You say the first paragraph sums it up nicely for you, but you seem to disagree with it, and think there really is a simple answer, and that capital grains rates (either in general or at least in the specific case of carried interest and/or Mitt Romney) are "unfairly" low.
What is really a capital gain, or even what is income (considering inflated gains that can amount to real losses), isn't so simple.
"Dan is a real estate investor and a carpenter, but he is short of capital. He approaches his friend, Ms. Moneybags, and they become partners. Together, they buy a dilapidated house for $800,000 and sell it later for $1 million. She puts up the money, and he spends his weekends fixing up the house. They divide the $200,000 profit equally."
nytimes.com
That situation is rather like carried interest, except the person getting the "carried interest" is providing a mental service rather than physical labor.
Also
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...Alice and Bob each work a day and earn a dollar. Alice spends her dollar right away. Bob invests his dollar, waits for it to double, and then spends the resulting two dollars. Let’s see how the tax code affects them.
First add a wage tax. Alice and Bob each work a day, earn a dollar, pay 50 cents tax and have 50 cents left over. Alice spends her fifty cents right away. Bob invests his fifty cents, waits for it to double, and then spends the resulting one dollar.
What does the wage tax cost Alice? Answer: 50% of her consumption (which is down from a dollar to fifty cents). What does it cost Bob? Answer: 50% of his consumption (which is down from two dollars to one dollar). In the absence of a capital gains tax, Alice and Bob are both being taxed at the same rate.
Now add a 10% capital gains tax. Alice and Bob each work a day, earn a dollar, pay 50 cents tax and have 50 cents left over. Alice spends her fifty cents right away. Bob invests his fifty cents, waits for it to double, pays a 5 cent capital gains tax, and is left with 95 cents to spend.
What does the tax code cost Alice? Answer: 50% of her consumption (which is down from a dollar to fifty cents). What does the tax code cost Bob? Answer: 52.5% of his consumption (which is down from two dollars to 95 cents).
So there you have it: A 50% wage tax, together with a 10% capital gains tax, is equivalent to a 52.5% tax on Bob’s income. In fact, you could have achieved exactly the same result by taxing Bob at a 52.5% rate in the first place: He earns a dollar, you take 52.5% of it, he invests the remaining 47.5 cents, waits for it to double, and spends the resulting 95 cents...
nytimes.com |
