With all the hubbub about Mitt Romney's taxes, it is fair to ask if he really pays less than most Americans. What about Warren Buffett whom President Obama holds up as a poster boy for someone, who as a "billionaire (should) pay at least as much as his secretary in taxes”
First, let's look at Mr. Romney, who Congresswoman Terri Sewell claims “is only paying 13.9 percent effective tax rate and most of Americans are paying 28, 30 percent and they make far less.” Most retirees, including Mr. Romney, who have invested wisely, pay 15% for capital gains from their investments. Most of those gains come from corporations who face a tax rate of 35% before dividends. That tax reduces the corporation's net worth at some point in time before a sale resulting in long term capital gains. Short terms gains are taxed as ordinary income. Even for long term gains, the investor who takes the risk of living from those gains pays an effective rate on their own property of well over 28%.
How could this be? Assuming his property (investment) is in corporations, let's say an investor sells 1,100 dollars worth of stock after originally investing $1000.00. That leaves $100 net increase. That $100 dollars already reflects a decrease in value of $35, at the rate of 35%. In addition the investor is taxed at a 15% rate, or $15. The sum of those taxes is $50.00 – or an effective rate of 50%! Even arguing the original gain of the stock sold really was $135.00, the effective rate is $50.00 out of $135.00 or a mere 37%.
It gets worse: Unless Mr. Buffett's secretary makes between $500,000 and $1,000,000 per year, she is paying less than 28%. That dollar range, by the way, represents the top half of the so-called One Percent. Average American? Eighty seven percent of taxpayers in this country pay less than 15%. Depending on the source, somewhere between 47 and 51 percent of taxpayers pay no taxes at all, and many of those get paid by the government – many with the so-called “earned income credit”.
Buffett and Romney should have it so good!
