Recently, news came out that Mitt Romney’s effective tax rate was 14%. While that is higher than 97% of the American people, the universal outcry from the left was that Romney didn’t pay enough in taxes. Not so, Romney really ought to have paid no taxes at all. How could I say such a thing? Well, almost all of his income was from investment returns, and there should be no taxes on investments. The capital gains and dividends tax rates should both be 0%. Taxing capital gains and dividends is double taxation. A corporation’s earnings were already taxed — usually at a 35% marginal rate. Profits paid in the form of dividends paid directly to investors were already taxed. Taxing it again is double-taxation. Profits not paid out as dividends increases a company’s value and is reflected in a company’s stock price. So, as stock prices go higher, that too is also based on after-tax earnings — so capital gains are also double taxed. Either way, an investor bears the cost of taxes on corporate profits. In Romney’s case, he invested money into various companies. That money was used to grow those companies and that growth was taxed through corporate taxes. Then, Romney was taxed once again through capital gains and dividend taxes. His 14% effective tax rate ignores the taxes he paid through corporate taxes. Beyond the fundamental unfairness (I love turning that leftist phrase against them) of taxing earnings twice , it’s just bad for economic growth. Economies don’t grow without capital investment, and we should remove every artificial barrier that discourages capital investment. If we want more jobs, we need profitable businesses and new innovation. To get that, we need capital investment to provide the real economic resources to fuel new ventures and expansion. And the higher the capital gains tax rate, the more it discourages risk taking and the less economic growth and innovation we get. Mitt Romney’s investments created jobs and new products and services that benefit consumers. We should cheer his investments instead of taxing it multiple times. We need to encourage more investments like that by eliminating the capital gains and dividends taxes entirely. While it’s tragic that Mitt Romney had to pay so much in taxes, the real loser in this deal is us. We could have enjoyed more new innovative products, more jobs, and a better standard of living had those investments not been taxed twice.
The views expressed here are solely those of the author and do not necessarily reflect official positions of the RLC.
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