- The Washington Times - Friday, January 27, 2012

Each presidential candidate’s position on investment tax rates is a critical issue. The current rates, set by President George W. Bush, will expire at the end of this year, so whoever sits behind the desk in the Oval Office next January will have the power to stop the capital-gains tax rate from jumping to 20 percent and qualified dividends rising to 39.6 percent.

In the GOP debate in Florida on Thursday, Newt Gingrich set aside his attacks on Mitt Romney for not releasing his tax records and offered to lower his competitor’s 15 percent tax bill to zero. The former House speaker would eliminate the capital-gains and dividend taxes, which are the levies posed on investment income. “My goal is to shrink the government to fit the revenue, not to raise the revenue to catch up with the government,” said Mr. Gingrich.

Even though Mr. Romney earns his current multimillion income from his investments, he favors keeping capital gains at its current rate. He would lower it to zero for families with a combined income below $200,000. While he might be advocating this policy to avoid accusations of favoring his fellow uber-rich, the former Massachusetts governor is playing Mr. Obama’s class-warfare game.

The president ratcheted up his rhetoric against the “rich” recently, making it the central point in all his campaign speeches. “Warren Buffett pays a lower tax rate than his secretary,” claimed Mr. Obama on Friday. “I know because she was at the State of the Union. She told me.”

He’s justifying the tax hike on the ridiculous claim of Berkshire Hathaway’s chairman that by paying 15 percent capital-gains tax instead of income tax, he’s paying a lower rate than his assistant, Debbie Bosanek, who sat in the first lady’s box on Tuesday. The billionaire investor said his secretary pays a whopping 30 percent on her comparatively paltry $60,000 salary.

This is highly unlikely given Internal Revenue Service data that show the average effective tax rate for someone in her bracket is 11.6 percent. Only if you add the full 6.2 percent payroll tax rate (which has been cut in half for a year and is technically savings for retirement) would you get above her boss’s rate.

To rectify this non-issue, Mr. Obama is asking to hike the income-tax rate to 30 percent for those with a combined income making over $250,000. This won’t even affect “the rich” like Mr. Buffett or Mr. Romney who, as investors, pay most of their taxes through capital gains, not the income tax. This is an important distinction, but it doesn’t fit neatly into a campaign slogan as easily as “that’s not fair.”

The tax code is unfair because of loopholes and special carve-outs, not because of the rates. To get the economy moving, we need more investors to risk their capital betting on American firms to succeed. The best way to do that is by eliminating the capital-gains tax.

Emily Miller is a senior editor for the Opinion pages at The Washington Times.