Mitt Romney’s annual income and the tax rate he pays has now become a major discussion point in the campaign. Liberals will, of course, be trying their level best to make his economic success a political liability for him and his tax rate a matter of moral turpitude.
Naturally, Paul Krugman was first out of the gate with his column this morning in the New York Times. He writes:
And the public has a right to see the back years: By 2011, with the campaign looming, Mr. Romney may have rearranged his portfolio to minimize awkward issues like his accounts in the Cayman Islands or his use of the justly reviled “carried interest” tax break.
Isn’t that neat? Without a shred of evidence, Krugman asserts the possibility that Romney has accounts in the Cayman Islands (a notorious tax haven with very convenient banking laws) and has been taking advantage of “carried interest,” which allows hedge fund managers and such to pay only capital gains on their income. I agree that the carried interest loophole should be repealed forthwith (I’ll blog about it in the near future), but how many people think that were, say, Paul Krugman or John Steele Gordon, eligible to use it, that either would decline to do so out of a sense of tax justice? I know I wouldn’t. I will take whatever deductions the law—however unconscionable—allows.
Krugman notes that the 400 richest Americans pay an average of 18.1 percent of their income in taxes. He writes,
The main reason the rich pay so little is that most of their income takes the form of capital gains, which are taxed at a maximum rate of 15 percent, far below the maximum on wages and salaries. So the question is whether capital gains — three-quarters of which go to the top 1 percent of the income distribution — warrant such special treatment.
Needless to say, he does not think they do. But, being the most intellectually dishonest man in American public life, Krugman has no problem ignoring the fact that capital gains and dividends come from corporations that have a 35 percent tax rate on profits. In other words the dividends (directly) and the capital gains indirectly) have already been taxed at a hefty rate.
Martians who pay no taxes do not own corporations. They are owned by their stockholders, who do. In a very real sense, it is he who pays the corporate income tax on that wealth. So when the company passes on some of what’s left after taxes as a dividend and he pays a 15 percent tax on that, he is paying, in total, a 50 percent tax.
In contrast to Krugman’s intellectual garbage, I would suggest reading the lead editorial in this morning’s Wall Street Journal on the same subject.
The contrast between the two is striking.