Mitt Romney’s newly released tax returns show that he made about $20 million in each of the last two years, while paying a 13.9 percent tax rate in 2010. He anticipates paying about 15 percent for 2011.
Romney is able to drive his tax rate down below that of many middle class families because, as he freely admitted before, nearly all of his income comes from investments, and is thus taxed at the top capital gains tax rate of 15 percent, rather than the top income tax rate of 35 percent. Romney also benefits from a tax loophole that lets wealthy money managers pay a 15 percent rate on the payments they receive to oversee other people’s investments.
That particular tax loophole — known as the carried interest loophole — is still helping Romney lower his tax rate, as his lucrative retirement deal includes a hefty portion of income that qualifies as carried interest. In fact, over the last two years, Romney made $12.8 million that qualifies as carried interest. As Paul Krugman pointed out, this saved Romney $2.6 million in taxes:
First, $13 million of the total was carried interest, which gets taxed like capital gains but is really just commissions that receive special treatment for no good reason. No profits taxes were paid on that income; right there, a minimally defensible tax code would have levied $2.6 million more in taxes on Romney.
Income qualified as carried interest is also exempt from the payroll tax. Closing the carried interest loophole could raise $10 billion in revenue over 10 years, while doing nothing to harm investment. As the Bloomberg News editorial board said yesterday, “Romney, by using this opportunity to call for the end of the carried-interest loophole, could in one swoop neutralize an issue that has hampered his campaign and display the leadership he says he would bring to the White House. In an election year dominated by the twin issues of the deficit and income inequality, this proposal is one both parties, and their candidates, should embrace.”