Mitt Romney, Tax Loophole Exploiter-in-Chief
Way back in October, we called on Mitt Romney to release his tax returns and introduced you to the Romney Rule — the unfair tax loopholes that Romney both supports and which he personally exploits in order to pay a lower tax rate than millions of middle class Americans.
This is of course the opposite of the Buffett Rule proposed by President Obama: the simple idea that no millionaires should be able to cheat the system in order to pay a lower tax rate than middle class Americans. Romney quickly came out in opposition to the Buffett Rule, dismissing it with his now familiar charge of “class warfare.”
Today, after weeks of pressure from both progressives and his Republican opponents, Romney finally agreed to release just one year’s tax return in April if he is the Republican nominee. He also admitted what we’ve known all along: that he pays a tax rate of around 15 percent — a rate far lower than millions of middle class Americans pay on the wages they earn.
Q: What’s the effective rate you’ve been paying?
ROMNEY: What’s the effective rate I’ve been paying? It’s probably closer to the 15 percent rate than anything, because my last 10 years, I’ve, my income comes overwhelmingly from investments made in the past, rather than ordinary income, rather than earned annual income.
How the Romney Rule Works
ThinkProgress Economy Editor Pat Garafalo explains in the Atlantic today why Romney pays such a low rate — and why there’s no economic justification for it:
Managers of private equity firms like Romney are often paid under an arrangement in which they receive both a set fee for their management, as well as a share of the profits that the firm makes for investors. While their management fees are taxed at normal income tax rates, the share of investor gains that go to a private equity manager (called “carried interest”) are treated as capital gains, and thus taxed at a top rate of 15 percent. (Hedge fund managers and partners in real estate ventures also benefit from receiving carried interest.)
The argument for a lower capital gains rate is that it encourages investment. Whether that’s true or not, private equity managers are allowed to pay the capital gains rate on the profits they make managing someone else’s money, not for any risk that they take themselves. Treating carried interest as capital gains is an unjustifiable tax break that needs to be eliminated. [...]
Thanks to a lucrative retirement package, Romney is still making millions from Bain, much of which is likely being taxed as carried interest. (While Romney has refused to make his tax returns public, he’s said that all of his income is taxed at investment rates.) Analysts have estimated that Romney’s tax rate is about 14 percent, lower than that of many middle class families.
Leaving aside the questions over whether Romney and Bain’s modus operandi adds value to the economy, there’s certainly no value added by letting private equity managers treat the paycheck they receive from investors as capital gains: that particular tax loophole just lets very wealthy money managers avoid paying the top tax rate, for no real reason.
In other words, since Romney makes almost of all of his money with money (his quarter billion dollar fortune, to be precise) and enjoys a tax loophole only available to partners in businesses like Bain Capital, he is allowed to pay a much, much lower tax rate than someone making a fraction of his income who is simply paid a wage for the work they do (e.g. teachers, firefighters, and cops). For example, a single filer making $60,000 in wages who didn’t itemize their deductions faced an effective tax rate of 29.5 percent in 2011 — double that of Mitt Romney, who makes millions of dollars a year.
By contrast, when Romney’s father, who was a wealthy corporate CEO, ran for president in 1968 he released 12 years of his tax returns. One contemporaneous press report uncovered today by Lee Fang noted that the elder Romney ”seldom took advantage of tax loopholes to escape his tax obligations.”
Adding Insult to Injury
Romney has already proposed an economic plan that is of, by, and for the wealthiest 1 Percent of Americans, including trillions in tax cuts for the wealthy and corporations paired with tax increases on middle class families and deep cuts to Medicare, Medicaid, Social Security, and other programs and services Americans depend on each day. Last night during the GOP presidential debate, Romney went a step further and called for taxes on the wealthiest Americans to be cut by another ONE-THIRD or more.
Romney then dug the hole deeper this morning during the press conference at which he confirmed his shockingly low tax rate. He stated that almost all of his income is from investments; however, he noted that he has also received fees for giving speeches, adding “but not very much” with a laugh. According to his most recent financial disclosure form, “not very much” turns out to have been more than $370,000 for just the period between February 2010 and February 2011.
IN ONE SENTENCE: Millionaire Mitt Romney uses unfair tax loopholes not available to ordinary Americans to pay a lower tax rate than millions of middle class workers — many of whom will see a tax increase under the Romney plan even as he slashes taxes for the wealthiest Americans and corporations.
Evening Brief: Important Stories That You May Have Missed
A new wave of killings has begun in Syria.
Charting Romney’s evolution on abortion.
A fantasy novelist finds out that the “sexy” poses women strike on the cover of his — and others’ — novels can be quite painful to hold.
Major media organizations are lining up behind the position that they should, um, report based strictly on the facts when it comes to Iran’s nuclear program.
Can for-profit colleges compete with non-profit colleges? (Hint: no).
A tiny group of super-rich donors dominate the GOP primary.
On policy, Mitt Romney is far to George W. Bush’ right.
The Republican Governor’s Association: The GOP’s dark money machine.
Activists deliver over 1 million signatures to recall Wisconsin Gov. Scott Walker (R).
How today’s income inequality kills tomorrow’s economic mobility.