money, that person should be rewarded when the company grows. Hell, I'll even go so far as to agree that if that person loses money as a result of their investment in that company, that they should be able to write off their loss for tax purposes, to the same extent that they have to pay taxes on the profit from that investment.
I think it's a grand idea to give people like that - investors in companies - preferential treatment for the money they put out to help companies grow.
But here's where our current arrangement loses me. (And - please - if I am misunderstanding or misstating something here, don't hesitate to set me straight!)
Unless I am greatly mistaken, the only stockholders who actually invest in a company are those who purchased the initial offering directly from the company. In other words, The Acme Anvil Company doesn't see a nickel from the sale of any of its stock once the IPO is done; the only person who might profit from that sale is the guy selling the stock.
It's like buying a 1964 Ferrari Lusso - the only time the Ferrari company made any money off the sale of one of those was back in 1964, when the first owner of any of them bought it. Everyone else since then who has sold one has only made or lost money for himself; not a nickel went back to the company.
Sure, if it makes you feel better and helps sell the idea to the wife, you can call it an "investment" - but that doesn't change the fact that it's NOT an investment in Ferrrari.
Amirite?
So - let's do something simple. Let's tax capital gains, except those derived from the sale of initial-public-offering stocks, the same as ordinary income.
If we allowed a special capital-gains tax rate only for those who are selling stock purchased directly from the issuing company - in other words, who have actually invested in that company - and taxed all other capital gains as ordinary income, it would have a profound impact on this nation's financial health.
But the biggest reason for equalizing capital gains rates may be that it would generate a vast amount of additional revenue for the Treasury. The Internal Revenue Service reports that for taxpayers with the top 400 adjusted gross incomes, capital gains in 2008 amounted to an eye-popping average of $154 million for each of those taxpayers, or 57 percent of their adjusted gross income, and this in a year when the stock market plunged. In 2007, it was $229 million each, or 66 percent.
I'd like to say that the idea of taxing (most) capital gains the same as ordinary income was original with me, but it wasn't. Actually, some other left-wing lunatic proposed it about 25 years ago. Let's see, the guy's name escapes me right now, but, ahh, let's see - big hair, terrible memory, uh, served in the Culver City Commandos in the Big One - oh, that's right:
Ronald Reagan
The last major overhaul of the tax code, signed by President Ronald Reagan in 1986, set tax rates on capital gains at the same level as the rates on ordinary income like salaries and wages . . .
Of course, by the standards of today's Republican Party, Reagan was a commie pinko socialist.