Presidential candidate Mitt Romney has presented a plan to allow income from wealth to go tax-free for people with incomes below $200,000. Romney favors making permanent the Bush tax cuts for capital gains and dividends (which resulted in the current 15 percent tax rate for those forms of income) but would go further by eliminating tax on income from interest, capital gains and dividends for families with incomes less than $200,000.
The plan is being presented as a boon for middle-class families who are trying to save, but few of the beneficiaries would be truly middle-class. Roughly three fourths of the current tax break for capital gains and dividends went to the richest 0.6 percent in 2005 (as Citizens for Tax Justice pointed out recently). The truth is that most wealth and savings are in the hands of the richest Americans.
"For people earning below $100,000, cutting the tax rate on interest, dividends, and capital gains means almost nothing," said Robert S. McIntyre, director of Citizens for Tax Justice, as quoted in the Boston Globe. "For those people earning between $100,000 and $200,000, you might be talking several hundred dollars in tax savings. Then, the question is, does he really have a plan that cuts off exactly at $200,000? That would be nuts - the person who makes $200,001 would be kind of angry."
At least one other presidential candidate has moved in a different direction. John Edwards would allow families a tax exemption of the first $250 of income from interest, capital gains or dividends, but he would raise the top capital gains tax rate to 28 percent while also expanding the EITC and child tax credit and matching savings up to certain limit for low-income families.