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Mitt Romney -- with an MBA/JD from Harvard -- apparently has no idea how he makes his money or how it is taxed.  His appearance on "60 Minutes" included the following exchange with Scott Pelley (courtesy of Fox News):

PELLEY:  Now, you made on your investments, personally, about twenty million dollars last year. And you paid fourteen percent in federal taxes. That's the capital gains rate. Is that fair to the guy who makes fifty thousand dollars and paid a higher rate than you did?

ROMNEY:  It is a low rate. And one of the reasons why the capital gains tax rate is lower is because capital has already been taxed once at the corporate level, as high as thirty-five percent.  . . .

No, Mitt, that's not it at all.  Some people who favor special treatment for corporate DIVIDENDS argue that dividends are distributions of profits and that profits are what is left over after the corporation has paid its taxes.

But capital gains are the profit the INDIVIDUAL makes as an investor when selling an asset like shares of stock.  That profit has never been taxed at the corporate level because it never belonged to the corporation.  The investor typically does not buy his stock from the corporation, and doesn't sell it back to the corporation.

Rather, the argument for taxing capital gains at a lower rate is basically that you need to use tax policy to encourage people (like venture capitalists and startup business owners) to invest in new companies, just as you encourage them to invest in houses by allowing them to deduct mortgage interest and taxes.  Nothing to do with so-called "double taxation."

So Mitt evidently does not know the difference between dividends and capital gains, despite having an MBA and a JD and having run numerous companies.  Or else he just says anything in the hope that most voters will be confused and shut up.

By the way, the venture-capitalist argument for lower capital gain rates is entirely phony.  Most capital gains are not generated by a company's founders or venture capitalists -- rather, they are from sales of stock of long-established companies by investors who bought on the stock exchange from other investors.  That capital is not "put at risk" in the same way a startup company's capital is, and it does not enable the company to hire any additional workers, because it doesn't go into the corporate treasury.  When the stock goes up, it may make the corporate directors happy (because they also own shares) but that still does not benefit the corporation, its employees, its suppliers, its customers, or anyone other than the investor who sold the stock.  (Caveat:  some corporations buy back their shares, and to that extent a rise in stock prices helps them, but they still do not get the benefit of -- and have never been taxed on -- the capital gain received by a stranger who happened to buy their stock on the NYSE.)

And let me get this straight.  If you were a venture capitalist and the capital gains rate were to go up from 15% to 28%, you would stop investing in new companies and ... do what, exactly?  Get a job at the post office because now there's no tax advantage to being an investor?

(The "double taxation" argument regarding dividends has a little more going for it, but not much.  Yes, corporations pay income taxes (or should).  And those taxes reduce the amount of dividends they pay to stockholders, so the stockholders feel the dividends have "already been taxed."  Of course, if the stockholders didn't pay income taxes, they would have more money to pay their gardeners with -- so why don't gardeners whine about their income having "already been taxed"?  

Because they're gardeners, of course, and who listens to them?

Originally posted to Malbone on Mon Sep 24, 2012 at 10:25 AM PDT.

Also republished by Community Manifesto Initiative.

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