The Double-Taxation Shell Game

Over at NRO, John Hood revives an argument we haven’t heard for awhile:

A competent presidential campaign, one that could really pose a challenge to a sitting president with a massive war chest and organization, would never settle for the media spin that Mitt Romney had a 15 percent federal tax burden over the past two years.

A competent campaign, and candidate, would explain that Romney’s real federal tax rate on his investment income was more than 40 percent (being conservative, after deductions and such), since the revenue stream was subject to both a personal tax rate and the corporate tax rate.

Shall we? Let’s.

Let’s, for example, point out that if you’re working for a company, and not investing in it, you’re paying full taxes on your income. Oh, but you’re not drinking from the revenue stream, are you? No, but if that revenue stream dries up, you’re out on the street. Mitt just deducts the loss.

Let’s also point out that as an investor, you’re protected from that company’s misbehavior. If, say, you invest, and then the company takes a crushing loan to bestow you a healthy return on that investment, you’re not on the hook for paying it off. And if the company collapses under the weight of that crushing loan, no problem! You’ve already turned a profit! Ain’t capitalism wonderful?

But let’s get down to it. “Capital gains” actually covers two very different things: stock sales, and dividends. (Yes, this is the Schoolhouse Rock version.) If, say, we bought a share of Apple for $20 twelve years ago, like we joked with a friend about doing at the time, that share would have been worth $420 at 4 p.m. yesterday. (And maybe $450 at 9:30 a.m. this morning, following Apple’s blockbuster quarterly earnings.)

Problem is, we would have to sell that share to see that $400 capital gain. Apple hasn’t paid a dividend since 1995.

That’s right: Apple has kept its Revenue Stream all to itself.

So the argument that stock sales are double-taxed is specious — or, as economists put it, “a crock of shit”. They were never taxed to begin with. Apple investors don’t see a penny of Apple revenue — it’s all in the value of the stock when bought and sold.

That leaves actual dividends: A company earns a profit, pays corporate taxes on it, then pays a dividend to investors from what remains, for which the investors pay their own taxes. We won’t bother looking into how Mitt’s capital gains sort out – let’s just presume it’s all dividends. Aren’t those double-taxed?

The answer is, well, metaphysical.

We’re a freelancer — a sole proprietor. Our business income is our income. A few years ago, we started a t-shirt company. It failed. It’s losses were our losses — mainly because we didn’t bother setting it up as a limited-liability partnership. (No worries — ours was primarily sweat equity, and the company never risked more than another dude had put up in cash.)

Had the t-shirt company met with some initial degree of success, then we would have gone to the trouble — and expense — of some form of incorporation. An incorporated company — a legal person, if you remember your Citizens United — offers its owners and investors substantial protections against personal liability. Substantial legal protections — not because corporations exist in nature, but because that’s how our laws treat them.

Thus: Steve Jobs may have founded Apple, he may have run Apple — but despite appearances, Steve Jobs wasn’t Apple. (Just ask him when he got fired the first time.) His finances and Apple’s were entirely, legally separate.

And that “revenue stream”? Apple’s. Not his.

The moment that dividend is paid, it’s paid out — out of one legal entity, and into another. That makes it a transaction, and Hello, IRS!

If you want to argue that it’s the same money, the same “revenue stream”, fine. And we’ll happily agree with you — just as soon as we change the laws governing corporations to match. And if Mitt wants to take personal responsibility for his investments — like they used to at Lloyd’s of London — then he’s welcome to enjoy the freedom of “single” taxation. Until then, pay your fucking taxes, you fucking tax cheats.

Key Test for the Romney Campaign [NRO, via Sully]
17 Comments

Basically what these guys are arguing is that Romney gets to count the taxes that his company paid as his own, but the rest of us do not get to count the taxes that the companies we work for as our own. Why? Because Romney ran a company whose sole business was trading little pieces of paper back and forth and loading up other companies with huge debts from which they paid themselves generous salaries and bonuses (leaving whoever was left behind after the mass firings to try and figure out how to pay off those debts). The rest of us work for companies that actually do something useful (in my case, deliver electricity to people who use it to light their homes) and so those taxes don’t count.

And when you consider what taxes are ostensibly for — to pay for services — shall we count the ways that corporations are serviced by our government?

@¡Andrew!: Literally true. He conceived the video to show off the tees.

@nojo: Where’s the linque to the video? Any tees left?

@nojo: I’d also like to mention the money Bain Capital spent for the personal benefit of Willard Mitt Romney and then wrote off as business expenses to be subsidized by all the rest of American taxpayers. That’s a tax break reserved for business owners that makes it a no-brainer for every American to start at least one business of their own. I’m sure this son of wealth and privilege took full advantage of Bain’s pot o’ gold.

@Dodgerblue: That would have saved me about 75 percent of the post…

@Dave H: Even more relevant is a Daily Show segment broadcast after I wrote this last night. Private-equity firms — including Bain Capital — lobbied hard a few years back to keep their partner income taxed as capital gains, and not conventional salaries and bonuses.

Bruins may sack player who boycotted White House visit.

http://deadspin.com/5879151/it-sounds-like-the-bruins-are-ready-to-say-goodbye-to-tim-thomas-free-citizen

Embarrass a Boston team owner and you’ll pay. Gronkowski had to personally apologize to the Patriots’ team owner for tweeting pictures of himself and a pron actress wearing his jersey early in the season.

http://deadspin.com/5853538/rob-gronkowski-had-to-apologize-to-bob-kraft-for-those-twitter-photos-with-the-porn-actress

@redmanlaw: that’s the way it works. you gotta play along to be on the team. around christmas, we had a contest in our office to generate applications. top 3 winners earned gift cards and dinner at a brazilian all you can eat gaucho type place that kicks ass. two morons decided that having such a contest around the holidays was way uncool and they refused to participate like our free born citizen here. so when the contest was over the boss announced the first and second place winners and then said everyone else tied for 3rd except of course the two morons. the boss moved the dinner to lunch so the two morons had to show up and man the phones while the rest of us chowed down and enjoyed spending our gift cards the rest of the day.

@jwmcsame: “There is no “I” in Justice League of America.” – one of Penny’s dumb boyfriends on “Big Bang Theory.”

@redmanlaw: Please, please let him take Deadspin’s bait and say his rights are being violated by the free market.

@nojo: Why you gotta go and post that video of SCP? I’ve successfully refrained from seshally harassing my fellow Stinquers for quite some time (golf claps), and now I’m gonna have inappropriate thoughts all freakin’ day. Heez so cuuuuuuuute! Hubba hubba!

@¡Andrew!: Don’t worry, he’s used to it. SCP sets off everyone’s gaydar, despite his own ravenous taste in the other direction.

@nojo: Be that as it may, I’m gonna have to hold a book in front of my lap whenever I need to walk around the office.

@nojo: I love it! I’m stunned you didn’t sell a million tees!

@karen marie has her eyes tight shut: It would have helped if our self-proclaimed Marketing Guru knew shit about marketing…

But heck, he put up the money.

Add a Comment
Please log in to post a comment