Mitt Romney told CBS’s 60 Minutes that it’s “fair” for him to pay a tax rate of just 14.1 percent on his investment income of $20 million, a lower rate than someone earning $50,000 a year in wage income:
SCOTT PELLEY (HOST): Now, you made on your investments, personally, about $20 million last year. And you paid 14 percent in federal taxes. That’s the capital gains rate. Is that fair to the guy who makes $50,000 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 35 percent.
PELLEY: So you think it is fair?
ROMNEY: Yeah, I think it’s the right way to encourage economic growth, to get people to invest, to start businesses, to put people to work.
There is little economic evidence to support Romney’s argument that higher capital gains and dividend rates will discourage investment. As Paul Krugman has pointed out, the current very low rate of 15 percent, wasn’t enacted until 2003. Between 1986 and 1997 “long-term capital gains were taxed at close to 30 percent” and under President Clinton, the rate sat at 20 percent, while dividends were treated as regular income. “I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain,” Warren Buffet explains.
Indeed, investors continued to invest, despite the higher rates, and throughout the Clinton period, the nation actually saw stronger investment. So it’s difficult to take Romney’s argument seriously — both because history shows that the wealthy don’t need a capital gains rate 20 points below the top marginal income tax rate (currently 35 percent) in order to invest their money and because Romney himself believes he paid too little in investment taxes, choosing to forfeit $1.8 million in charitable deductions.