Don’t look now, but the Washington Post is tackling one of the most important issues of fiscal responsibility and distributive justice in the U.S. today — as a straight news story, no less.
Reporters Steven Mufson and Jia Lynn Yang take an unflinching look at how slashing capital gains tax rates at the behest of lobbyists for the wealthiest Americans has widened the gap between rich and poor:
For the very richest Americans, low tax rates on capital gains are better than any Christmas gift. As a result of a pair of rate cuts, first under President Bill Clinton and then under Bush, most of the richest Americans pay lower overall tax rates than middle-class Americans do. And this is one reason the gap between the wealthy and the rest of the country is widening dramatically.
The rates on capital gains — which include profits from the sale of stocks, bonds and real estate — should be a key point in negotiations over how to shrink the budget deficit, some lawmakers say.
“This is something that should be on the table,” said Rep. Chris Van Hollen (D-Md.), one of 12 members on the congressional “supercommittee” tasked with reducing the deficit. “There’s no strong economic rationale for the huge gap that exists now between the rate for wages and the rate for capital gains.”[WaPo]
The story contains some startling statistics: Anyone who earns over $34,000 in salary is being taxed at a higher marginal rate than a billionaire who make millions by selling stock. Most Americans live on salaries. Over the last 20 years, 80% of capital gains earnings have gone to the wealthiest 5% of the population, and about half of all capital gains have gone to the top 0.1%.
Why should income from stocks, bonds, and real estate be taxed at a lower rate than income from wages? The standard excuse is that allowing taxpayers to keep a larger share of their non-wage earnings encourages reinvestment, which benefits the entire economy. The reporters are rightly skeptical of this claim.
The story also hints at how our skewed tax system is eroding fundamental social values, like the value of hard work:
“The way you get rich in this world is not by working hard,” said Marty Sullivan, an economist and a contributing editor to Tax Analysts. “It’s by owning large amounts of assets and having those things appreciate in value.” [WaPo]
Capital gains rates don’t get as much discussion as they should because the issue is so far removed from the day-to-day experience of most voters. Kudos to the Post for drawing attention to this glaring unfairness in our tax system.
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