Posts tagged ‘Unearned Income’

01/24/2012

Income Tax: All Sources Need Same Rate

Mitt Romney, who disclosed an income of 22 million in 2010, and lawfully paid only 14% in federal taxes, has on the campaign trail repeatedly championed the cause of the upper 1%, by advocating an end all taxes on interest, dividends, and capital gains, which coincidentally were his primary sources of income. If he becomes the Republican nominee, President Obama must fight back for the 99%, by subjecting “all” sources of income to the same 15%, 28%, 33%, and 35% tax rates, applied to ordinary earned income.

Obama must make the case that Romney, who did nothing illegal, should never have been granted a 15% rate in the first place, but should have paid 35% on his investments, and if he had, the government would have collected 7.7 million in taxes from him, instead of just 3 million, and “poor Mitt” would have netted only 14.3 million of new money in 2010, instead of 19 million.

We need to remember that when the 16th Amendment (1913) was ratified nearly 100 years ago, the income tax was intended to tax only the rich. Its original purpose was to collect income from “all” sources, as it stated: “Congress shall have power to lay and collect taxes on incomes, from whatever source derived….” Current tax law, consistent with the 16th Amendment, still defines “gross income” as “all income from whatever source derived.” It includes “earned income” from wages, as well as “unearned income” from: 1) Interest; 2) Dividends; 3) Capital Gains; and 4) Rents.

While “earned income,” that is, money which comes from actually getting up in the morning and punching the clock at a typical workplace, is taxed for single people at 25% on sums between $34,501 and $83,601, “unearned income,” made by those who can sip a casual cup coffee while reading the Wall Street Journal at the Polo Club, enjoy a much lower 15% rate. While working people must also pay a 7.65% “payroll tax” to the Social Security retirement and Medicare trust funds, Romney-types, who live off the work of others, contribute nothing to those programs.

The rich, who do not need to work, make most of their money from the following sources:

1) “Interest Income” from state and local municipal bonds has a 0% tax rate and is totally exempt from federal taxes.

2) “Dividends” on stocks held for minimum periods are “qualified” and taxed as long-term capital gains, at just 15%.

3) “Capital Gains,” realized from selling investments, held more than a year, are long-term capital gains, taxed at the low 15% rate.

4) “Rental Income,” received by those who can afford to invest in apartments or office buildings, is usually reduced by interest and depreciation expenses, significantly lowering tax liabilities.

Romney argues people like him cannot pay the 35% rate, because that would kill jobs. If he paid 7.7 million in taxes instead of 3 million, jobs would go away, he argues. But why does it matter if he nets 19 or 14.3 million in one year? The truth is: it doesn’t.

Romney, not only wants direct tax cuts on investments, he would lower corporate income taxes from 35% to 25%, triggering even more “qualified dividends” to be issued to him at the 15% rate.

Romney would also help big banks, and hurt local governments by cutting taxes on interest to 0%. Wealthy investors would shift deposits from tax-free state and local municipal bonds to bank accounts, causing more budget problems for local governments.

Romney thinks reducing taxes on interest, dividends and capital gains will help the Middle Class on their investments, but he fails to realize that clearly half of all Americans have absolutely no investments whatsoever–no pensions, stocks, bonds–nothing.

Romney also legally earned far more than his personal tax returns reveal. It would be shocking if he has no Irrevocable Trusts, which file separate returns. The press should ask about them. He should also be pressed to release “multiple years,” as he promised, and perhaps 12, for as his father said in 1967, when he made his taxes public, “one year could be a fluke, perhaps done for show.”

Mitt, who admitted he didn’t grow up poor, is not our man, as he lacks the background to be President. He is consistently out-of-touch with normal people. While “poor Mitt” would bet Gov. Perry $10,000 over the content of his book, most regular people would not have wagered more than $10. Sorry, Mitt, you just cannot relate. We don’t want you as President. You would be appreciated much more if you just made money and paid 35% in taxes.

While the government desperately needs taxes to shore up annual deficits and the National Debt, regular Americans are perhaps now slowly realizing that lowering taxes on the rich, really means increases for all else, since someone has to pay for government.

Advertisements