This is one of the best explanations of tax rates (income vs. capital gains) that I have seen.
The recent discussion of the “Buffett Rule” proposal to increase taxes on the wealthy has focused attention on U. S. tax rates. It’s giving Americans a chance to better understand our tax policy and the economics of the free market system.
Mitt Romney, the probable Republican Presidential candidate, has come under attack from both Democrats and other Republican primary candidates for his high income and net worth and his low overall tax rate. The arguments are that Romney made his money by the wrong type of capitalism and that he pays too little in federal taxes.
The tax returns Romney has made public show most of his money comes from investment returns on his holdings rather than from wages or a salary. His overall tax rate in 2010 was 13.9% and his estimated rate for 2011 is 15.4%. This caused a predictable outcry that his tax rate is lower than the income tax bracket of many middle class Americans.
President Obama’s 2011 tax return shows a tax rate of just over 20%. Former Republican candidate Newt Gingrich paid 31% of his 2010 income in federal taxes.