You may be screaming, "but that's my tax rate! How unfair!"
Here's why you're wrong. Mitt Romney paid exactly the right amount of taxes.
If you made $10 million a year, and your tax rate was roughly 33%, wouldn't you try to save money? Of course you would. You would hire an accountant, and you would look for tax breaks, credits and discounts that would reduce the amount of money you have to pay.
Mr. Romney did this successfully, primarily by using a tax credit for large charitable donations. Mr. Romney donated about $1.6 million per year to his church and other charities. He gave away more money than he paid in taxes. Few readers of this blog made charitable donations at a higher rate than their personal tax burden.
What this tells us about Mr. Romney is that he chose to contribute his wealth to specific charities rather than to use the money to pay taxes. I don't know about you, but I would prefer to direct my money to organizations and people I deem worthy, than to contribute to a massive federal budget.
Next, Mr. Romney earns most of his money, as do most of the wealthy, on dividends and investment income. If you don't play baseball for millions, or have the next Harry Potter under contract, you probably make your millions by investing.
Investment income is taxed at a lower rate than personal income. Most wealthy people pay 20% on capital gains. Additionally, some of those investments will lose money, and these losses can be counted against income.
Mr. Romney made his living as a venture capitalist. He has investments in many companies. Obviously, his retirement funds from being governor of Massachusetts doesn't play this well. That money is taxed at a higher rate.
So, most of his income was taxed at 20% instead of 33%. His charitable donations reduced his taxable income enough so his total tax burden was slightly under 14%.
If you hate that a guy who makes $20 million from investments only pays $3 million in taxes, I understand. However, you elected the people who made those policies.
Investment income appears to many as unearned money and undertaxed, but that's not true. The truth is that investors take a risk with the money they've already earned. This money has already been taxed once, sometimes when they earned it, or possibly when a relative or ancestor earned it. At some point the original investment had to have been earned and taxed.
These investments provide jobs. Without them large companies would be nonexistent, and small companies would struggle to survive. Much of the quality of life we enjoy in the United States is because of investors who take their earnings and re-invests them into companies.
Some countries don't have a strong establishment for public investing. Because of that the rich are very rich, and the poor are very poor. Look at some of the Middle Eastern nations where a single family controls tens of billions in wealth, while much of the population can barely get by. The poverty level in US is more than 10 times the annual salary of workers in many other countries. If you don't like investors, I recommend looking at the economies of Libya, Saudi Arabia, Iraq, and many other countries.
It's necessary that capital gains taxes be lower than personal income tax. This encourages wealthy people to invest, rather than starting new businesses, or simply hoarding the cash. When the wealthy create new businesses, the chance of losing that investment is much more significant.The losses from the unsuccessful ones act as tax havens. If we raise capital gains taxes to 33%, investors will focus more on high-risk investments that are self managed, and you would see an increase in bankruptcies without realizing additional tax revenues.
People will be screaming about the rich controlling the economy, but truth be told, I'd rather have a savvy business person who makes solid business decisions influencing our economy.
This isn't a endorsement of Mr. Romney. You need to vote based on who you think will best lead America into the future. People who rant about his tax payments are uninformed and shortsighted, so don't jump on the bandwagon.
I urge you to research the all the candidates thoroughly, then cast your vote. If you choose not to do the homework, please don't vote. Allow us who are well informed choose on your behalf.
Sources: CNBC, Townhall.com