Thursday, January 19, 2012

Unfairness of The US Tax Code

If Mr. Romney has done one good thing with his partial disclosure — although it clearly wasn’t his goal — he has reminded Americans of the fundamental unfairness of the current tax code and of how determined Mr. Romney and his party are to keep it that way.

Currently, the tax code imposes a top rate of 15 percent on investment income — generally, capital gains and dividends — that flows overwhelmingly to wealthy taxpayers. In comparison, top rates between 25 percent and 35 percent are applied to the wages and salaries for many working Americans.

Worse, an egregious loophole in the law lets private equity partners pay the lower 15 percent rate on much of their income — known as “carried interest” — even though those earnings are not typically gains from investing their own money, but rather a share of profits from investing someone else’s money.

NYT EDITORIAL: The 1% and That 15%

4 comments:

Arvind said...

this is a nonsensical endorsement of socialism. investment income is income from money that was already taxed once.

the question to ask is why taxes are so high. why does the government need to grab money from the people? so that nancy pelosi's grandchildren can fly in air force jets?

let us calculate the fair share of the federal taxes of an indian in usa, shall we? i will even grant it to you that all income tax revenue is justified and not part of wasteful spending.

for 2012, the obama administration requested 1.141 trillion dollars from individual income tax. total workforce is approximately 154 million.

1.141T/154M = $7,409.

i hope you have paid your share of $7,409. now let us assume that the share of the bottom 50% is completely absorbed by the top 50%. your share would be $14,818.

what? you say you pay much more than this amount but acted like sheep and never questioned it? and you're also telling me that indians in usa never question this but unquestioningly and obediently support the democrats?

now you see why you can safely say that indians in usa have less brains that even creationists? creationists at least question why they have to hand over large sums of money in taxes. with indians, there are no such questions. after all a fool and his money are soon parted.

muthu said...

Very well said Arvind!

Inferno - here is a 101 on few basic types of income and the rationale for differential taxation

Interest income on hands of lender is charged 35% because the expense is allowed to be deducted from business income by the borrower.

Salary income on hands of employee is charged 35% because the salary expense is allowed to be deducted from business income by the employer.

Dividend income is NOT an allowed expense in the hands of the corporate and is paid only out of AFTER TAX PROFITS (which most likely would have suffered 35% tax rate in the first place). Hence, ideally Dividend should be tax-free in the hands of the recipient. To prevent leakages and misuse, it is charged 15% in the hands of the recipient!

Investment income (or capital gains) is again accrues because of post-tax profits.. And unlike salary or interest, there is no certainty of accrual of capital gains - it could be gains in some years, losses in other years, etc.. Hence, to compensate the investor for this risk, usually it is taxed at lower rate.. While 0% tax on capital gains is unfair, charging 35% on capital gains is equally unfair on the other extreme...

I would urge you to hit the text books to understand greater nuances before castigating the "rich"! Loopholes are entirely different matter.. I would support you fully on the need to plug them and prevent revenue leakages!

Anonymous said...

@ Arvind: Deadly!

Ghost Writer said...

err .. lower tax rates for investment income (specifically long-term capital gains) is actually sound policy. the company whose shares are subject to long-term capital gains has already paid taxes once (o.k - it has not paid as much if it was registered in the Cayman Islands - but you are better off fixing that ridiculous loophole) - why tax capital gains again?

a higher tax rate on capital gains will only cuse lowered investment in long-term growth assets. how does that help anybody? in fact - it positively harms the poor who may benefit through employment in such growing assets (namely companies)

I am all for dinging Wall St. -or at least as much as the next guy - but Romney's tax is a silly sideshow given more attetion than it deserves because the folks writing in the NYT will never make as much as Romney does - and hve only empty words of jealousy.