Wednesday, August 22, 2012

Why Can’t Mitt Say These Things?

A couple of weeks back, The Naked Dollar begged the Romney campaign to start getting specific. You don’t get a mandate to do big, important things unless you tell the country first, “elect me, and this is what I will do.”

Allow me the fantasy that someone was listening. The piece ran as an op-ed in the New York Post, so who knows? Congressman Ryan has brought wonderful clarity to the race, and he has specifically said you need talk about the big things before you get elected, not after. The bland campaign is no more.

Now I’m going to push my luck and try again. Ever want to scream at the television, “Come on, say it, just say it!” For conservatives, this has long been so, points you just couldn’t understand why your guy wasn’t pounding into the table.

So, here are my two, and both involve taxes. The first concerns Hauser’s Law. Ever hear of it? Didn’t think so. I doubt many politicians have, either. It is the most important fact almost no one knows. (Notice I said “fact,” because it is based on empirical evidence, not fuzzy theory of the sort the Nobel committee is so enamored.)

Hauser’s Law points out that ever since World War II, the average amount that the government collects as a percentage of GDP has averaged 19%, with incredibly little variation:

But here’s the thing, the top marginal rate has varied between 28% and 92%. In case that’s not sinking in, let me put it this way: no matter what the top rates are, tax revenues are about the same as a percentage of the economy. Incredible, if you think about it. High rates discourage economic activity, so they never produce the outcome desired by their political authors. Low rates have the opposite effect.

So, logic would dictate lowering rates until Hauser’s Law no longer held. This would maximize both government revenue and personal liberty, which should please both liberals and conservatives alike, except that if you feed a liberal a Chardonnay or two they will usually tell you the tax code isn’t just to raise money, it’s an instrument of  “social justice.” They need to be called out on that.

My other point concerns capital gains. They are taxed at 15%. This rate is lower than most income tax rates, but that’s for very good reasons. First, this is investment, or “risk,” capital. We want people to risk money on things because this is where jobs come from. Stuffing your cash in a mattress creates no jobs. Bet on a start-up, and your investment probably goes right to someone’s salary. My own start-up, I’m proud to say, has created 40 jobs, but we had to do a hell of a job convincing people it was worth the risk. If their investment in us was being taxed at a much higher rate, it might have been impossible.

Second, money used to make investments was already taxed when the investor first made it as income. It didn’t appear out of nowhere, right? Mitt Romney has been paying capital gains rates because he hasn’t had a job in a while, but all that money was already taxed at higher rates.

These are simple things. Why are they so hard to say?


  1. I think that most if Mitt's income is from carried interest, which is not the same as capital gains (though amazingly both are taxed the same way). He has lots of investment income too, for which there is capital at risk, but this is not the case for carried interest ...

  2. @Anonymous - Romney's been gone from Bain for over a decade, so it seems unlikely he's being allocated GP shares of their funds anymore, which would be the source of carried interest.

  3. Fair 'nuff, not sure if carried interest is reported in Schedule D or E, his E income small relative to D, and D is all blind trust stuff (half from one set up in 1995). In any event, fair to say that most of Mitt's wealth came from carried interest, and was never taxed as ordinary income?