Mitt Romney paid taxes last year equal to about 14 percent of his income. That's an effective tax rate much lower than the top marginal tax rate of 35 percent. [Editor's note: The first sentence has been changed to correct an error mischaracterizing Mr. Romney's income.]
And as President Obama has publicized, his Republican challenger for the White House is not alone: Many people with incomes in the millions pay an effective rate much closer to Mr. Romney's 14 percent than to the official 35 percent top bracket.
Is that fair? Is that good or bad for the economy?
Those questions have become central to the economic debate between the presidential candidates, and not just because Romney is so rich (with wealth estimated to be as high as $250 million).
The president has called for a "Buffett rule," named after billionaire Warren Buffett, aimed at ensuring that millionaires pay at least 30 percent of their income in federal taxes. He says America can't afford to continue on a course of tax cuts for the rich at a time of large federal deficits.
Romney, in effect, argues that the nation can't afford not to keep taxes low for the rich. He says Mr. Obama's policies would hurt job creation in a fragile economy.
At the heart of their difference is the question of whether investment income, including capital gains, should be taxed at lower rates than wages and salaries. Currently it is, and that's why Romney and other millionaires often pay such a low effective tax rate.
Beyond that, it's also a debate about public perceptions of fairness in the tax code.
Here are some of the main arguments made by each side.
Why to keep capital-gains taxes low
As America's rich have grown richer in recent years, they are also paying an expanding share of all federal income taxes. Tax rates have fallen for all income groups, which helps explain why an estimated 46 percent of Americans owed no federal income tax last year.
That's a sign that Obama's tax-hike plan is misguided, say many supporters of low taxes for the rich. The real problem is federal spending, they argue, and if that is tamed then tax rates can remain low for everyone. A kicker, they say, is this truism of human behavior: When tax rates go up, taxpayers will scurry to find ways to avoid the levies, and the planned boost in federal revenue may fall short of expectations.
Beyond that, other supporters of low capital-gains tax rates argue that investment activities deserve preferred treatment. The argument is twofold.
On the economic front, a low (or even zero) tax rate on capital would encourage savings and investment, by raising after-tax returns for investors. In turn, that could make it cheaper for businesses to raise money.
On the fairness front, fans of low rates warn against taxing the same income twice. Romney made this case in a recent "60 Minutes" interview. "One of the reasons why the capital gains tax rate is lower is because capital has already been taxed once at the corporate level, as high as 35 percent," he said.
"So you think it is fair?" interviewer Scott Pelley asked.
"Yeah, I think it's the right way to encourage economic growth, to get people to invest, to start businesses, to put people to work," Romney replied.
The Romney household, for the record, derived about half of its $13.7 million in income from capital gains in 2011, with the other half coming essentially from dividends (also typically taxed at 15 percent) and interest income. Deductions for charitable gifts and other taxes paid brought taxable income down to $9 million for Romney and his wife, Ann. Their total tax bill was about $1.9 million. That works out to 21.5 percent of their taxable income, and 14 percent of their adjusted gross income. (They claimed a smaller deduction than they were entitled to, to conform to a previous campaign statement that Romney hasn't paid at a rate lower than 13 percent in the past decade.) [Editor's note: The original paragraph has been changed to more accurately describe the Romneys' tax liability.]
Why to raise taxes on capital gains
Opponents of giving preferential tax treatment to capital gains take a different view on both economic growth and fairness.
A major theme for them is that income inequality has been widening, with no sign that the economy is becoming stronger or healthier as a result.
The top 400 households paid 16.6 percent of their income in the federal income tax on individuals in 2007, according to Internal Revenue Service data tracked by the liberal Center on Budget and Policy Priorities. That's down from 30 percent in 1995, the group said in a 2010 report.
"The decline in effective tax rates at the very top is due in large part to the capital gains tax cuts enacted in 1997 and 2003," which left the tax rate on long-term capital gains at 15 percent, the report said. "The top 400 taxpayers derived two-thirds of their income from capital gains and qualified dividends in 2007."
It's not just that tax rates have fallen for the rich. It's also that, in parallel, a rising share of all household income is arriving in the form of investment income rather than wages. The nonpartisan Congressional Budget Office identified this as one important reason inequality of income has widened.
After-tax income grew by 275 percent for households in the top 1 percent of the income distribution, between 1979 and 2007, the CBO analysis found. By comparison, after-tax income grew about 40 percent for Americans in the middle 60 percent by income.
Dean Baker at the liberal Center for Economic Policy and Research argues that there's nothing unfair about taxing dividends or capital gains, especially in Romney's case. The bulk of Romney's income comes from his stake in Bain Capital, Mr. Baker says in a recent blog post. Because the firm is organized as a partnership, its income hasn't already been taxed at the corporate level.
When it comes to economic growth, former Clinton administration adviser Laura D'Andrea Tyson spoke up last year for raising the capital gains tax. "While serving as President Clinton's national economic adviser, I led a study by his economic team of the likely effects of reducing the rate" on gains in investment value, she wrote in a blog for The New York Times. "We concluded that a cut would decrease future tax revenue, would contribute to rising inequality and would not increase saving and investment as its advocates asserted."
The debate remains a hot one, with some economists backing the idea of preferential rates for investments and others arguing for the same tax rate for all types of income.
Obama's own policy would maintain a tax preference: He would raise the capital gains rate to 20 percent, plus a Medicare surtax that would take it up to 23.8 percent. But his Buffett rule would overlay that with what would amount to a new Alternative Minimum Tax on the wealthy – designed to ensure they pay at least 30 percent of their income in federal taxes.
Romney would leave the capital gains tax rate at 15 percent, and eliminate it entirely (along with taxes on dividend and interest income) for households earning less than $200,000.
Some polls have found a majority of Americans in support of a tax hike for the rich.
But a Washington Post/ABC News poll conducted last week showed that Americans are almost evenly divided about the tax rate Romney pays. Some 46 percent of registered voters see him as "paying his fair share" in taxes, at a 14 percent rate, while 48 percent say he's not paying his fair share.
If that poll result suggests a lack of popular outrage, a mix of factors may be involved. In part, it may be that Romney's rate is higher than what many other Americans pay. In part because of various exemptions and deductions, 97 percent of Americans have an effective tax rate that is below 14 percent, the Tax Foundation research group calculated earlier this year.