CT Blue

The rich have justified their lower rates on capital gains for years using some variant of the argument Willard trotted out on 60 minutes:

Answering a direct question on “60 Minutes” last Sunday, Mitt Romney said it was fair for him to pay a lower tax on $20 million in capital gains than a worker pays on $50,000 in wages “because capital has already been taxed once at the corporate level, as high as 35 percent.”

Romney was echoing a claim contained in an Ernst & Young study purporting to calculate “integrated” tax rates on capital gains and dividends by (listen up, now) combining taxes paid at the corporate and individual levels. The study mixes apples, oranges and tomatoes too, in a crazy right-wing stew.

He delivered his answer with a straight face, to a national television audience, as if it were the gosh-honest truth. In the real world it’s gosh-awful garbage.

The same study was used by the chairman of the House Ways and Means Committee, Rep. Dave Camp (R-MI), in his opening statement to a hearing last week on tax reform and the tax treatment of capital gains. Here’s an eye-opening sample:

“As we consider the economic impact of the tax burden associated with capital gains, it is critical that we focus on the total integrated rate, which is nearly 45 percent, not just the statutory rate of 15 percent. The capital gains tax is often, though not always, a double layer of taxation. For example, in the case of shares of stock, a company’s income is first taxed at the corporate rate. Then, when shareholders of the company later decide to sell their stock, they are subject to capital gains tax on the sale. But the value of the stock they sell has already been reduced by the fact that the corporation previously paid out a portions of its earnings as taxes. So, even if we make current low-tax policies permanent, the top integrated rate on capital gains is actually 44.75 percent – a 35 percent first layer of tax and a 15 percent capital gains tax. If we allow current low-tax policies to expire, the top integrated rate on capital gains will exceed 50 percent.”

(via Truthout)

Now, this argument is bullshit for a lot of the reasons set forth in the article from which I took the quote. But I think there’s one more. The argument is that at the time a stock is sold, its price is depressed by the fact that the corporation issuing the stock has been taxed. If the corporation had never been taxed, each of its shares would be worth more. Doesn’t that mean the price was similarly depressed at the time of purchase? All things being equal, wouldn’t the impact of the tax be the same at both points in time and wouldn’t that imply that the effect of the tax is cancelled out, and the gain to the shareholder is more or less the same whether the corporation pays taxes or not?