Time to Reverse the Exploding Income Disparity Trend

Source: https://acivilamericandebate.com/2011/04/10/the-30-year-growth-of-income-inequality/

There is one simple explanation for the explosion in the wealth of the top 1% of U.S. earners, and it is the long-term capital gains tax rate.

This rate, currently at 15%, insures that the wealthiest Americans, who earn the largest percentage of their income in the form of long-term capital gains, will pay a rate comparable to single filers earning up to $37,450 per year.

For example, in 2011 (the last year in which his tax information was made public), former presidential candidate Mitt Romney earned $13,709,608 from a combination of capital gains, ordinary dividends, taxable interest, speaking fees and corporate directorships, but paid only $1,912,529 in taxes for an effective tax rate of 14.1%.

While itemized deductions in the amount of $4,681,842 helped reduce his taxable income significantly, the 15% rate applied to long-term capital gains in the amount of $6,810,176 played the largest role.

Since the rate was lowered to 15% by G.W. Bush in 2003 in the wake of 9/11 (Osama Bin Laden's indirect gift to the super-wealthy), the after-tax income of the top 1% of earners has gone up over 2.5x, while the income of the highest fifth of earners has merely doubled and the income of the middle fifth has stagnated, barely keeping up with inflation.

The principal reason for this is that the the lower your income, the more likely you are to earn it by way of a paycheck or business income, subject to payroll deductions and a tiered tax rate system with a peak rate of 39.6%.

How this is even remotely fair is beyond my comprehension, but fairness issues aside, income disparity on this level is dangerous to our democracy and strains the fabric of society. Therefore, I propose that we begin treating all long-term capital gains like regular income.

If this had been the law in 2011, Mitt Romney's effective tax rate would have been 26.3%, even after itemizing $4.6 million in deductions (including $2.3 million donated to charity). This, I believe most people would agree, would have been a fairer and more fiscally sound outcome.