Several years ago I was debating with a liberal about the oil companies. I asked him, “OK, if you’re so smart, what were the gross revenues of ExxonMobil last year?” and he automatically said smugly and dismissively “$39 billion dollars!”
Because that $39 billion figure had been in the news. And I said – just to taunt him – something like, “Wow, that sure is a lot of money, those greedy pigs!”
And he stupidly agreed. Except that I knew that ExxonMobil did not have GROSS REVENUES of $39 billion, but PROFITS of $39 billion. It was a trick question just to trip up a know-nothing liberal.
And I knew that those profits were derived from ExxonMobil’s gross revenues for that year, 2006, which were actually $347 billion.
That’s a lot of revenues. And that $347 billion represents all the money that came into ExxonMobil for that year – like the total gross receipts that came into the cash register of a restaurant for a year – out of which ExxonMobil paid salaries and benefits and pensions and loans and royalties and equipment costs and exploration costs and travel costs for its workforce and other costs, leaving the company with a profit of $39 billion.
So this liberal guy did not know the difference between “gross revenues” and “profits”. Which is like the difference between night and day. And rest assured that he didn’t care.
And if you can confuse those two terms or ignore the difference you can confuse just about anything, which is what liberals do every day in order to confound the public about economics and wealth creation.
Every American should get a year-long economics lesson in high school, one that teaches how the economy actually works, not the way they teach it in public schools today in fifteen minutes – that “the rich have all the money” and that “the poor deserve every penny”.
One of the most misunderstood and misrepresented issues in American economics today is taxation. Liberals love to use tax figures to bash wealthy people even though the overwhelming majority of rich people in America today are Democrats. The three richest men in America – Warren Buffett, Bill Gates and Larry Ellison – all are Obama supporters or largely support the Obama agenda.
And when Warren Buffett said in 2011 that he pays a lower tax rate than his secretary, all hell broke loose. And when Mitt Romney recently said that he paid a 15% tax rate on his income, the same hell broke loose and he was surely talking about the same thing.
Because Buffett was referring to the 15% that Romney was, and that is a completely different tax (a capital gains tax) than what most people pay (which is a personal income tax) or what Buffett or Romney originally paid on their business income (a corporate income tax or business income tax).
That 15% is called a ‘capital gains tax rate’. You certainly have heard the phrase. It works like this:
It has been revealed that Romney had taxable income of $21.7 million in 2010. You might think that this is a lot of money until you realize that some idiot baseball player can make the same for tossing a stupid ball around.
And when you compare it to Bill Gates’ fortune of roughly $45 billion, then there is a big difference.
George Soros, who is one of the biggest communists in America, had a fortune estimated at $22 billion in 2011. Romney is a piker in comparison; his whole fortune is estimated at around $270 million. Yet if a leftist like Soros ran for president the Democrats would make every excuse for his money. The Kennedy family fortune today is about $1 billion – much of it gained through stock market swindles in the 1920s by the family patriarch – but that never bothered any liberal.
So Romney earned $21.7 million on his “investments” in 2010. And if he can do for America what he has done for himself, he should be President for Life. And on that $21.7 million he paid about 15% or about $3 million in federal taxes.
The “investments” that produced the $21.7 million refer to Romney’s “personal fortune” of $270 million. And this fortune came after he paid huge amounts of taxes over several decades on much higher ‘gross revenues’ (probably in the billions) from his successful company Bain Capital, leaving him with his cumulative personal wealth of $270 million
In other words, his “investments” or his “net worth” or “personal wealth” is money left over from all of his business activities, i.e., it is Romney’s “profits” from his decades in business.
In other words, Mitt Romney is a smart, honest, successful businessman. Good for him.
Romney’s annual income in 2010 of $21.7 million was about 8% of his “investments” or his $270 million personal fortune or his “nest egg”. And that $270 million is invested in various investment accounts to provide him an annual income stream – it is invested in stock portfolios, bank accounts, bonds, real estate interests etc.
Of course liberals like to say that that $270 million is under Romney’s mattress and that he is using it only to buy jewelry and caviar for his wife.
But that is nonsense. This $270 million is ‘investment capital’ that is doing positive things like helping companies to start up or to grow and prosper and provide jobs.
If there were no investment capital, the economy would collapse. Because most people who want to start or expand a company, from Steve Jobs to the guy on the corner with a convenience store, eventually need investment capital to buy tools or machinery or inventory, or to build a factory or a store etc.
They take out a loan and hope that their company does well enough to pay the loan back and then make a profit. Or they issue stock in their company which is purchased by people like Mitt Romney in big quantities, or by your neighbor in smaller quantities.
And saying that Romney’s personal fortune is funding his exorbitant lifestyle is like saying that your life’s saving are being used to fund your exorbitant lifestyle when actually your bank account (your deposit in the bank like your life’s savings) is being lent out by the bank for people to buy houses or start businesses, i.e, to grow the economy. And the bank makes a profit on that loan (interest on the loan) and some of that profit is turned over to you as interest on your bank account.
So your bank account or Romney’s bank account and other investments are earning income (interest, dividends, profits etc.) because they are invested in productive economic growth, even in a friend’s company.
And thus if the government takes that money away like communism does and like Democrats want to, then there is no investment capital and the economy collapses. That is why communist nations are always destitute.
So the ‘capital gains tax’ is a second tax on income. And liberals favor it because Romney made the ‘capital gains’ on his “investments” without going out and working for it every day and so, in their view, he must be punished.
Indeed since Romney does not go to the office every day but lives off of his investments then his income is not taxed as ‘personal income’ but as ‘capital gains’. That is why Romney is taxed at 15% which is the capital gains tax rate.
And this is precisely what tens of millions of retirees in the middle class do every year in their retirements – they live off of their investments.
By the way, Romney also gave almost 14% of his $21.7 million annual income to charity in 2010 or almost $3 MILLION, while vice president Joe Biden gave .3% (that’s three tenths of one percent…) of his income to charity annually during the last ten years of his US Senate career ($369 a year average). In 2010, Biden gave only 1.4% to charity, or one-tenth of what Romney gave. While the Democrats portray Romney as a selfish businessman.
Thus if Warren Buffett’s secretary indeed paid, say, a 16% tax rate on her personal income (the Buffett story is a huge distortion of the facts made up for public consumption) then she would technically pay more than his capital gains tax rate. But remember that his capital gains rate is a second tax on his income, not his primary tax.
So if for instance you are a doctor and you make $200,000 a year, you would be in the top personal income tax bracket which is a 35% tax rate (the top personal rate and the top corporate/business rate just happen to be the same right now at 35%. But this has not always been true by any means.).
But after deductions, you might pay a 27% federal tax rate. Obama paid 26% on his 2011 return, even though he was in the 35% personal income bracket. Because he had deductions and took every one of them even though he and all his rich friends always say they don’t need any breaks. But Obama took them anyway like all his cronies do.
And after all your doctor taxes are paid and you’ve paid for your house and your kids’ education and cars and groceries and everything else, you might put some leftover money like $30,000 in a certificate of deposit or buy stocks with it and do the same thing every year to build up your “nest egg”.
So while you paid 27% on your original income, you will pay 15% on the annual income from your “nest egg” in that same year. This is your 15% ‘capital gains tax’. It is separate from your income tax or your Social Security or Medicare tax or any other tax.
But the media are making it look like Romney is a skinflint for paying 15% when millions of people, particularly retirees, do the same thing. But the more the hyperactive media attack Romney now, the less impact their attacks will have closer to the election if he is the nominee. So let them attack him and get it over with.
Many of us believe that the capital gains rate should be zero, that you should not have to pay a second tax on your success. This may be in the future. It will greatly help our economy to make it zero. Because a low-tax economy always produces more wealth and jobs than a high-tax economy. History has proven this over and over.
By the way, the math has been done on Democrats’ “tax the rich” scenario. If you took every penny from the richest 400 people in America – seized their bank accounts, their stock portfolios, their real estate holdings, their car collections, their houses, their art collections, their jewelry – simply took every penny from the Top 1%, it would be about $1.4 trillion dollars. This would not even solve our national budget deficit for one year. And the deficit would explode next year because the seizure of all that investment capital would cause the economy to collapse.
In short, we are spending too much money, not taxing too little.