Barack Obama, during the State of the Union address, called for the wealthiest Americans to pay their "fair share" in taxes in order to boost the American financial picture during these turbulent economic times. This gives rise to the question of what "fair share" taxes might be and what the net result of any attempt to pass legislation to raise taxes on the so-called rich might turn out to be, other than a short term election campaign strategy. This time for Democrats, but previously of Republicans as well.
The still presumptive GOP frontrunner for the Republican nomination to challenge Barack Obama for occupancy of the White House, Mitt Romney's tax rate of roughly 15% on more than $20 million in recent annual investment income, mostly capital gains and dividends, has come under fire as being immoral. Romney himself has been described as immoral for paying only the required amount, although he also contributed another 15% to charities.
How accurate is that 15% tax figure really? In order to earn dividend and capital gains income, income taxes would have had to be paid first by the corporations in Romney is financially invested. The U.S. corporate tax rate is in the neighbourhood of 35%.
Why doesn't Romney then simply release his estimated effective tax rate? A Wall Street Journal op-ed quotes Brad Melt, Romney's trustee, describing this as "a tempting exercise" but impossible because it would require the tax returns of all the underlying companies Mr. Romney holds.
Politicians should also be careful about at whom they point the finger.
Republicans are already reminding Democrats their 2004 presidential nominee John Kerry and his heiress wife Teresa Heinz paid tax at a 13% rate in 2003, on income of $5.5 million, a fact not ignored by the Bush campaign for re-election at that time.
The effective U.S. middle class tax rate, by the way, is approximately 9%.
Without question the "fair share of taxes" issue will resonate through the U.S. general election. There will be claims and counter claims, many, if not most purely political. Consider Mr. Obama's suggestion that fairly taxing the ultra-wealthy will assist the United States financial picture. The Wall Street Journal points to IRS data that just over 8,000 Americans earned more than $10 million in 2009. Raising taxes on 8,000 individuals, or even confiscating their entire fortunes would hardly meaningfully dent the $15 trillion and climbing U.S. debt. And that includes Bill Gates and Warren Buffett.
Certainly that Mitt Romney's tax rate was lower than that of Buffett's assistant is a politically useful headline and campaign tool and perhaps the American tax system is in need of complete overhaul.
What is clear, even to the casual observer, is that the U.S. in order to stabilize its hugely concerning financial woes is in need of a bipartisan supported fiscal plan which eschews all Washington campaign trickery.
Good luck with that in 2012.
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