March 29, 2024

Economix Blog: Capital Gains: Romney and the 1%

Few aspects of the division between the 1 percent and the 99 percent have proven so divisive as the fact that the rich often pay a lower tax rate than everybody else. That is because the top federal tax rate on capital gains income is 15 percent, compared with a top marginal tax rate of 35 percent on other taxable income, like wages and salaries, that exceeds $380,000 a year.

The 1 Percent

Looking at the top of the economic strata.

Mitt Romney, the Republican presidential candidate, who has declined to release his tax returns, acknowledged on Tuesday that his own tax rate was “probably closer to the 15 percent rate,” because much of what he earns is from investments. The rich earn far more from capital gains than everyone else. The percentages fluctuate from year to year, but in 2007, the top 1 percent of earners received 20 percent of their income from capital gains, while everyone else received, on average, 2 percent of their income from capital gains. In 2011, according to estimates by the nonpartisan Tax Policy Center, the top 1 percent paid 70 percent of the total federal tax on capital gains.

The center also estimates that the top 1 percent, of which Mr. Romney is a member, pays an effective income tax rate of 18.5 percent, compared to 9.5 percent for the population as a whole. But when it comes to payroll taxes, the rich pay a far lower effective rate than everyone else – 1.7 percent compared to 7 percent – because the income subject to payroll taxes is capped at $107,000.

Mr. Romney might manage to largely avoid payroll taxes, except for those on the $374,000 he makes in speaking fees, said Roberton Williams, a senior fellow at the Tax Policy Center, and he might deduct large amounts for charitable contributions. “Trying to figure out what taxes he actually pays without seeing his tax return is very difficult,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=784668da2e897ce789dba310547ca7cf

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