In his recently unveiled tax plan, GOP presidential candidate Jon Huntsman gets things seriously wrong on the subject of capital gains.
Here's what Huntsman has to say:
- Capital gains and dividend taxes amount to a double-taxation on individuals who choose to invest. Because dollars invested had to first be earned, they have already been subject to the income tax. Taxing these same dollars again when capital gains are realized serves to deter productive and much-needed investment in our economy.
Instead, let's focus on Huntsman's suggestion that taxes on capital gains also amount to double taxation. Huntsman is plausibly correct that the "dollars invested" have been taxed on the front end. But what about the gains from that investment? Under the Huntsman plan, they would never get taxed at all.
Say, for instance, that I mow a few lawns and make enough money to buy a share of Berkshire Hathaway (OK, a lot of lawns, since BRK.A is currently trading at $105,160 a share). All that invested money is taxed (assuming I dutifully reported all those cash payments from the lawn owners). But when I sell that share 20 years later for a kabillion dollars, I get to subtract that hundred grand when calculating my capital gain. In other words, it doesn't get taxed again.
Of course, I do get taxed on $1 kabillion minus $105,160. But that's reasonable since I have never paid tax on that income. And that's what it is: income, just like the money I make from mowing lawns. (Well, not just like it in all respects, but certainly from a fairness perspective.)
Now there are reasonable (although not, to my mind, persuasive) arguments about why we might want to eliminate taxes on investment income. In some vague fashion, Huntsman seems to be groping for a coherent argument about why we should tax consumption rather than income.
But he gets seriously lost along the way. So let's just call this Huntsman plan what it really is: a huge, highly confused, poorly defended giveaway to people who earn lots of money from their investments. For people who can live off investment gains, it delivers the pleasure of a tax-free lifestyle.
And just in case you're wondering, these people are super rich. As Pat Garofalo at Thinkprogress.com notes, "At the moment, the richest 0.1 percent of Americans pay 44 percent of the capital gains tax, and 68.3 percent of the tax is paid by the richest 1 percent. The bottom 95 percent of Americans pay just 10 percent of capitals gains taxes."
So we know who's voting for Huntsman.