system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: How did Mitt Romney pay such a low tax rate?

Also, they speculate that there are a few years he didn't pay any taxes. How does this work?
gpt
Let's say you have $100M in the bank. Chances are, even being as rich as you are, you're not going to get a job paying you more than $300-500K/yr. You always hear about these multimillion dollar salaries, but they make up a tiny fraction of the available jobs out there. Lots of really rich people don't make that much in salary.

The $100M, on the other hand, doesn't just sit in the bank. You invest it. And even with fairly stable investments with reasonable interest rates, the interest / dividends / gains that money earns adds up. If you can clear a really reasonable 5% on your money, that's $5M that year from your investments, 10x what you might be making in salary.

On your salary, you pay income tax like everyone else, say 40% in that bracket to state and federal (which is a lot, ~$230K on the $500K you made). But on your investment income, you might only be paying 15% capital gains tax, or about $750K on $5M.

Total amount of money made that year: $5M + $500K = $5.5M  
Total taxes paid: $230K + $750K = $980K  
Percent tax: just under 18%

The reason he's paying so little, and a lot of rich folks are, is they're not paying *income tax*, they're paying other kinds of taxes.

However, just because rich folks have a way to pay less tax doesn't necessarily make it a good idea to tax those things more heavily. For example, if we tax investments, then that means fewer dollars will go into investments and be used for other purposes. Maybe that means not as many companies get investment capital, can't hire as many people, etc.

You could also say, well let's just increase taxes on people that make more than X in a year. Then someone comes along with a weird job where they have a few short years of their chosen career path to make a lot of money, but they're paying taxes as if that's going to continue forever (football player, for example). These people get screwed.

So there's a lot of unintended consequences of mucking about with tax code in order to go after a certain segment of people.