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Are Romney-Buffett taxes truly that low? Yes

Warren BuffettPersonal IncomeMitt RomneyShareholdersBerkshire Hathaway Inc.

The Web economics argument of the day is whether Romney's and Warren Buffett's tax rates are really 15 percent or lower. Last night Obama reiterated Warren Buffett's argument that Buffett's tax rate is lower than that of Buffett's secretary. Mitt Romney's tax rate for 2010 was way less than 15 percent, his tax return shows.

Their rates and the rates of the wealthy in general are that low for several reasons. The rich have more loopholes to take advantage of and more lawyers to find them than you and I. Since much of their income is in the form of dividends and capital gains, it's taxed at lower rates than ordinary income. Much of Romney's income is in the form of carried interest, which is commissions for private-equity gains but which unlike other business commissions is taxes as capital gain and not regular income.

Greg Mankiw, however (via David Leonhardt), argues that corporate shareholders such as Romney and Buffett should get credit for the taxes paid by their corporations -- that the burden for Berkshire Hathaway's taxes falls just as heavily on Buffett as his personal income taxes. If you add in corporate taxes Romney's and Buffett's effective tax rates go up substantially, Mankew says.

Paul Krugman says this is a crock, adding,  "just the other day the usual suspects were calling for big cuts in corporate taxes, arguing that these taxes don’t really fall on stockholders, they fall mainly on workers and consumers. Now, suddenly, the taxes fall on stockholders after all."

It's the old tax incidence puzzle, which has lent dubious evidence to many an economic argument. Take almost any tax and you can find a group of "victims" whom you can claim are hurt -- consumers or companies or fatcats or the middle class, depending on which side of the argument you want to take. But the theory of tax incidence teaches that the true tax burden isn't necesarily borne by whoever pays the tax. It gets passed along to those least able to avoid it. As we have seen, corporations and their shareholders are very able and skilled at avoiding income taxes.

In any case, billionaires' personal income tax rates shouldn't be merely equal to that of Buffett's secretary. They should be higher.

Copyright © 2014, The Baltimore Sun
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Warren BuffettPersonal IncomeMitt RomneyShareholdersBerkshire Hathaway Inc.
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