By Luke Brimker
Suzy Khimm flags a new Congressional Research Service report examining the growth of income inequality between 1996 and 2006. The report identified capital gains and dividends as the largest culprit behind the increasing wealth gap:
Changes in income from capital gains and dividends were the single largest contributor to rising income inequality between 1996 and 2006. Changes in tax policy also made a significant contribution to the increase in income inequality, but even in the absence of tax policy changes income inequality would likely have increased. Although earning inequality increased between 1996 and 2006, changes in wages and salaries appear to have had little effect on the increase in overall income inequality.
Those who earn most of their income from capital gains – people like investor Warren Buffett, hedge funder John Paulson, and former Bain Capital CEO Mitt Romney – pay dramatically lower taxes than those who derive most of their annual pay from wages and salaries. While the top salary bracket pays a federal income tax of 35 percent, the capital gains tax is a mere 15 percent. (Under President Ronald Reagan, it was 28 percent, as was the top income tax bracket.)
Occupy Wall Street has brought much-needed attention to deeply embedded socioeconomic inequalities in the United States, and the preference from capital gains-based income serves as an illustrative example of the divide between the one percent (or, more accurately, a fraction of the top percent) and the rest. Partly because the public is increasingly attuned to the inequality problem, Romney has decided against releasing his tax returns. (He’s running for office, for Pete’s sake!) As Josh Marshall of Talking Points Memo explains, those returns would surely show that Romney is a huge beneficiary of tax rules that favor the very wealthy:
We already know Mitt Romney is a really, really wealthy guy. But there have been a lot of rich presidential candidates. And, though he was born to wealth, Romney also made a lot of money himself. He’s also said he’ll release information about his wealth, his assets … a lot of stuff. But just not the tax returns.
So what’s the deal? It’s pretty simple. We might say that a specter is haunting Mitt Romney — the specter of the Buffett Rule.
That’s right, we haven’t heard a lot about the so-called Buffett Rule in a while but it’s the concept pushed by kabillionaire Warren Buffett and embraced by Democrats and particularly the White House, which says that the superwealthy should not pay lower tax rates than your average secretary or auto mechanic or office manager or anybody else who gets by on a salary.
It’s a very resonant concept. It makes intuitive sense to people. Overwhelmingly the public supports the idea. And it’s very easy to understand.
This is Romney’s problem. While we don’t know the specifics of Romney’s tax returns, we know enough about his finances and sources of incomes to know that he is likely the poster-boy for the Buffett Rule. As Romney likes to say, he’s unemployed. He doesn’t draw a salary. But he seems to still be making big big money off capital gains which are currently taxed at a very low rate. He doesn’t seem to have drawn a salary at any time recently. So he likely pays no payroll taxes. And that’s before you get into legal but aggressive tax-sheltering. It seems virtually impossible that Mitt Romney doesn’t pay the sort of effective tax rate that would make people’s eyes pop when compared to middle income and even relatively wealthy (by normal standards) people who pay considerably higher rates.
Expect Romney’s unwillingness to release his tax returns to be a major issue in the general election if, as is probable, Romney becomes the Republican presidential nominee. Any Obama campaign strategist worth his or her salt knows that Romney will have a difficult time explaining to voters why he, a man with an estimated net worth of up to $250 million, pays the same rate of tax as those earning between $8,500 and $34,500 per year.