Mitt Romney said today that he pays around 15% of his income in federal taxes. Which makes sense, since the current rate for both long-term capital gains and dividends is, generally speaking, 15%. The Democrats will claim that Romney should pay more, which highlights the weirdness of much public conversation about tax rates. One could get the impression that paying taxes is discretionary, and companies and individuals elect how much they want to pay: General Electric paid no federal income taxes! Mitt Romney paid only 15%! Obviously, both General Electric and Romney paid what they were required to pay by federal law, as did Barack Obama, Nancy Pelosi and everyone else who isn’t a tax evader.
So do the Democrats have something to talk about, or not? I’ve never heard a single economist of any political stripe argue that long-term capital gains should be taxed at the same rate as ordinary income. So what is the Democrats’ point? That the tax laws should be changed? That Romney, unlike any known Democratic politician, should pay more taxes voluntarily? It is easy to argue that the Democrats have no point at all.
Moreover, the Democrats’ predictable response to Romney’s statement was simply false:
Spokesman Jay Carney said: “This only illuminates what (Obama) believes is an issue, which is that everybody who’s working hard ought to pay their fair share. That includes millionaires who might be paying an effective tax rate of 15 percent when folks making $50,000 or $75,000 or $100,000 a year are paying much more.”
No one earning $50,000 or $75,000 can possibly be paying “much more” than Romney on either a percentage or (of course) an absolute basis, since the top marginal rate is 15% up to $70,000 in taxable income. Moreover, the Obama administration’s longstanding desire to raise ordinary income tax rates to the pre-Bush level would have zero impact on capital gains, and its suggestion that capital gains rates should be raised to 20% would still leave them well below ordinary income rates at the same income level.
Nevertheless, I confess to a certain sympathy with the Democrat’s demagoguery. I paid 40% of my gross income in federal and state income taxes and self-employment taxes last year; 32% in federal income and self-employment taxes alone. It is a bit galling to think that rich people like Warren Buffett and Mitt Romney pay a much lower percentage than I do. Reacting emotionally on the seemingly dry and bloodless issue of marginal tax rates, as nearly all of us do, I am inclined to conclude that Romney pays plenty of taxes, but Buffett ought to pay more.
Much more important, however, than what I think about their taxes is what they think about mine. Romney will do his best to cut my taxes, or at least keep them the same–Congress, obviously, has the last word on that–while Obama is still itching to raise them. So, no matter how much I might envy Romney’s ability to live off capital gains, he will have my vote.