Last night as I was watching the State of the Union, I was also texting with a conservative friend of mine. He was defending lower tax rates for income like Romney’s and Warren Buffet’s. The idea seemed to be that since they had already paid income tax on the money they used to make those investments, they shouldn’t then pay taxes on money earned by those investments, because that’s double taxation, and that’s bad. My same friend also made the point that if it’s taxed at the same rate as regular income, then it would unfairly impact seniors and others who depend on investment profits and interest for retirement income.
The double taxation argument holds no water for me. Not even slightly. Why should it? Look, as it stands I experience double taxation. I live in Arizona. The sales tax rate here is about 7.3%, with 2% on food in Phoenix. This means that I buy things with income I’ve paid taxes on, and then I pay sales taxes on those items. Same with anyone who pays property taxes. You bought a house with your income that has been taxed and now you pay taxes on that house. Sure, it’s annoying in some ways, but by the very nature of taxation, just about tax after the standard income tax is a double tax.
As for the retirement argument, that’s more valid, but there’s a simple way around it. Just make it so that, say, any income through investments and the like is taxed at about 15%, as it is now, but then scale it up from there, just like with income tax, and top it off at around 35%. I mean, if you’re like Romney and earn $42 million in investment profits and the like, possibly you can afford to pay that at a normal tax rate.
So, yeah. Double taxation may be a thing, but we all do it, and I have no objection to saying that if you’re pulling in investment income at an extremely high level, it should be taxed just like any other income.