Why miss out the biggest myth ?

Reader comment on: Seven Myths About Romney's Taxes

Submitted by Lee Moore (Ireland), Jan 24, 2012 09:28

I don't think Myth No.4 really qualifies as a myth. I agree it's not a subsidy, but it is a better position than would arise on a fair comparable.The correct comparison is with an investor who invests $1m in IBM on the advice of an investment adviser, who charges a fee equal to 20% of the profit. In this case the adviser would pay taxes at ordinary income tax rates, not the 15% rate. It is true that the goverment would then collect more tax than if the investor had not paid for advice, but that is just the one of many examples in the tax code where the recipient of income gets taxed at a higher rate than the payer's rate on his deduction. Indeed there are plenty of cases where the recipient is taxed and the payer gets no deduction at all.

None of which is to say that increasing tax rates on capital gains is a good thing. Why did you leave out the biggest myth of all - that a 15% tax rate on capital gains on shareholdings represents a higher tax rate than ordinary folk pay on their income ? It doesn't. The profit has already suffered a 35% tax within the company, so a 15% tax on top brings the real tax suffered by "15% taxpayers" up to nearly 50% - that's the rate the supposedly favored founders are paying on their labor. (If you do the math, this applies not only to gains reflecting profits that the company actually makes and pays taxes on during your period of ownership, but also to gains reflecting market expectations of fututre profits.)


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Other reader comments on this item

Title By Date
Waste of Time [9 words]BlakeJan 24, 2012 13:33
Myth No. 4. Applying the long-term capital gains rate to carried interest is a government subsidy [54 words]BobJan 24, 2012 10:49
Subsidy [126 words]K. WilliamsJan 24, 2012 09:50
⇒ Why miss out the biggest myth ? [276 words]Lee MooreJan 24, 2012 09:28
Your #4 is incorrect [129 words]Fast EddieJan 24, 2012 09:17

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