Readers React: Why lower taxes on capital gains and dividends aren’t ‘unfair’

To the editor: Joseph Anthony cites a 20% tax rate on qualifying dividends and long-term capital gains as “unfair” compared with taxes on wages and self-employment income. His commentary proves that while he may be a “tax pro,” he’s challenged as an economist. (“A tax system tilted toward the rich,” Op-Ed, Dec. 26)

Many economists will tell you that dividends are paid from corporate earnings that have been taxed once at the corporate level — often at a 35% tax rate; consequently, the shareholder’s share of those earnings is effectively taxed at a 48% rate, far higher than any tax on wages. Moreover, taxes on capital are unable to be shielded by retirement programs.

Appreciable capital gains, on the other hand, are often the result of long-held investments where inflation has eroded the “real” gain attributable to the property. Or, in other cases, the investment producing the capital gain carried significant risk and without preferential tax treatment would not have been undertaken. Often that risk capital created numerous jobs for wage earners that would not otherwise have existed.

While there are good reasons for tax reform, Anthony’s analysis cannot be taken seriously as an argument for eliminating preferential treatment for capital. We tried it in the 1970s, and the result was a stagnant economy.

Kip Dellinger, Santa Monica

The writer, a certified public accountant, is a member of the American Institute of CPAs’ Tax Executive Committee.

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To the editor: As a teacher, my income was taxed at the full marginal rate based on my earned income. Yes, I had some deductions, but at the end of the day, I paid an effective tax rate of 21% based on an income never above $70,000 a year. Why should another taxpayer be given the gift of paying no federal taxes because the tax code provides exemptions for income based on investments?

Paying taxes is, in the eyes of some, our patriotic duty. I do not resent paying federal income taxes because I receive so much in return. I just want everyone to pay his or her fair share.

What is wrong with that idea?

Norman Franz, San Clemente

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