Tacky Taxes!

Mitt Romney's latest revelation that he pays probably about 15% of his income in taxes has completely shocked the Internets, leaving much gnashing of teeth and rending of garments. How could this guy who makes an annual income in the tens of millions of dollars end up paying an effective tax rate so low?

The answer of course is that the vast bulk of Romney's income comes in the form of long term capital gains, which are taxed at a much lower rate than ordinary income. Why is this? Surely income that is earned by toil shouldn't be taxed higher than income earned by sitting back and watching your money work for you, right?

Well, for all you complainers, keep in mind that this is exactly what we get when we elect the sort of Congressboobs that think the tax system should be tinkered and picked at so that it can engage in not just revenue raising but in social engineering. The tax code is so full of deductions, exclusions, alternate schedules, credits, and so forth, that it should surprise no one that the very rich (who can hire full time tax professionals) can find ways to take their earnings to avoid taxes as much as they legally can. Romney (and rich investors like him) benefit from the lower capital gains rate because Congress wants to encourage more investing, since it's good for the economy. However, the tax code shouldn't be "encouraging" any behavior, but rather just finding the most reasonable and effective way to raise revenue.

Plus, there's just something very wrong with a tax code so complicated that even well-intentioned taxpayers are never really 100% sure that they did their taxes right. Even when they double checked and went to H&R Block. Ask yourself this--if you heard you were going to face an IRS audit, would you think to yourself "no problem, I did nothing wrong!" or "oh crap, what did I do wrong???"

Of course, anyone really favoring true tax reform would have to give up their own goodies--home mortgage deductions, charitable deductions, exclusions of certain benefits from employers--and since no one wants to do that we can't expect our Congressfrauds to risk their careers voting for such a change. So as much as real tax reform is needed--since the economy in the long run is better off with a simpler system, so that people and businesses make decisions that are best for them without "encouragement" from the tax code--I wouldn't hold my breath.