Fairness, the Buffet Rule and Capital Gains Taxation

Eliot Spitzer has a post on fairness and the capital gains tax code at Slate: “So is the call for a ‘Romney rule’ mandating that capital gains be treated as ordinary income, and so be subject to the same top marginal rate of 35 percent that applies to ordinary income, rather than the current top rate of 15 percent. But we shouldn’t raise the capital gains tax just because it’s a popular idea. The rate should rise for philosophical, economic, and political reasons.”

There’s one way of approaching fairness in the tax rate that involves two dimensions, and capital gains violates both of them. That approach has a vertical and horizontal approach to fairness. There’s vertical equity – where those with more pay more – and there’s horizontal equity, where people who are the same should be taxed the same. (Whether these are necessarily two principles of equity or one is a debate for another day.) That capital gains are taxed less than income violates both. Read more....