On 60 Minutes, Romney said,

[mary195149]

referring to the capital gains tax rate, "Capital has already been taxed once at the corporate level, as high as 35%". Can someone explain to me what this means.
I know the individual will pay the 15% rate, but where does this corporate level being taxed fit in?

[garthranzz]

1. Corporations are people

Romney runs a corporation

Romney is a people.

He's taxed as a corporation people and a people people.

[elleng]

3. Depends. One may just be discussing the corporations' capital increased over time

due to ?progress?, sales, efficiencies, etc., for which corporations pay (really don't, much, often) taxes. Stockholders may benefit from the gains of corporations if/when they sell the stock they own. Thought point: What IS a corporation? An entity itself, or an agglomeration of stockholders and/or their money. Would really have had to hear his discussion to be more clear.

He is a tax 'specialist,' appears to spend much of his efforts in avoiding paying taxes, so probably has some thoughts on this.

[VPStoltz]

4. It's just another smoke and mirrors diversion...

EVERYTHING is taxed over and again: the raw materials, the income on the transportation of them, the company that makes a product, the employees who make the product, when the product is purchased by a vendor, when the product is purchased by a customer.
Robbedme is trying to deflect this by complaining that his millions are get taxed at all (at a measly 13%) no less.

[theKed]

7. I certainly don't care

(at least in this context) how much those millions get taxed. What I DO care about is how much YOU get taxed, Mr. Romney. It doesn't matter if that money gets taxed 5 times or 50 times before it hits your (hidden, offshore, protected) bank account if you don't pay a dime on it.

[SunSeeker]

5. It's called wanting your cake and eating it too.

The rich want to hide behind their corporations for purposes of limiting their liability, loving the legal status that a corporation is a separate entity when the lawsuits start flying over, say, a billion-dollar oil spill. But if they are going to play this corporations are separate entities game, then they can't claim credit for any tax that corporation paid. The corporation paid that, not them. And so what if these rich investors then have to pay capital gains on their shares in the corporation that have increased in value thanks to the corporation doing business competently? The corporation already paid taxes on its operations, they say. Well which is it? Is the corporation a separate entity or just your liability-avoiding alter ego?

This double taxation hooey makes about as much sense as a worker saying he should not have to pay taxes on his earnings from his job at that corporation because that corporation already paid taxes on its operations.

Also ludicrous is the suggestion that corporations pay 35% in taxes. The effective tax rate for corporations in the U.S. is 12.1%, much lower than most other developed nations.

http://thinkprogress.org/economy/2012/03/30/456005/reminder-corporate-taxes-very-low/

[lapfog_1]

6. What he means is

he buys a share at $100, sells it at $200... leaving a "capital gain" of $100.

That is taxed at 15% or $15 leaving an after tax profit of $85 on his $100 investment (which was already accounted for).

But, for the company to increase in value by $100 a share, is might have done a number of things...

These include the following:

something it already owns increased in value (patent, land, commodities, investments in other companies).

or

the company increased it's profit margin or sales of a product or service... and such sales are taxed.

So he is likely referring to the second of two common ways for a stock to increase in value.

Of course, Mittens is leaving out some important details.

The stock price is not directly tied to sales or even profits, it is often traded at a multiplier of those sales, typically for a "high flying tech stock" 30 TIMES the profits... so a small tick up in profits (EBITA) or even post tax profits (and almost no sane company allows those pre-tax profits to be taxed at 35%) can turn into a huge tax spike... so the theory that it is taxed twice is just complete bullshit.

[DreamGypsy]

8. Corporate Tax Dodgers

First of all, when Romney says "Capital has already been taxed once at the corporate level" he is misspeaking.

From Wikipedia on Corporate tax in the United States:

Corporate tax is imposed in the United States at the Federal, most state, and some local levels on the income of entities treated for tax purposes as corporations. Federal tax rates on corporate taxable income vary from 15% to 35%. State and local taxes and rules vary by jurisdiction, though many are based on Federal concepts and definitions. Taxable income may differ from book income both as to timing of income and tax deductions and as to what is taxable. Corporations are also subject to a Federal Alternative Minimum Tax and alternative state taxes. Like individuals, corporations must file tax returns every year. They must make quarterly estimated tax payments. Controlled groups of corporations may file a consolidated return.

So, corporate taxes in the U.S. are on the income of a corporation, just like income taxes for individuals. They are not (as far as I understand) taxes on the real capital, aka assets, of the corporation.

From Wikipedia on Capital Gains Tax:

A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a cost amount that was lower than the amount realized on the sale. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations.

So, tax on capital gains is a tax on sale of an asset (real capital) when that sale produces income, eg. buy a share of stock for $2, sell it for $3, and incur a tax on the profit/income of $1. The rate of tax in the U.S. typically depends on how long the asset is held (short term or long term capital gains) and the individual's tax rate on ordinary income. A corporation may have capital gains as part of the income of the corporation (eg. corporations can hold and sell stock). I assume that corporate capital gains are taxed at different rates than regular corporate income...but since I am a person and not a corporation and have never filed corporate taxes... I don't know this to be a fact.

Bottom line, though, corporate taxes are taxes on income, so Romney is at least disingenuous in saying capital is taxed twice.

So, what rates of taxes DO corporations pay??

Here's a link to Citizens for Tax Justice, Corporate Taxpayers & Corporate Tax Dodgers, 2008-2010

NEW REPORT: 280 Most Profitable U.S. Corporations Shelter Half Their Profits from Taxes.

“These 280 corporations received a total of nearly $224 billion in tax subsidies,” said Robert McIntyre, Director at Citizens for Tax Justice and the report’s lead author. “This is wasted money that could have gone to protect Medicare, create jobs and cut the deficit.”

30 Companies average less than zero tax bill in the last three Years, 78 had at least one no-tax year.

Financial services received the largest share of all federal tax subsidies over the last three years. More than half the tax subsidies for companies in the study went to four industries: financial services, utilities, telecommunications, and oil, gas & pipelines.

U.S. corporations with significant foreign profits paid tax rates to foreign countries that were almost a third higher than they paid to the IRS on their domestic profits.

There are links on the site to press releases, summaries, and a 71-page detailed report on what (some) corporations actually pay in taxes, and how they do it. Good reading. Enjoy

[Marsala]

9. Romney meant that the capital gains tax used to be 30-35%, which is close to the corporate tax rate

There's no direct connection, but the numbers were close.

[MrSlayer]

10. The money originally used to make an investment has already been taxed.

So any money made off of money should be taxed at the lower rate because of it. That's the the way they look at it.

Further investments made with the money made off of money never reverts to the originally "taxed" status though.

I might go for the idea otherwise.

[TreasonousBastard]

11. Lotsa confusion over this...

but it looks like he's getting at the old "double taxation" nonsense that's been passed around.

Capital gains taxes are lower than income taxes because, theoretically, someone investing has a greater risk of losing the money than a worker and the investment has the higher purpose of increasing employment and economic activity. That's often bullshit, since it usually merely means just holding a security for over a year before selling it at a profit. It happens, but rarely does anyone take out capital gains from a startup or actual capital investment that made it big-- the original point of a low rate of capital gains taxes. Even at times when that is the case, as with Bill Gates-- one billion, two billion... does he really care?

(Lady GaGa, btw, is on record as saying she had to get drunk before signing her first serious check to the IRS since every penny of the millions she made that year was pure income taxed from the first dollar with few deductions and no exempt income.)

The theory gets stranger when they argue that the corporation behind the stock paid taxes on its earnings, depressing the value of the stock, so the profits on the stock sale were less than they would have been if the company never got taxed.

This is fairly obvious bullshit, but Congress has been sold on it.

One edit-- there's another bullshit argument about double taxation-- since stockholders are owners of the company, the corporate taxes paid were ultimately paid by the owners so they shouldn't have to pay any more. A marvel of circular thinking that one, and there are probably a few more I forgot.

[JeffersonLoveChild]

12. A very simplified explanation ...

A company's profits are taxed -> This is the corporate tax
An individual's wages are taxed -> This is the income tax

A portion of the after tax income, either the corporation's profit or an individual's wages, are placed in savings instruments. The interest and dividends earned will be charged with a capital gain tax.

In case you are wondering on the reasoning behind the capital gains tax, here are two:
(i) To ensure wealth are not stored in perpetuity by a small group of individuals (which will get progressively more), and consequently reducing the available wealth for the rest of the population (which sadly, has been happening since the 1970s when the federal government started to slash tax rates).
(ii) The federal government, along with the whole population, provides the infrastructure (building, financial system, roads, law enforcement, etc) which gives a person the ability to store his wealth.