Day 1177 – A Bunch of Dumbasses

While I expect most of what Jackass has to say to be useless, I have to take issue with the shallow interpretation of something that is not well explained. You would think that capital gains tax is a special tax rate created just for millionaires so they can get out of paying taxes. In reality, it’s like many other taxes. The government robs Peter to pay Paul.

What is capital gains? It refers to the bulk accumulation of money from a disbursement. Most of the so-called 99% would experience this in the case of a home sale. It’s possible to sell a home for 10 times your annual salary and enough to put you in another tax bracket. Not only would you have to pay 10% more tax on that sale, your increased income would mean paying higher income tax as well.

So there’s the capital gains tax. You pay a lower rate for something that you receive money from. It presupposes that someone else along the way is paying some tax on this money before it gets to you. This is the case for investment income. Guys like Warren Buffet and Mitt Romney are paying the second tax when they pay capital gains tax (assuming Berkshire Hathaway actually pays their federal taxes this year).

So, let’s say Mitt Romney invests money in the Rainbow Corporation. This is a ridiculous example, of course, because Romney’s money is in a blind trust. He can’t personally invest. Still the Rainbow Corporation never donated to the Obama campaign and isn’t connected to the Democratic Party. As such, it has to pay the full 35% corporate tax rate.

If Mitt Romney has shares on Rainbow Corporation stock, he is entitled to a certain amount of return on each share. Let’s say his dividend is $10,000. But wait a second. That $10,000 is 35% lighter. The Rainbow Corporation paid 35% tax, or $5385 on what started out as $15,385. Mitt Romney pays another 15% or $1,500. In this case, rather than only paying $1,500 tax on $10,000, the feds gets $6,885 from $15,385. That’s 44.8% tax, more than the top rate under Bill Clinton.

Now, this could turn out differently. If Romney had stock in GE, which paid no corporate income tax, (thanks, Obama Administration) the only tax paid would be the capital gains tax. Even then, the money was subject to taxation twice. In one case, the corporation weaseled out of it. That’s on the company that took in the money, not the investor who gets a capital gain.

Let’s look at something a little different now. Let’s say you are the average Joe and you earn $40,000 in salary (or hourly pay) in a year. Of course you know that you pay about 6% in FICA or Social Security. This year you may pay 4%, but that’s not the point. Whichever rate is in your paycheck, that’s not what the government gets. Every employer (except for those who pay people as 1099) pays another 6% (even under the payroll tax “holiday”) of a worker’s salary as FICA taxes. What this means is that while you “make” $40,000, you cost the company $42,500 in pay costs.

If I were one of the dumbasses, I’d be more concerned about how I was being double taxed, rather than how Mitt Romney may or may not have income that is double taxed.

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