The 15% Tax Rate is Now a Campaign Issue

Morris Segall      Capital gains tax treatiment, Income disparity, Socio-economic crisis, Tax rates affect primaries, Taxation a campaign issue, Taxation disparity, Taxation of wealthy

We have repeatedly commented on the growing frustrations of the American public regarding increasing income disparity and inequality.  In our website article of March 23, 2009, ” I am Mad as Hell…, our blog video of October 11, 2011 addressing the “Occupy” movement and our website article of October 21, 2011 titled “The Angst and the Fury,” in which we wrote,” The American model of market-driven capitalism is not working for millions of people here and abroad and no one can understand why and what they can do to solve their predicaments.”  Further, “Compounding this fear and frustration is the failure of democratically-elected governments in the U.S. to act in the public interest…most people have lost faith in government to lead and solve the deep seated problems plaguing their populations.”

Nothing embodies these statements more than the debates over inequality in our nation’s tax code, particularly the tax treatment of investment income versus wage and salary income. As the gap between the wealthy and the middle class grows, the problem becomes more evident and harder to ignore.  In fact, the topic recently emerged as a hot button issue in the 2012 Republican primaries. We are convinced Mitt Romney lost the South Carolina primary, an election he had all but won less than a month ago, after he revealed that he paid a tax rate of 15% on his income for 2011. Now he is fighting to keep his lead in Florida after being the heavy favorite in the polls before his income tax revelation in South Carolina.

So why are many wealthy Americans paying lower tax rates than average middle-class citizens? While federal income tax rates are progressive, with the highest earners taxed at 35%, many of the wealthiest individuals have a substantial portion of their income in capital gains (profits from the sale of stocks, bonds, and real estate) and dividends as opposed to wages.  According to present tax code, these income sources are taxed at a rate of just 15 %.  Therefore, anyone making over $34,500 a year in wages and salary is taxed at a higher rate than a multi-millionaire taxed on millions in income treated as capital gains.

Republican candidate Mitt Romney provides a good example of how the wealthy can use the preferential treatment of income classified as capital gains and dividends to minimize payments to the federal government.  In 2010, Romney made a total of $21.6 million and paid $3 million in taxes.  This results in an effective tax rate of just 13.9 %- a rate that is less than half the top marginal rate on wage incomes. Over half of Romney’s earnings were considered capital gains and dividends and were taxed at a top rate of 15 % rather than the 35% top rate for ordinary income.  After dealing with years of high unemployment, slow job growth and essentially stalled income growth, the American public is not going to ignore the fact that people with a lot of investment income pay much less tax on that income than people whose income is earned from wages and salaries.

The Romney tax revelation has been picked up by the President in his State of the Union address and is now a full fledged campaign issue that will extend through the election season and in the current debate on federal government deficit reduction. We have been expecting this and believe it is appropriate to address this issue as part of our long term federal fiscal debate and socio-economic crisis that has developed as a result of increasing income disparity. We will address this and other issues affecting our long term federal fiscal dilemma in an upcoming “white paper” article on our website.

Morris R. Segall