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RESIDENT OBAMA SIGNALED EARLY IN THE 2012 presidential campaign that
tax policy and income inequality would be important themes in the election.
He argued, “Today, the wealthiest Americans are paying the lowest taxes in
over half a century.... Today, thanks to loopholes and shelters, a quarter of all
millionaires now pay lower tax rates than millions of you, millions of middle-
class families. Some billionaires have a tax rate as low as one percent. One
percent. That is the height of unfairness. It is wrong.”^1 This argument soon
gained political relevance when the leading Republican candidate for president,
Mitt Romney, revealed that he paid only 13.9 percent in federal taxes on the
$21.7 million income he earned in 2010. Many people with high incomes pay
25 to 30 percent in federal taxes (for example, President Obama paid 26 percent on
$1.8 million in 2010).^2
How is it possible that Romney’s tax rate was only 13.9 percent? His taxes
were so low because most of his income came from dividends and capital gains,
which are taxed at 15 percent, rather than at the top marginal rate of 35 percent
(in 2012 the 35 percent rate was paid on all earned income above $388,350, after
deductions and exemptions; single tax payers pay 33 percent on income between
$178,650 and $388,350, 28 percent on income between $85, 650 and $178,650,
all the way down to 10% on the fi rst $8,700). Middle-income people who have a
marginal rate of 25 percent (on income between $35,350 and $85,650) and pay
7.65 percent of their income in payroll taxes can easily have a total tax burden
higher than 13.9 percent. To address this inequity in the tax code, Obama calledECONOMIC POLICIES HAVE GENERATED
intense confl icts in recent years.
Republicans, like Representative
Paul Ryan, have argued that the
government must cut spending
and focus on reducing the national
debt and defi cit. Both parties have
claimed that they have a better
plan for helping spur economic
growth.