TOPICS > Politics

What Do Tax Returns of Romney, Gingrich Reveal?

January 24, 2012 at 12:00 AM EST
Financial documents, released under pressure, dominated the Republican presidential campaign Tuesday. Hours after Newt Gingrich released a disputed Freddie Mac employment contract, rival Mitt Romney released two years of income tax returns. Jeffrey Brown reports. Then, Judy Woodruff and guests discuss what the returns show.
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JUDY WOODRUFF: The Republican presidential campaign was dominated today by financial documents released under pressure. The former front-runner Mitt Romney put out his income tax returns hours after rival Newt Gingrich released a disputed employment contract.

We begin with this report from Jeffrey Brown.

(CHEERING AND APPLAUSE)

JEFFREY BROWN: Mitt Romney wasn’t talking about his taxes as he campaigned in Florida today, but at last night’s debate in Tampa, he had offered this assessment.

MITT ROMNEY (R): And will there will discussion? Sure. Will it be an article? Yes. But is it entirely legal and fair? Absolutely. I’m proud of the fact that I pay a lot of taxes.

JEFFREY BROWN: The filings showed the Romneys earned $21.7 million in 2010, nearly all of it investment income.

They paid about $3 million in taxes, for an effective tax rate of 14 percent, and gave about $3 million to charity, roughly half going to the Mormon Church. For 2011, Romney estimates he earned nearly $21 million and will pay about 15.4 percent in taxes.

The candidate’s father, former Michigan Governor George Romney, released 12 years of returns during his unsuccessful run for the presidency in 1967.

But at last night’s debate in Tampa, the son ruled out going that far.

MITT ROMNEY: And going out with 12 years of returns is not something I’m going to do. I’m putting out two years, which is more than anyone else on this stage. I think it will satisfy the interests of the American people to see that I pay my taxes, where I give my charitable contributions to. And I think that’s the right number.

JEFFREY BROWN: Meanwhile, former House Speaker Newt Gingrich made a document dump of his own a short time before the debate. He released his 2006 contract with mortgage giant Freddie Mac to back up his assertion that he was hired to do consulting, not lobbying.

During the debate, Romney said it didn’t matter what Gingrich called it.

MITT ROMNEY: I don’t think we can possibly retake the White House if the person who’s leading our party is the person who was working for the chief lobbyist of Freddie Mac. Freddie Mac was paying Speaker Gingrich $1,600,000 at the same time Freddie Mac was costing the people of Florida millions upon millions of dollars.

NEWT GINGRICH (R): If you read the contract which we’ve posted, and the Center for Health Transformation had to get permission to post, it says very clearly supposed to do consulting work. The governor did consulting work for years. I’ve never suggested his consulting work was lobbying.

So let me start right there. There’s no place in the contract that provides for lobbying. I have never done any lobbying.

MITT ROMNEY: Well, Mr. Speaker, you were — on this stage, at a prior debate, you said you were paid $300,000 by Freddie Mac for an historian — as an historian. They don’t pay people $25,000 a month for six years as historians.

JEFFREY BROWN: Today, Gingrich said Romney’s charges were ironic, given that the former Massachusetts governor was himself an investor in Freddie Mac and its sister company, Fannie Mae.

For his part, former Pennsylvania Sen. Rick Santorum charged last night that both Romney and Gingrich had abandoned conservative principles in the fights over health care and financial bailouts.

RICK SANTORUM (R): And there is no difference between President Obama and these two gentlemen. And that’s why this election in Florida is so critical, that we have someone that actually can create a contrast between the president and the conservative point of view.

JEFFREY BROWN: Meanwhile, Texas Congressman Ron Paul said again he had no intention of launching a third-party bid. And he was asked directly about Gingrich.

BRIAN WILLIAMS, moderator: Would you support a Newt Gingrich as nominee of the GOP?

REP. RON PAUL, R-Texas: Well, you know, he keeps hinting about attacking the Fed, and he talks about gold. Now, if I could just change him on foreign policy, we might be able to talk business.

JEFFREY BROWN: But for now, at least, the main business of the Republican nomination fight figure to be tax returns and contracts, with the Florida vote one week away.

JUDY WOODRUFF: Reporters and experts spent much of this day sorting through what was and wasn’t released by Mitt Romney and Newt Gingrich.

And we take a closer look at what the documents tell us with a pair of reporters who have been poring through the papers.

Brody Mullins is an investigative reporter with The Wall Street Journal. And Jeanne Cummings is an editor at Bloomberg News.

And we appreciate you both being with us.

BRODY MULLINS, The Wall Street Journal: Thanks for having us.

JUDY WOODRUFF: Brody Mullins, I’m going start with you on Gov. Romney.

So, the total income he released 2010-2011, $43 million, almost, what was that income from?

BRODY MULLINS: It was mainly from investments. The tax code in the U.S. is set up in a way that when wealthy people invest in various funds and take a capital gain or dividend from that, they pay a very low tax rate, a 15 percent tax rate.

So, essentially, for not lifting a finger, for not doing any actual sweat equity, he was able to get this lower 15 percent tax rate, as opposed to a tax rate as high as 35 percent.

JUDY WOODRUFF: Roughly what kind of investments?

BRODY MULLINS: They were mainly through his former employer Bain Capital, which then set up a — there’s dozens and dozens of separate firms that Bain invested in that he was taking dividends and capital gains from.

JUDY WOODRUFF: So, the tax rate around 14 percent. . .

BRODY MULLINS: Fourteen percent.

JUDY WOODRUFF: … which is pretty close to normal for this kind of income. Is that right?

BRODY MULLINS: Right. The normal rate would be 15 percent. He was at 14 percent or a little bit lower than that.

JUDY WOODRUFF: And how was he able to do that? I mean, remind us of the law that allows one to do that.

BRODY MULLINS: When President Bush was in office, he lowered the capital gains rate to 15 percent. That’s a lower tax rate than a normal tax rate on investment — or on a normal salary income.

And he lowered that to 15 percent. And so any investment income gets taxed at that rate. And that’s why he was able to. . .

JUDY WOODRUFF: And the — what would you say is the average or median rate that most Americans pay?

BRODY MULLINS: Well, most wealthy Americans pay about 30 percent. Newt Gingrich paid about 30 percent. A lot of Americans don’t pay any taxes. And the average tax rate is sort of the in the mid-20s. So, he’s lower — he’s half as much as even — as most wealthy Americans.

JUDY WOODRUFF: His campaign says that he paid everything he owed, that he didn’t take any aggressive steps to either avoid or defer taxes. And is that what it looks like from all these documents they released?

BRODY MULLINS: Well, he certainly complied with the law. He hired several smart tax attorneys to make sure that he complied with the law and got his tax rate as low as possible.

He said last night — I thought it was a pretty good line when he said that he paid every dollar he owed, but not a dollar more than that. At the end of the day, he paid $3 million in taxes.

JUDY WOODRUFF: Did he have a choice in how he structured his income that affected the taxes and, among other things, for example, Medicare taxes?

BRODY MULLINS: Right.

Well, again, that’s a situation that complies with the law. But when a wealthy person takes their income in the form of capital gains or dividends, they don’t pay the normal Social Security tax that we all pay on our normal income. So some could say that’s a tax loophole. But that’s also the way the law is set up.

JUDY WOODRUFF: And so he had a choice of how to do this?

BRODY MULLINS: Sure.

I mean, he could have — so the big debate on Capitol Hill now over carried interest and how hedge fund and private equity funds are taxed is that they use that lower tax rate to get around taxes. They could take taxes as, you know, their regular salaries, where they would be taxed much higher.

JUDY WOODRUFF: And just quickly, some of his investments were in overseas accounts, the Cayman Islands, some in Europe. What’s the significance of that?

BRODY MULLINS: Well, it’s hard to tell from the tax document exactly what he was doing. So we can’t say for sure that he was — that he had accounts in the Cayman Islands and in Switzerland in order to avoid taxes.

But, by and large, most people who have accounts in those countries are there to avoid taxes.

JUDY WOODRUFF: Jeanne Cummings, let’s talk about what we know from Newt Gingrich. He released his tax returns, several years’ worth, a couple of days ago. What did we learn, broadly, from that?

JEANNE CUMMINGS, Bloomberg News: Well, what we learned that Gingrich is paying roughly about where a relatively wealthy person in the country ought to be paying. He earned about $3 million, a little over that. He paid around the 30 percent bracket, which is pretty much the norm.

However, some questions were raised about the way that he structured his income and whether he had avoided paying some tax on — some of the Medicare tax because of the way he set up his — a corporation.

JUDY WOODRUFF: Explain how that works.

JEANNE CUMMINGS: Well, he is incorporated, what they call an S-corporation.

This is done by people who are individual businesses, you know, private businesses. And the money that comes through — the bulk of his money was earned through his speeches, through his books, through his events. And that $3 million went through this S-corporation.

And according to IRS regulations, that corporation should compensate the owner of it in terms of salary at what is commensurate to the amount of work that they did to create the income. And they paid him a salary of $252,000, so, much lower.

JUDY WOODRUFF: Much lower, meaning he was able to not pay or avoid paying the Medicare taxes that would have otherwise. . .

JEANNE CUMMINGS: Yes, because he also received $2.5 million in earnings through the corporation. And that was not taxed — exposed to the Medicare system.

JUDY WOODRUFF: Now, what about this controversial contract that he released, the contract with Freddie Mac, $1.6 million? He released the year — I guess for the year 2006. What did he do for Freddie Mac?

JEANNE CUMMINGS: Well, according to people who work there now and people who worked there at the time that the speaker was under contract, his job there was to help develop a message that they could, Freddie Mac, could then take to Capitol Hill that would be persuasive to conservative Republicans who really wanted to crack down on Freddie Mae and Freddie Mac and impose — I’m sorry.

JUDY WOODRUFF: Fannie Mae, Freddie Mac.

JEANNE CUMMINGS: Thank you — and impose greater regulations upon them.

They also looked to him to help identify Republicans on Capitol Hill who might be open to that kind of argument.

JUDY WOODRUFF: And how is that different from being a lobbyist? Because we have heard Mitt Romney accuse Gingrich of being a lobbyist. He said whether you call yourself that or not.

What’s difference?

JEANNE CUMMINGS: Well, it’s funny.

The definition of a lobbyist is actually quite narrow. And keep in mind it was written by members of Congress who hope some day to leave the Hill and get a great job on K street making a lot of money. And so they wrote this definition. And it requires that a person have a paid client, make two contacts on Capitol Hill, and spend 20 percent of their time on that client in a three-month period.

You know, that’s basically someone who is just going constantly as a lobbyist. And so it’s a great big loophole that people can go through and not register as a lobbyist.

JUDY WOODRUFF: How common is what Newt Gingrich did or has done among former members of Congress?

JEANNE CUMMINGS: It’s certainly fairly common.

We have Democrats like the former Senate Leader Tom Daschle who is not registered, and yet has advised health care companies in similar ways, former Senate Leader Trent Lott, Republican of Mississippi, similar.

JUDY WOODRUFF: And to you both, more — are there calls today for more information from these two, more tax returns from Mitt Romney?

BRODY MULLINS: So far, there haven’t been a ton of calls. I would expect that there would be. And certainly, if not in the Republican primary, then once he faces off against Barack Obama, if indeed Mitt Romney becomes the nominee, they’re certainly going to ask for more tax returns.

JEANNE CUMMINGS: This with the speaker is not over yet. He worked for them for five years. He released a one-year contract. There’s a lot of material we don’t know. We talked to his people today. They say they’re looking for additional records.

But there are many — these — many questions left unanswered.

JUDY WOODRUFF: Jeanne Cummings, Brody Mullins, thank you very much.

BRODY MULLINS: Thanks.