Fred Wilson chooses non representative numbers to make his point:
But there is a bigger issue here and that is whether it is good policy for someone of Mitt Romney's or my wealth to pay a lower tax rate than the average hard working american citizen.Mitt Romney and Fred Wilson are atypical cases.
The bottom quintile pays 4.3% of income in tax, assuming they have any income. The middle quintile pays 14.2%, the nation as a whole pays 20.7%, and the top quintile pays 25.8%. The top 1% pays 31.2% [1].
The difference between the CBO and Fred Wilson's analysis is corporate income taxes.
Suppose Fred Wilson buys 1 share of twitter worth $100. Twitter then makes $10 of profits, which it does not distributed as dividends [2]. This is taxed at the rate of 15-35%, so twitters balance sheet expands by $8.5/share, i.e. Fred Wilson's 1 share is now worth $108.5. He then sells, and pays 15% cap gains, earning back $107.22. To me that looks like a 27.8% tax rate.
So yeah, go ahead and tax cap gains at individual income rates. But eliminate the corporate income tax while you are at it.
[1] http://www.cbo.gov/ftpdocs/100xx/doc10068/effective_tax_rate...
http://www.cbo.gov/publications/collections/tax/2010/graphic... (Graphs are for 2007 data, not 2006 data. Not much difference though.)
[2] Dividends are taxed at individual income tax rates, except sometimes.
Mitt Romney and Fred Wilson are atypical cases.
The bottom quintile pays 4.3% of income in tax, assuming they have any income. The middle quintile pays 14.2%, the nation as a whole pays 20.7%, and the top quintile pays 25.8%. The top 1% pays 31.2% [1].
The difference between the CBO and Fred Wilson's analysis is corporate income taxes.
Suppose Fred Wilson buys 1 share of twitter worth $100. Twitter then makes $10 of profits, which it does not distributed as dividends [2]. This is taxed at the rate of 15-35%, so twitters balance sheet expands by $8.5/share, i.e. Fred Wilson's 1 share is now worth $108.5. He then sells, and pays 15% cap gains, earning back $107.22. To me that looks like a 27.8% tax rate.
So yeah, go ahead and tax cap gains at individual income rates. But eliminate the corporate income tax while you are at it.
[1] http://www.cbo.gov/ftpdocs/100xx/doc10068/effective_tax_rate...
http://www.cbo.gov/publications/collections/tax/2010/graphic... (Graphs are for 2007 data, not 2006 data. Not much difference though.)
[2] Dividends are taxed at individual income tax rates, except sometimes.