Warren Buffett Is Right
The revelation that
Technically, the breaks that Romney enjoys are available to anyone with investment income, but the vast majority of this type of income goes to the rich. We recently calculated that about a third of taxpayers with incomes exceeding
We then looked at taxpayers with incomes between
How do multimillionaires justify their low effective tax rates? Many, like
Others argue that special breaks for investment income are necessary to encourage investment. This is absurd, given that people with money invest in order to profit and that is motivation enough. But this argument is even more absurd in the case of wealthy fund managers like Romney, who use a loophole to characterize even their income from work as investment income to enjoy the lower tax rates. (This is the loophole for "carried interest.")
Still others, including Romney himself, argue that much of their income represents corporate profits that have already been subject to the corporate income tax of 35 percent before they were paid out as stock dividends. This is nonsense. At least a third of Romney's income took the form of "carried interest," which is actually compensation for his work in managing other people's money, and this is certainly not corporate profits.
Even in the unlikely event that all of the rest of Romney's income did come from corporate stock dividends or gains on the sales of those stocks, there's no reason to think that the corporations involved paid 35 percent of their profits in corporate income taxes. We recently studied most of the Fortune 500 corporations that have been profitable for each of the last three years and found that their average effective tax rate over the three-year period was just 18.5 percent. Thirty of these companies paid nothing at all.
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