ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

American Dream: Tax Policy Part 1

Updated on July 21, 2019
My Esoteric profile image

ME has spent most of his retirement from service to the United States studying, thinking, and writing about the country he served.



THIS HUB IS LOOKING FOR ANSWERS. For three years now, President Obama has been pushing for a slightly higher marginal tax rate on the wealthy to help pay down the deficit; his reasoning is that they can afford it. For just as long, Conservatives have successfully stopped this from happening arguing that raising taxes on the wealthy, even a little bit, will kill jobs because the wealthy will have a disincentive to invest their money in job producing investments.

Just recently, in the 2012 Republican Presidential Primary, the subject took on new life when Mitt Romney revealed that his effective tax rate on over $20 million in income was around 14% in 2010; this didn't sit well with many Americans, it really seemed unfair. It sure seemed unfair to me with my 19% effective tax rate on an income that was less than 1/100 of Romney's!

Why is Romney's rate so low and mine relatively higher? Because most of his income is taxed at capital gains rate of 15%, which, using the Conservative reasoning, is a reasonable rate given the benefit his "investments" provide America in terms of job and business growth. Well, in Mitt's, and people like him, case, this isn't really true. (Just as an aside, about half of Romney's income was in the form of a salary, just like you and I get, but it was a special salary. Because he was the manager of a particular type of investment company, a sort of a hedge fund, Congress created a special tax break for them; their pay is considered "carried interest" and is taxed at 15%; he managed other peoples money, he didn't invest his own money for this compensation! )

With this as background, let me get to my question about fairness relative to the rational Conservatives use to justify not raising taxes on the wealthy. I took my Turbo Tax and created these three very simple situations.

  1. Taxpayer 1 is married and earned $1,000,000 in interest from a savings account. That is it; no other income or deductions, just a spouse and $1,000,000 in interest. - This taxpayer will pay $319,424 or an effective tax rate of 31.9%
  2. Taxpayer 2 is married and earned $1,000,000 in capital gains from the sale of stock purchased on the New York stock exchange years ago. This taxpayer will pay $142,415 or an effective tax rate of 14.2%.
  3. Taxpayer 3 is married and earned $1,000,000 in qualified dividends from stock purchased on the New York stock exchange years ago. This taxpayer will pay $0 or an effective tax rate of 0%. (There may be a cap, but pretend there isn't for the moment because the example could be changed to pick a figure below the cap and make the same point.)

Conservative reasoning is this is fair; taxpayer 2 should pay the lower rate because it was an investment that created jobs, correct? Well, it could have been, but not in this case. If taxpayer 2 had bought the stock directly from Company A, then yes, a portion of that investment might have ended up creating jobs, but, that is not what happened in my scenario. Instead, taxpayer 2 bought the stock from someone else, not Company A; therefore Company A received no benefit from the investment, hence, no jobs. So, please let me know why taxpayer 2 should get a 15% tax break that taxpayer 1, or a normal wage earner, does not get? Is that really fair?

It gets even worse when you consider taxpayer 3; in this case there is no tax liability at all. The reason is Congress, in a desire to stimulate investment, exempted dividends from certain companies from being taxed. Again, like with taxpayer 2, the reasoning for this being fair is the same - most likely the party benefiting from the tax break did not actually "invest" in any company. Instead, they speculated.

© 2012 Scott Belford


This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

Show Details
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
ClickscoThis is a data management platform studying reader behavior (Privacy Policy)