The Most Important Tax Break Is the One That Nobody Talks About

[xchrom]

http://www.theatlantic.com/business/archive/2012/11/the-most-important-tax-break-is-the-one-that-nobody-talks-about/265308/



Suddenly, Republicans are all about increasing tax revenues from rich people. In the last weeks of the campaign, Mitt Romney talked about capping itemized deductions for high-income taxpayers (which, unfortunately for his arithmetic, would not nearly have compensated for the lower tax rates he proposed). John Boehner has told his caucus that they have to be willing to accept increased tax revenues (but out of the other side of his mouth says that tax rates cannot be increased). Glenn Hubbard, in the Financial Times, also suggests increasing revenues by closing loopholes: "Tax deductions should be scaled back, especially in the areas of mortgage interest, charitable giving and employer-provided health insurance."

What do all of these proposals have in common? They pass silently over the most important loophole for the rich: artificially low tax rates on investment income, whether capital gains (profits from sales of assets) or dividends (cash distributions from corporations to shareholders).

Why won't a limit on deductions solve this problem? Because itemized deductions, like those for mortgage interest or charitable contributions, are only one type of tax loophole. Another is compensation that is not counted as income to begin with. It is "excluded," which is different from being "deducted" like employer-provided health benefits. And another is simply applying a lower tax rate to certain types of income. Since 2003, both long-term capital gains (sales of assets held for over one year) and most dividends have been taxed at a maximum rate of 15 percent, while the top rate on "ordinary" income (from, you know, working) has been 37.9 percent, if you include the Medicare payroll tax. This is why Mitt Romney, despite his hundreds of millions of dollars of wealth, pays a lower average tax rate than many middincome Americans.

The loophole for investment income is one of the biggest ones that exist, worth about $440 billion over the next five years (2013-2017).* If the goal is for rich people to pay more in taxes, this is the most important loophole to close. Lower rates on investment income overwhelmingly benefit not just the modestly affluent, but the super-rich. According to the Tax Policy Center, households that make more than $1 million make up just 0.3 percent of all households but reap 67 percent of the benefits of this one loophole. That shouldn't be surprising, because the investment assets that earn income mostly belong to the rich: the average million-dollar-plus household receives almost $800,000 in investment income. (Middle-class people own their houses, but the first $500,000 in capital gains from the sale of a house by a married couple are tax-free; and most middle-class people's stock investments are in tax-free retirement accounts.)

[Scuba]

1. Bingo. Why should money earned through owning be taxed at a lower rate than money earned by work?

[KansDem]

2. Agreed

It's not like this money created jobs or was beneficial to the American economy. History tells us differently.

I don't think they can pull this shit again...

[xchrom]

3. +2

[unblock]

4. because rich people contribute more to political campaigns.

there is NO other remotely plausible rationale.

republicans will talk their crazy talk about double taxation, which is a complete fraud, or that the rich need the proper incentives, etc.

but it's all crap.

rich people paid for favorable treatment, and republicans in particular, and sadly a few democrats as well, are more than happy to take their money in exchange for it.

[hfojvt]

5. (ahem)

http://journals.democraticunderground.com/hfojvt/81

http://www.democraticunderground.com/10021222445

sarcastically "I mean it is just not fair that people who slave every day for dividend income should pay the same rate as people who just have money fall into their lap by going to work every day. Bush tried to remedy that by making the tax rate on dividends be zero. That would have been the fairest solution, but Senate Democrats made him settle for just cutting the tax rate in half for dividends."

http://www.democraticunderground.com/10021569758