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Tuesday, December 6, 2016

Do the right thing on investment taxes

One Tax Policy Americans Yugely Favor
By Gerald E. Scorse, Progressive Charlestown contributor

Related imageNobody likes taxes, but roughly nine out of 10 Americans want income from investments to be taxed at least as much as other income.

Republican leaders, tone-deaf, push endlessly for investment breaks. They close their eyes to a reform enacted under President Ronald Reagan: equal taxes on capital gains, dividends, and ordinary income such as wages. It’s one policy the country would love to have back, yugely.

The nine-to-one margin came from a nationally representative sample of 1,040 individuals; they were polled in August in a broad-ranging tax survey conducted by WalletHub, a personal finance website.

About a third of the sample wanted higher taxes on investments, not just equal taxes. WalletHub said there were “no significant differences by income or age…Across all groups, there appears to be strong support for higher taxes on investment income, relative to current policy.”

The landslide national preference for at least equal taxes on investments—for tax fairness, not tax breaks—meshes perfectly with the populist belief that the system is rigged in favor of the rich. That’s who profits, grossly and disproportionately, from preferential rates on investment income. 

According to an analysis by the non-partisan Tax Policy Center, the top 1 percent of Americans receives over 62 percent of the benefits from lower rates on capital gains, dividends and related tax preferences; for the top 10 percent, the total benefit share is just short of 80 percent.

That’s more than alright with Republicans, whose tax plans will likely drive those percentages even higher—in exactly the opposite direction of the reform ushered in a generation ago by President Reagan. He took Main Street’s side on taxing Wall Street gains, but the GOP likes to pretend it never happened.

Example: the chairman of the House Ways and Means Committee, Rep. Kevin Brady (R-TX), wrote an October op-ed touting Reagan’s landmark Tax Reform Act of 1986. The piece urged Congress to follow suit and pass “Reaganesque” reforms. Not too Reaganesque though; equal taxes on investment income were a key element of that bill.

Preferential rates would return under President Clinton and increase sharply under President George W. Bush. President Obama did bump up the capital gains rate and add an Obamacare surcharge for higher-income Americans—but even for them the levy is still far short of the 39.6% top rate on earned income.

The current Republican blueprint for tax reform, rolled out this summer by Chairman Brady and House Speaker Paul Ryan (R-WI), taxes capital gains, dividends and interest at half the rate of ordinary income.

For most Americans, the final tax plan floated by president-elect Trump contained no investment income changes (though he would, of course, repeal the Obamacare surcharge). Both the blueprint and Trump’s plan call for eliminating the estate tax, putting a golden cherry on top for the super-rich.

Proponents of lower taxes on capital gains often claim that investors simply won’t invest without  a tax incentive. 

The billionaire Warren Buffett, an investment guru, long ago dismantled that argument: 
“I have worked with investors for 60 years and I have yet to see anyone…shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and the potential taxes have never scared them off.” 
The election results may have stunned the pundits and the pollsters, but the signs were there from the start. A populist anger had taken root in America, a lashing out by wounded whites against a system they see as rigged against them. In this case, true: there’s no clearer rigging than a tax code that favors investment income over wages and salaries.

Donald Trump rode the populist tide all the way to the White House. Let’s see if President Trump listens to the populist yearning—the yuge populist yearning—for equal taxes on income from wealth and income from work.


Gerald E. Scorse helped pass the bill requiring basis reporting for capital gains. He writes on taxes. Copyright 2016 Gerald E. Scorse. Reprinted by permission of the author. This article also appeared in The Hill on November 29.