Saturday, August 20, 2011

Are Tax Rates Fair?

In the article Questioning the Dogma of Tax Rates, James B. Stewart comments on Warren Buffett's assertion last week that wealthy people (Buffett wealthy, not regular people wealthy) should pay more in taxes.

Among Stewart's more interesting comments:

Unless Congress is willing to say baldly that hedge fund and private equity managers are a special class who deserve to pay higher taxes — a potentially dangerous effort to use the tax code to punish a group of people who are in disfavor largely because they make a lot of money — policy makers are going to have to confront a much broader and potentially far more explosive question: why are all capital gains, not just carried interest, treated more favorably than ordinary income?

He makes the case that capital gains should be taxed at the higher ordinary income rates, a position that conservatives treat as heresy. Here's a point that Republicans need to remember:

The most prominently successful advocate of a drastically simplified tax code that treated ordinary income and capital gains the same was Ronald Reagan, who made it a centerpiece of his successful 1986 tax reform proposal. (The lower rate reappeared as part of the Taxpayer Relief Act of 1997, championed by Newt Gingrich, the former Republican speaker of the House, and signed by Democratic President Bill Clinton.) 

Perhaps the sliding stock market and the risk of another recession will goad Congress into a grand compromise. Don't hold your breath, though.


  1. Raising capital gains taxes would be sensible, but we should keep the capital gains rate low for long-term investments in sectors that directly create domestic jobs with above-average wages over the period of the investment. It takes away the 'raising taxes on job-creators' argument. The IRS, SEC and Labor Department have the numbers to enforce this, and the accounting industry will love it.

  2. Good point Richard. Nobody wants to soak the rich and job creation needs to be the first priority now.