Mitt Romney offered a partial snapshot of his vast personal fortune late Monday, disclosing income of $21.7 million in 2010 and $20.9 million last year — virtually all of it profits, dividends or interest from investments.
None came from wages, the primary source of income for most Americans. Instead, Romney and his wife, Ann, collected millions in capital gains from a profusion of investments, as well as stock dividends and interest payments.
The story goes on to say that the Romneys paid less than 15 percent of this income in federal tax, which is perfectly legal, given that it was capital gains income. As Romney said in last night’s debate, if Gingrich had his way and eliminated the capital gains tax, Mitt would have paid no tax at all on this income.
Look, we all knew Mitt was filthy rich. What this tax information release does, though, is put the focus on the unfairness of our tax system, and how it is tilted towards the wealthy. Let’s be clear: it is not Mitt Romney’s fault that he made all that money from returns on investments, and paid a substantially lower rate of tax than he would have had it come in the form of wages. As a point of comparison, this, from the Times:
Details about Mr. Romney’s tax payments, wealth and income will inevitably be compared with similar disclosures already made by Mr. Gingrich, as well the man Mr. Romney and Mr. Gingrich hope to unseat, President Obama.
Mr. Gingrich, who on Saturday won the Republican presidential primary in South Carolina, released his own tax returns last week showing that he and his wife, Callista, had an adjusted gross income of $3,162,424 from their various business ventures in 2010. They paid $994,708 in federal tax, according to the return, for an effective tax rate of 31.7 percent.
Mr. Obama and his wife, Michelle, released their tax returns in April, showing an adjusted gross income of $1,728,096 for 2010 — much of it from sales of his books “Dreams From My Father” and “The Audacity of Hope.” The Obamas paid $453,770 in federal taxes, for an effective tax rate of 26.3 percent.
The obvious question in all this is why investment income is taxed at a far lower rate than other forms of income — this, given that substantial investment income is far likelier to be something accruing to the very wealthy? Nothing personal against Mitt Romney, but how fair is it that the man made $42 million over two years, and paid taxes at half the rate of me and thee? More on capital gains taxes from the Washington Post:
Advocates for a low capital gains rate say it spurs more investment in the U.S. economy, benefiting all Americans. But some tax experts say the evidence for that theory is murky at best. What is clear is that the capital gains tax rate disproportionately benefits the ultra-wealthy.
Most Americans depend on wages and salaries for their income, which is subject to a graduated tax so the big earners pay higher percentages. The capital gains tax turns that idea on its head, capping the rate at 15 percent for long-term investments. As a result, anyone making more than $34,500 a year in wages and salary is taxed at a higher rate than a billionaire is taxed on untold millions in capital gains.
While it’s true that many middle-class Americans own stocks or bonds, they tend to stash them in tax-sheltered retirement accounts, where the capital gains rate does not apply. By contrast, the richest Americans reap huge benefits. Over the past 20 years, more than 80 percent of the capital gains income realized in the United States has gone to 5 percent of the people; about half of all the capital gains have gone to the wealthiest 0.1 percent.
“The way you get rich in this world is not by working hard,” said Marty Sullivan, an economist and a contributing editor to Tax Analysts. “It’s by owning large amounts of assets and having those things appreciate in value.”
Republicans have led the way in pressing for low capital gains tax rates, but they have been able to rely on a significant bloc of Democratic allies to prevent an increase and to protect the preferential treatment of money earned through investments over money earned through labor.
President Obama and leading Democrats want to allow the tax cuts passed under Bush to expire. That would raise the capital gains tax rate from 15 percent to 20 percent. But that would still be lower than the rate under President Ronald Reagan — who raised the tax in 1986.
“Capital gains . . . veers onto theology for Republicans, but it has always been a bipartisan issue,” Bloomfield said.
A poll this spring by the nonprofit Public Religion Research Institute showed that Americans, by a 2-to-1 margin, think the wealthy should pay more taxes than the middle class and the poor.
Billionaire Warren Buffett has become one of the loudest and most frequently cited proponents of the wealthy paying more in taxes.
“The truth is, I have never had it so good in terms of taxes,” Buffett said in an interview with Charlie Rose. “I am paying the lowest tax rate that I’ve ever paid in my life. Now that’s crazy, you know. And if you look at Forbes 400, they are paying a lower rate, counting payroll taxes, than their secretary or whomever around their office, on average.”
How the wealthiest Americans managed to get Congress to treat money made from investments differently from salaries or wages involved a variety of lobbyists, economists and lawmakers.
“Capital gains is economics, theology and politics wrapped together,” Bloomfield said.
In a time of crushing economic pressure on the middle and working classes, we are asked to consider voting for a man whose household took in nearly 800 times the median US income over two years, and who was taxed on that income at a far lower rate than Americans who earned their income through labor.
Is that right? Is that fair? In a time in this country’s life in which income inequality is greater than at any time since the Great Depression, the top two Republicans in this race are Romney, a fantastically rich man who benefited handsomely from this tax law, as do many people in his class, and who proposes no rise in the capital gains rate for the superrich (though he sensibly supports eliminating it for those making $200,000 or less); and Gingrich, a man who proposes reducing the capital gains rate to zero.
This is the Republican Party today. See this chart based on CBO data: everybody’s income is fairly stagnant, and has been for a long time — except for the superrich, who are rocketing into the income stratosphere. No wonder, given the times, that Romney doesn’t want to have this conversation.
Why shouldn’t conservatives have this conversation among ourselves? What, exactly, is conservative about a tax system stacked so that the ultrarich make massive profits from it, while working men and women pay a much higher rate on their income? Is the essence of conservatism protecting the privileges of the few at the expense of the many? If so, we lose. We are not egalitarians, and justice doesn’t require economic leveling. But soaking the rich isn’t what we’re talking about here; we’re talking about making them pay the same rate of tax as most ordinary people. You’re not supposed to talk about this on the Right, but why not? Why is this a question only liberals and Democrats are allowed to ask?
A competent presidential campaign, one that could really pose a challenge to a sitting president with a massive war chest and organization, would never settle for the media spin that Mitt Romney had a 15 percent federal tax burden over the past two years.
A competent campaign, and candidate, would explain that Romney’s real federaltax rate on his investment income was more than 40 percent (being conservative, after deductions and such), since the revenue stream was subject to both apersonal tax rate and the corporate tax rate. A competent campaign would then point out that state taxes would bring the effective income tax rate on Romney’sinvestment income to 50 percent or higher. Every time a reporter or opposing candidate tried to say Romney’s tax rate was 15 percent, a competent campaign would call them out for misleading the American people.
A competent campaign would then point out that this effective income tax rate of 50 percent is much, much higher than what the average worker pays in federal andstate taxes on wage income. Such a campaign would then say that by taxing investment so punitively and then redistributing the revenue to failed giveway programs and government boondoggles, America is eating its seed corn and deterring investors from creating new jobs.
For decades, conservative economists have essentially argued that carving out loopholes for property income at the expense of workers will generate more jobs and greater prosperity.
Yet the legacy of the Reagan, Clinton, and Bush 43 tax cuts — reductions that embody this property income bias, while relying on payroll taxes to fund general government — suggests just the opposite.
Indeed, both conservative and liberal observers debunk the myth of this “stork theory of economics,” as John Mueller terms it. William Voegeli warns fellow conservatives that the “asymmetrical growth pattern” since the 1980s has painted Republicans into a corner, quantifying how little the supply-side revolution delivered for “average” families at the bottom three-fifths of the income distribution, with annual earnings under $80,000.
Liberal columnist Harold Meyerson’s assessment is more severe but no less accurate. Meyerson contends that libertarian tax schemes, coupled with financial deregulation and so-called free-trade agreements, have stirred up a deadly mix: a “Wall Street-Walmart economy” that has gutted America’s industrial base, off-shored millions of family-wage factory jobs, and created a Frankenstein-like finance-banking-investment complex that no longer serves industry but delivered the economic dislocations of 2008.