If any of you are struggling or have struggled with figuring your capital-gains and dividends taxes this season, it’s worth remembering that Mitt Romney says he would eliminate capital-gains, dividends, and interest taxes for families earning under $200,000 in adjusted gross income (most people).
This idea is solid. It would encourage people to save and invest outside of their 401(k)s and IRAs, a necessity when the country faces a retirement crisis.
Gutting taxes on all forms of saving and investment would avoid distortions in the marketplace, too. By contrast, a plan that favored, say, dividends over interest would distort the marketplace by pushing people toward one type of savings and investment over another.
In fact, this plan would eliminate one big distortion. Right now, families can book up to $500,000 in tax-free capital gains on a house, but not on a stock portfolio.
Moreover, this plan would also reduce another regressive tax: payments to third parties for tax preparation. Capital gains and dividends are one of the most complex areas of tax preparation middle-class Americans will face.
Finally, the plan would maintain the introduce a progressive tax system on investment taxes without raising taxes on the wealthy. Romney would keep the 15 percent tax rate on dividends and capital gains for wealthier earners. This approach seems fair.
— Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.