As part of its ongoing battle to defend the wealthiest Americans from any tax increase whatsoever, Fox this morning continued to pretend that income earned from capital gains is different from income earned by working. It is not. Bill O'Reilly pretended something similar a few weeks ago.
This morning's spin stemmed from leaked details of President Obama's deficit-reduction plan, which he announced this morning. The plan reportedly reduces the deficit by $3 trillion over the next 10 years through entitlement cuts, war savings, and tax increases of about $1.5 trillion. Most of these tax increases would be on the wealthy, so the media have been referring to them as inspired by the "Buffett Rule," named after billionaire Warren Buffett, who has decried the fact that he pays a lower tax rate than his middle-class employees. This is because most of Buffett's income is derived from capital gains, which are taxed at a lower rate than income earned by working.
Today, on Fox & Friends, Gretchen Carlson took up the job of defending the wealthy from tax increases by trying to talk away this difference, claiming Buffett is not making "a fair comparison." At the beginning of the broadcast, she and co-host Brian Kilmeade rushed to spin the so-called "Buffett rule" as being "somewhat deceptive."
From the broadcast:
KILMEADE: And then the biggest story, I think, is the Warren Buffett rule, which you're about to hear is somewhat deceptive. It is not that billionaires are paying less. It's just that -- they're still paying their 35 percent. It's the capital gains is which their --
STEVE DOOCY (co-host): Right.
KILMEADE: -- and the investment money, is which they're being taxed 15 percent on.
CARLSON: The analogy that Warren Buffet always makes is that, why should my secretary pay more taxes than I do? But that's not really a fair comparison. Because he's talking about what he pays -- the tax on his capital gains. He makes most of his money on investment income. Right now that's at 15 percent. So really, it's comparing apples and oranges, not the income that you're going out and making on a daily basis when you go to work.
Carlson repeated her "comparing apples and oranges" line again during a segment with Fox News contributor Michelle Malkin:
CARLSON: The one thing that troubles me about [Obama's proposal] is that it seems like you're comparing apples and oranges. Because Warren Buffet uses the example of that he pays a lower tax on capital gains --
MALKIN: Than the middle class. Right.
CARLSON: -- than his secretary and the middle class. But those are two different things: capital gains, and then federal income tax that you pay just for having a job.
The fact is, there is nothing "apples and oranges" about comparing the two kinds of income. They're both income, period.
Here's what the IRS says about capital gains in a February factsheet, "Ten Important Facts About Capital Gains and Losses" (emphasis added):
2. When you sell a capital asset, the difference between the amount you sell it for and your basis -- which is usually what you paid for it -- is a capital gain or a capital loss.
3. You must report all capital gains.
7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2010, the maximum capital gains rate for most people is 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.
"[O]ther income" -- in other words, "net capital gain" is a type of income, according to the IRS.
The Congressional Budget Office also refers to capital gain as "a form of income" in a policy brief titled, "Capital Gains Taxes and Federal Revenues." The report stated:
A capital gain is an increase in the value of an asset; a decrease in an asset's value is a capital loss.
When a gain accrues, it is a form of income for the holder of the asset.
And the Supreme Court ruled 85 years ago that capital gains are income. In the 1926 decision in Bowers v. Kerbaugh-Empire Co., the court found that:
[I]ncome may be defined as gain derived from capital, from labor, or from both combined, including profit gained through sale or conversion of capital.
That's why Buffett has argued that our tax system is unfair -- because his income, mostly made through capital gains, is taxed at a much lower rate than that of his secretaries, who earn their income by working. As Buffett wrote in his August 14 op-ed in The New York Times:
Last year my federal tax bill -- the income tax I paid, as well as payroll taxes paid by me and on my behalf -- was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income -- and that's actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
Buffett concludes that Congress should "raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains."
There's someone else, besides Buffett, who supported such an idea -- someone very near and dear to Fox News' heart, in fact. As former Reagan adviser Bruce Bartlett noted in an August blog post (emphasis added):
It is not class warfare to suggest that the richest 1 percent of people in society pay one-third of their income to the federal government, as they did under Ronald Reagan. Keep in mind that dividends were taxable as ordinary income every year of his administration, and in the Tax Reform Act of 1986 he supported taxing capital gains as ordinary income as well.
Yes, even Ronald Reagan supported taxing capital gains as ordinary income. So does Carlson still think Buffett's comparison is "not really ... fair?"