As an article in the Financial Post noted, if Mitt Romney were Canadian, he’d pay less tax than he does in America.
That’s because most of Mitt Romney’s income is from investments. Much of the world taxes investment income far less than the U.S. does, while taxing consumption more, through a Value Added Tax (VAT). Those countries are more generous to savers, unlike our tax code, which favors spenders.
The belief that the richest 1 percent in Europe and Canada subsidize all of the other 99% is a common delusion on the American Left. It’s the basis for their fantasy that vast new government programs can be paid for simply by taxing the rich. But as Romney’s situation shows, it has no basis in reality.
Europe and Canada finance their more extensive welfare states heavily through VATs, taxes paid mostly by the middle and working classes, since VATs tax consumption, and lower-income people spend a higher percentage of their income than rich people do. Those countries don’t force rich people to pay 90 percent tax rates, as some Democratic lawmakers, like Congressman Jerry McNerney, have recently advocated.
They don’t attempt to tax even wealthy people’s investment income at confiscatory rates, because they have learned from painful experience that doing so discourages people from saving money or starting a business, and lowers investment and economic growth.
The U.S. tax code is already more progressive than most countries’ tax codes. And it is getting more so. Next year, a new 3.8 percent tax on investment income goes into effect to pay for the 2010 healthcare law, one of an array of new taxes contained in that law.
Moreover, our tax code discriminates against savers both by taxing them on all their capital gains, but not taking into account some of their losses, and by taxing them on paper “profits” that are not real income but rather the product of inflation that increases nominal asset values even when their real value is falling, leaving the investor poorer.
Even if taxes were jacked up to 60 percent on the wealthy, it wouldn’t begin to pay for recent increases in federal spending, which have led to trillion-dollar budget deficits as far as the eye can see. (By 2010, the national debt was growing each month by as much as it did in entire years like 2007.) Only broad-based taxes on the middle class can generate enough revenue to pay the costs of big government and expanding welfare entitlements.
As accountant Jamie Golombek pointed out in the Financial Post:
If Romney were filing Canadian taxes, we estimate he would have paid even less . . . Romney would have paid $2,973,021 of Canadian federal tax in 2011 . . . which translates to an effective federal tax rate of only 14.2%, more than a percentage off the 15.4% he is forecast to pay. . . . In Canada, dividend income is eligible for a dividend tax credit while capital gains are only half taxable. In other words, for a top income earner, Canadian dividends are taxed a top federal rate of only 17.72% (2011) while capital gains for a high income earner would be taxed at half the top marginal tax rate or 14.5% (i.e. 50% X 29%). Charitable donations above $200 are eligible for a 29% federal donation tax credit.
(Romney made “$4 million of charitable gifts” in 2011, and $3 million in gifts in 2010, Golombek noted, which would reduce his tax due under both the U.S. and Canadian tax codes.)