Romney’s tax controversy shines spotlight on tax code that favors wealth over wages

WTF Romney wealth v. wages 1.30.12

The controversy surrounding Gov. Mitt Romney’s taxes illustrates how the nation’s tax code disproportionately rewards those who are wealthy at the expense of those who earn wages.

Last week the Republican presidential contender released his 2010 and 2011 tax returns, revealing annual earnings in excess of $20 million and tax rates as low as 13.9%.

But if the U.S. tax code is supposed to be progressive – meaning people with higher incomes pay higher tax rates – then how come Romney, a self-declared “unemployed” millionaire, was able to pay a lower tax rate than a full-time worker earning less than 0.30% of Romney’s annual income?

Because the laws enacted during the Bush administration have skewed the nation’s tax code to favor income derived from wealth (such as capital gains and dividends) instead of earnings from work (or wages).

The Bush tax cuts of 2001 and 2003 reduced the capital gains tax from 20% to 15% and capped dividend income tax at 15%. (Capital gains are earnings that result from the buying or selling of properties, stocks or bonds, and dividends are payments to corporate shareholders.)

Since nearly all of Romney’s earnings in 2010 and 2011 came from investments, dividends, and interests, he was able to take advantage of the Bush tax breaks and pay only about 15% in federal taxes despite reporting a combined income of $42.6 million during that period.

But meanwhile, people who earn wages for their work or services are taxed at a progressive rate. Federal tax rates range from 15% for individuals earning $40,000 a year, to 20% for individuals earning $78,000 a year, and up to 35% for the top income bracket.

So the existing tax code actually punishes people who work for a living (by imposing higher tax rates on wages) while rewarding people – like Romney – who live off their wealth (by giving tax breaks for capital gains).

For instance, Romney reported an income of $21.66 million in 2010, which averages to $59,432 per day. According to Romney’s tax documents, he paid only $3 million or 13.9% in federal income taxes that year. But if a mechanical engineer earned $59,342 in wages that year, he would have to pay more than 18.5% in federal income taxes.

“I pay all the taxes that are legally required and not a dollar more,” Romney insisted. “Is it entirely legal and fair? Absolutely.”

It’s legal, but it’s absolutely unfair to people who earn wages.


Learn More:

17 Comments on “Romney’s tax controversy shines spotlight on tax code that favors wealth over wages

  1. Pingback: Warren Buffett argues for minimum tax on the "ultra rich", debunks GOP's myth on capital gains | What The Folly?!

  2. Pingback: N.Y. Sen. Chuck Schumer outlines Democrat's deal to avoid 'fiscal cliff' | What The Folly?!

  3. Pingback: CBO warns of approaching 'fiscal cliff' | What The Folly?!

  4. Pingback: Obama campaign releases 2 new TV spots attacking Romney's 47% comment | What The Folly?!

  5. Pingback: Comparison of Romney and Ryan's tax returns | What The Folly?!

  6. Pingback: Overview of Paul Ryan's 2011 tax return | What The Folly?!

  7. Pingback: Highlights of Mitt Romney's 2011 tax return | What The Folly?!

  8. Pingback: Analysis: Romney paid 14.1% effective tax rate in 2011 | What The Folly?!

  9. Pingback: Commentary: Mitt Romney writes off 47% of Americans | What The Folly?!

  10. Pingback: Transcript: Press briefing remarks by Mitt Romney on the other 47% | What The Folly?!

  11. Pingback: Transcript: Mitt Romney's remarks on Obama voters at a Florida fundraiser | What The Folly?!

  12. Pingback: Analysis: Romney's tax plan would shift tax burden to middle and lower-income Americans | What The Folly?!

  13. Pingback: Romney insists he paid at least 13% in taxes every year | What The Folly?!

  14. Pingback: House GOP rejects Senate tax cut extension package | What The Folly?!

  15. Pingback: Senate Democrats pass middle-class tax cut | What The Folly?!

  16. Pingback: Obama presses Congress to extend middle-class tax cuts | What The Folly?!

  17. Pingback: Obama proposes job measures & tax reforms in 2013 federal budget | What The Folly?!

Leave a Reply

Your email address will not be published.