Capital Gains

washington -- Mitt Romney twice emphasized his unique business background when he and eight other Republican presidential candidates faced off in a debate last week in Iowa. "I've spent the last, as I've told you, 25 years in the private sector," former Massachusetts Gov. Romney declared at one point. "I understand why jobs come and why jobs go. I've done business in 20 countries."

Re "'Tax the rich' is not reform," Column, May 21 George Skelton is right: "The rich" have been paying the lion's share of California taxes for years. Too many citizens have no tax obligations at all, and it's fine with them for someone else to pay down our deficit. The tax base should include everyone. But Skelton doesn't mention that California already has the highest sales tax rate and one of the highest personal income tax rates in the nation. Overspending cannot be overcome by further taxing the remaining rich (employers)

One intriguing tax-overhaul fight involves capital gains--the taxation of profits on the sale of stocks, bonds or property. Because capital-gains rates are lower than rates on ordinary income, they have traditionally been seen as a tax dodge for the rich. Now the Senate would eliminate the preferential rates. Hold it, cry high-technology companies and venture capitalists. The lowering of capital-gains rates in 1978 and 1981 triggered an investment boom in computers and electronics.

WASHINGTON - Eduardo Saverin fled Brazil as a boy and lived the American dream by helping found Facebook Inc. Now two U.S. senators want to make sure he never sets foot in the U.S. again unless he pays tens of millions of dollars in taxes he will owe after the company's initial public offering Friday. Saverin renounced his U.S. citizenship this year and is living in Singapore, a country with no capital gains tax. Sens. Charles E. Schumer (D-N.Y.) and Bob Casey (D-Pa.) denounced him Thursday as a tax dodger and introduced legislation to punish anyone who gives up citizenship to duck big tax bills.

Having been an occasional beneficiary of former exemptions from tax on capital gains, I understand some of the attractions of capital gains tax exemption, but the recent arguments concerning this tax have led me to wonder about the logic or justice as it relates to securities. Our economy is supported by numerous merchants. Some deal in suits or sinks. Others sell shoes or stocks. Except for the latter, these merchants accept more or less graciously the premise that they make or buy something for some cost and sell it for a higher price and pay a tax on the profit.

Is it too much to ask that the best-financed statewide political campaign in the country — maybe in U.S. history — get things right about a central tenet of its electoral platform? The question arises from GOP gubernatorial candidate Meg Whitman's new glossy campaign brochure, titled "Creating Jobs for a New California." In it she proposes killing the state tax on capital gains. "California is one of a few states in the country that taxes capital gains at a higher rate than traditional income," the booklet states.

Many mutual funds are gearing up to make their annual capital gains payments to shareholders. A package of stories on the Times' Web site tells fund owners what they need to know. Go to http://www.latimes.com/capgains.

King George and his rich buddy Treasury Secretary Nicholas Brady have immorally proposed a windfall for the rich at the expense of the rest of us (Part I, Jan. 31). They propose "to reduce the maximum rate on capital gains to 15% from the present level of 28% to 33%." This cuts in half the amount that the rich, like Brady, pay in taxes. This is in the face of the enormous debt, the multibillion liability of the S&L debacle, and all the other fees, taxes and debts the government says we have to pay. GEORGE TOOBY San Marino

In a last-minute revision to the new tax law, Congress has again changed the rules applying to capital gains--creating separate tax rates for three holding periods. The change will give a break to investors who would have been penalized by the new law's lengthening of the capital gains holding period to 18 months from 12 months. But the revision also will make investment decisions--and record-keeping--more complicated for investors large and small from now on.

The "Buffett rule" proposal appears to be dead for this session of Congress. The president characterized increasing taxes on wealthy people as a matter of fairness, but the Republican Congress didn't agree - not to mention that they weren't willing to support any tax increase in the current economic times. There is a middle road on taxes, though. Congress could have increased taxes on capital gains and dividends (which really is what is at stake in the Buffett rule) but lowered personal income taxes by the same amount.

It's certainly not his goal, but when Mitt Romney releases his income tax returns Tuesday, he is likely to show how wealthy people grow even wealthier with the help of the U.S. tax code. The multimillionaire presidential hopeful has estimated that he pays about 15% of his income in taxes, less than many middle-class Americans and far less than the maximum 35% rate applied to ordinary income. Romney's returns are expected to show that his taxes are so low because of the steady reduction in capital gains rates over the last three decades.

Under pressure to release his income tax returns, former Massachusetts Gov. Mitt Romney decided instead to disclose what percentage of his income he forks over to Washington. It turns out that Romney pays about 15% — less than the share paid by many California teachers, sales managers and others who earned far less than he did. The reason? His income "overwhelmingly" came from past investments, which are taxed at a lower rate than salary and wages. Romney's ability to pay a lower percentage than many taxpayers who aren't wealthy will only feed the concerns about widening income inequality in the United States.

The future of California's public schools, universities and health programs could be linked partly to the fictional town of FarmVille. The popular virtual world is the creation of Zynga, a San Francisco online game company that raised $1 billion in an initial public stock offering last year. Because California receives much of its income from capital gains taxes, such moves by businesses like Zynga can mean hundreds of millions of dollars for state coffers. More California technology companies are poised to go public this year - including a widely expected $10-billion offering from Facebook - than at any time since the dot-com boom, experts say. Their success could relieve state officials of the need to cut state services more deeply in the budget year that begins in July, but Gov. Jerry Brown and his fellow Democrats are already squaring off over whether to count on the fruits of those transactions.

Via Kevin Drum , here's a new run at the income inequality fence from the bipartisan Congressional Research Service, and it should bury two shibboleths commonly employed by inequality-deniers: One, that inequality hasn't really increased in recent years, and two, that thanks to broadly held pension fund and mutual fund assets, rising share prices benefit all wage-earners. The report by the CRS, an arm of the Library of Congress, shows that inequality has increased quite smartly, thank you. From 1996 to 2006, total after-tax income in the U.S. rose by more than 20%. How was this gain distributed?

Re "The 'Buffett rule,' and more," Editorial, Sept. 20 What has been lost in the debate over taxing millionaires and higher tax rates is the fairly recent change in the tax code that allows Warren Buffett to pay relatively little. Both parties thought it was a good idea to lower the tax rates on dividends and capital gains in the 1990s. Before then, capital gains, dividends and interest were taxed similar to ordinary income. The motives for lowering the rates were twofold: First, people could sell assets that had large capital gains instead of leaving them in their estates; and second, Wall Street would get more business from people buying and selling assets more frequently.

If President Obama really wants to see the "Buffett Rule" in action, he should look at California's tax system. The state has been plagued by it for years. The revenue stream is unstable and the state budget has been a deficit disaster. Soaking the rich — relying heavily on them for income taxes — has resulted in a precarious revenue roller coaster ride. It's either boom or bust in Sacramento, depending on how the wealthy are faring in the stock market and their other investments.

The Sacramento Kings on Monday granted their loyal fans a one-season reprieve from losing the city's only major league franchise to Anaheim but made it clear there is still work remaining to keep the NBA team in the state capital beyond next season. "They have to show us a plan and how the [new] arena will be financed," said George Maloof, a partner with his brothers Joe and Gavin in the Kings' ownership group. "We've been down this road before, but we have respect for the community.