The wealth of Mitt Romney, a candidate for the US Republican Party presidential nomination, is estimated to be about US$270 million, and with an annual income of more than US$1 million, he is one of the richest presidential candidates in US history. However, he has been accused of tax evasion by some of his opponents in the primaries, who demanded that Romney release his tax records.
After ignoring these demands for months, Romney said on Jan. 17 that his income tax rate was about 15 percent. Right after the announcement, White House press secretary Jay Carney came out and said that every hardworking person should receive fair treatment when it comes to taxes. Carney said that since wage earners who make between US$50,000 and US$100,000 a year have to pay tax rates of more than 15 percent, there is no reason why those who make more than US$1 million a year should only pay 15 percent.
Then, on Jan. 24, Romney finally released his tax records. Over the past two years, the average annual tax rate for Romney and his wife was about 14 percent — which is even lower than the average rate for US middle-class salary earners. Romney also has US$8 million in private investment funds in the Cayman Islands, an offshore tax haven. On the evening of Jan. 24, US President Barack Obama delivered his annual State of the Union address, in which he proposed a new base tax rate for the wealthy. Obama’s platform announcement was timely, as voters were not happy with rich people paying little in taxes.
During the 69-minute-long address, Obama brought up the issue of fair taxes a total of 34 times. He said that a billionaire should at least be paying the same tax rate as his secretary. This comment was of course aimed at Warren Buffett, whose yearly income mainly comes from dividends, which are only taxed at 15 percent.
Buffett’s secretary, who was invited to the speech, like all other average wage earners, must pay taxes as high as 35 percent. Obama reiterated the idea of the “Buffett rule” and emphasized that tax rates for people making more than US$1 million a year should not be lower than 30 percent, while those for 98 percent of households earning less than US$250,000 a year should not be raised.
In the US, capital gains are taxed at a preferential rate of 15 percent, much lower than the 35 percent maximum that wage earners have to pay. This distorts the principle of fair taxation.
In Taiwan, not only are capital gains from securities transaction exempt from taxes, there are also a series of tax exemptions for high-tech businesses. What is worse is the integrated income tax system — especially now that the income tax on profit-seeking enterprises exists in name only — which means that 80 percent of the NT$100 billion in annual tax deductions that is set off against aggregate income goes into the pockets of the stock owners who earn more than NT$1 million (US$3.4 billion) a year.
Add to this the amendments to the Income Tax Act (所得稅法), with the interest on stocks provided for the purpose of formation of, contribution to, or participation in public trusts, which used to be taxed at 40 percent, being halved to 20 percent. These factors have turned Taiwan into a tax haven for the wealthy.
Three years ago, Taiwan Semiconductor Manufacturing Co chairman Morris Chang (張忠謀) commented on the unfairness of the nation’s taxation system. At a business breakfast for leaders of industry and commerce, Chang told then-premier Liu Chao-shiuan (劉兆玄) that the 30 richest people in the country on average paid less than 10 percent tax on their yearly income, which is less than half the tax rate that average income earners pay. Chang therefore suggested that the wealthy pay more in taxes, while the less wealthy pay less.