Thanks Mitt for the tax-code lesson

The raucous Republican primary race has brought up some important issues—one of them is the federal tax code. It’s been clearly shown to be rigged to favor financial wheeler-dealers like Mitt Romney and his fellow private-equity multimillionaires and billionaires who pay lower tax rates than ordinary citizens do.

For his part, President Barack Obama has proposed what he calls the “Buffett Rule,” after Warren Buffett, the multibillionaire. The Buffett Rule would mandate that those making more than $1 million a year would pay at least 30 percent in taxes.

Buffett and Romney, whose tax rate was less than 14 percent on earnings of more than $20 million in 2010, pay a lower rate because their earnings come mostly from investments, which are taxed at the current capital-gains rate of 15 percent, far less than the rate applied to labor income, which can be as high as 35 percent. They also pay less in payroll taxes.

The capital-gains rate was set at 28 percent during the Reagan administration and went up to 29 percent early in the Clinton administration. Congress began lowering the rate in 1997. Then, in 2003, President George W. Bush and an army of Wall Street lobbyists convinced Congress to adopt today’s ultra-low rates with the rationale that doing so would spur the economy. Obviously, it hasn’t turned out that way.

We thank President Obama for pointing out the illogic of these tax breaks for the rich. And we thank Romney for offering a case study on why the unfair tax situation has simply got to change.