While congressional Republicans are heavily focused on cutting Social Security, Medicaid and Medicare benefits and other harmful budget cuts that threaten the 98%, a better approach is to eliminate loopholes that allow the wealthiest 2% of Americans and Wall Street to pay much less than their fair share of taxes. Focusing on loopholes keeps money in the hands of working families, which helps the economy grow without increasing hardship and economic insecurity for working people.
Many current loopholes just aren’t fair. Take, for example, what Think Progress calls the “Mitt Romney Loophole.” People like Mitt Romney who manage investment funds get paid in two ways. Part of their income is a management fee that is taxed as ordinary income, currently at a top rate of 39.6%. But fund managers also get a cut of the profits of the investments, which is taxed as a capital gain, with a top tax rate of only 20%. The typical investment manager takes a management fee of 2% and gets a 20% cut of the profits, meaning they avoid paying the normal tax rate on the vast majority of their income, something working families are not able to do. As Think Progress explains:
This loophole is one of the main reasons that Mitt Romney paid a tax rate of just 13.9 percent on income of more than $20 MILLION. Meanwhile, millions of middle-class workers pay a much higher rate on their much, much lower salaries.
Closing this loophole would not only make our tax code fairer and more progressive, it would help raise revenue to protect vital programs and leave room in the budget for investments to grow the middle class. Closing just this one loophole that often benefits the ultra-wealthy would raise $21 billion over 10 years.