By John Wasik
(Reuters) – If the president and Congress are serious about income equality and cutting huge breaks for the wealthy, they should raise the capital gains rate.
While the president didn’t mention it by name in his State of the Union speech on January 24, it’s one of the many gorillas in the tax reform room.
There’s no question that the 15 percent rate on capital gains and dividends largely favors super-wealthy taxpayers over wage earners. Just look at Mitt Romney’s tax return. As former Labor Secretary and economist Robert Reich once noted: “It’s a loophole large enough for the super-rich to drive their Ferraris through. About 80 percent of the income of America’s richest 400 comes in the form of capital gains.” (link.reuters.com/gen36s)
According to economist Jared Bernstein, who analyzed Congressional Research Service figures, capital gains and dividends were “the largest single contributor to the growth of inequality from 1996-2006.” (link.reuters.com/hen36s)
Why should those who primarily make money from private equity, financial, business and real estate appreciation and dividends pay more than 50 percent less than wage workers who are subject to the top rate in federal, state, Medicare and Social Security taxes?