Does Paul Ryan want to make the US a tax-free zone for billionaires?

Inspired by this article:

Mitt Romney Would Pay 0.82 Percent in Taxes Under Paul Ryan’s Plan

(my bolding)

It looks like Roll Call has also taken a look at the effect of Ryan’s policies on Romney’s taxes: Paul Ryan’s Tax Plan Would Slash Mitt Romney’s Tax Rate to 1 Percent

(my bolding)

To review, Ryan wants to eliminate taxes on interest income, capital gains, dividends, and the estate tax.

But he would keep taxing earned income (i.e., money people actually worked to obtain).

So, if I get this right, some hypothetical person who inherits a billion dollars from daddy, and then never does a lick of work the rest of their lives, but instead subsists on income from investments (capital gains, interest, and dividends), would never pay a single dollar of federal taxes.

To put a number on it, let’s say that, like Mitt in 2010, they receive $20 million in income from these sources in a given year. They would pay Uncle Sam nothing.

Meanwhile, if I go out and earn $200,000 by the sweat of my brow in that same year, I would get taxed.

In other words, the nation’s entire tax burden would be borne by working people, while the leisure class would be absolved of any financial obligation to their nation.

Did I get that right?

And are there any conservatives who would care to provide a defense of this policy? (I think it is morally indefensible, but please give it a go.)

And I have not searched all the Ryan threads to see if this issue has been raised, but regardless, I think the subject deserves to be a separate conversation.

Nope, you pretty much got it right. But what you are missing is all the jobs Mitt would create.

I cannot understand why the “liberal media” at ABC and NBC have not pointed this out to the American people. I haven’t seen any coverage of this on the evening news on either network, and it seems pretty damn newsworthy to me. Perhaps they have been hypnotized by Ryan’s dreamy blue eyes.

No, according to Google trends they have mainly been hypnotized by his washboard abs.

The part you’re missing is that IF the Republicans gained control of Congress and the White House, they’d get rid of all unions and the minimum wage. That way, the people who are still working for a living would actually be paying less in taxes.

No, see, they will offset these cuts by eliminating loopholes like the (well, I’m just guessing here because they won’t actually list them) home mortgage interest deduction.

So now Mitt won’t be able to deduct his mortgage interest payments from his gross income when calculating his tax burden on the <5% of his income that is actually subject to income taxes.

That sounds about right. Mitt will create so many jobs for working stiffs that will pay taxes, it will offset the lost revenue from the leisure class.

Yeaaaah, about that.

I just assumed that the Romney/Ryan plan to solve the middle class problems is to just eliminate the middle class altogether. No middle class = no more middle class problems. Simple

So no conservatives have any defense for this policy?

One defense would be that most of the money that is invested into the items that generate the dividends, capital gains, etc. was earned as ordinary income at some point, and taxes were paid on it once already.

The other defense is that the long term economic growth of a society is tied to capital investment (that isn’t the idea that if I cut taxes today, I’ll get more jobs tomorrow - it’s the idea that if I discourage capital investment today, over the next few decades I’ll get less capital investment, which will mean less technological development, less factory capacity, etc.).

To me, these aren’t reasons to be bring taxes on those items to zero. To the first argument, there’s kind of a “so what?” response - lots of money gets taxed twice. We need revenue (as a country, gov’t, whatever) and you have to get it from somewhere. Ultimately, you have to get most of it form the wealthy, because poor people just don’t have very much.

To the second point, there’s diminishing returns. If you taxed those items too heavily, you might hamper long term growth - but if you tax them too lightly you get the same effect because the government won’t the funds that it needs to develop public infrastructure (education, roads, good regulatory schemes, whatever). And, as we’ve seen in the past, you can tax those items and still get good development in the private sector - finding a balance is very difficult, but it’s not difficult to see that zero is the wrong answer, imo.

Nonsense. That investment income is new income and the fact that derives from past net income is irrelevant. Example: I make $1000 and pay $200 in tax. I take that $800 and invest it, making $200. I pay $40 tax on that NEW income. Total income for year: $1200. Total tax for year: $240. There is no such thing as “double taxation”.

Except that once you exempt dividends and capital gains you provide a loopholes aplenty for people whose earnings are sufficient to justify more complex financial schemes. It’s relatively easy to “convert” what might otherwise be ordinary income into capital gains or dividends. You just ensure that instead of being paid directly for the value you create, the value you create goes into something that can be sold at a profit, or a company that can pay a dividend. This is the big hidden reason wealthy people don’t like taxation of capital gains.

I’m pretty sure it’s not hidden :slight_smile:

That is one interpretation - others would say that the 200 earned just reflects the time value of money, adjusted for risk. Consider the case where you earn 2% on an investment during a time when inflation is running at 8%. It’s hard to say that your investment has made you wealthier.

But (I think) ultimately the point is that it doesn’t matter if it’s double taxation or not - government revenue has to come from somewhere, and it’s always by fiat - so it really doesn’t matter how someone may or may not want to interpret the ‘fairness’ of the taxation. The right answer is the one that’s agreed to - hence, democracy.

One interpretion, perhaps. The correct interpretation, absolutely. There simply is no such thing as double taxation and invoking that phrase leads one not to be taken seriously.

Hm, so our only defense of a 0% capital gains tax rate is from someone who doesn’t think it’s actually a good idea (assuming I’m correctly reading it as more of a Devil’s Advocate defense). Does anybody seriously believe this is good policy - particularly in the context of a “revenue neutral” tax reform?

I thought the usual argument was that if you own a business, then that business pays taxes on its income, and then if you passed that income to yourself as a dividend, you’d pay tax on the dividend.

At any rate, it’s a dumb argument.

I’m in favor of a zero percent capital gains in many situations with some caveats.

Most people work to earn their income through some sort of employment. Romney inherited some wealth, but most of his money was made in his career at Bain Capital. Once you’ve earned that wealth it should be yours and not taxed again.

But, it’s true that money tends to grow over time. If Romney earns interest on that money should it be taxed?

I think a good example to look to here is house value appreciation. This is a good example of the tax code getting it right, IMO.

If you buy a house and it appreciates while you live in it you shouldn’t have to pay taxes on that increase in value when you sell. It just isn’t fair, and it punishes home ownership and is bad policy. However, we want to make sure that someone who’s career and income derive from building homes does pay taxes. So a builder who builds ten houses a year should pay a tax on the increase in value on the houses he built vs what he spent on them. That’s his income.

The way the government gets around this is with a “two out of the last five” rule. If you’ve lived in the house for two years you don’t pay the tax. There is a dollar limit on it which we could argue about, but the overall concept does a good job separating the people who are professionals vs the ordinary Joe Homeowners. There’s also some unintended consequences, but that always happens. For instance every builder now has to move every two years or turn down a large amount of money.

Tax policy for capital gains should be the same. If you are saving for college or retirement we have some plans in place like 529s and 401(k)s and Roths. Romney actually uses a Roth to keep a bunch of his money from being taxed.

I’d like to see the difference between long term and short term capital gains enhanced. If Romney earned the interest on his money by aggressively day trading or being a professional investor like Warren Buffet, then he should be taxed on it at a higher level, as that is his profession. If he simply invested for the long term, didn’t sell off any of it, and earned a steady return I don’t think he should be taxed on it at all.

You don’t “earn” interest. You earn wages. Interest and capital gains are *unearned *income, which is a highly appropriate name, too.