Greg Mankiw Comes To The Defense Of His Client Mitt Romney

Greg Mankiw argues that it is not easy to distinguish a capital gain from ordinary income. His client, Mitt Romney, is being criticized because his income, that comes from his private equity firm, is taxed at the 15% capital gains rate instead of at the 35% tax rate for ordinary income in Romney's tax bracket. His defense is like that of those who deny global warming. They don't have to prove that it does not exist. They just have to argue that there is uncertainty about how to interpret some of the data.

Mankiw also misleads us by writing that the capital gains tax rate has varied over time. This too is a correct statement of fact. On the other hand, it is also a fact that it was once taxed as the same rate as ordinary income, and that the tax rate on capital gains has been reduced substantially in recent years by GOP administrations. The changes in the tax treatment of capital gains are not random historical events. The downward trend is a statement about how the tax burden should be shared. Warren Buffet, who benefits from the cuts in the capital gains tax rate, claims that it is unfair. Fairness is not a concept that is used by economists. Mankiw, and others, argue that it is a normative concept and that economics is a positive science that nothing to add about questions of fairness. He just wants us to be fair about how we view his client.