Robert ReichBack to OpinionRobert Reich

The Romney tax loophole

Former Massachusetts Gov. Mitt Romney campaigned at Andrews Field House at Wofford College in Spartanburg, S.C. today. Photo: AP Photo/Charles Dharapak

After refusing for weeks to release his taxes, Mitt Romney now says he’ll do so — by tax day, April 15. But the real news is what Romney has now admitted about his taxes.

It’s not how much Romney earns. Everyone knows he’s comfortably in the top one-tenth of one percent.

It’s how much he pays of it in taxes. Romney says he pays a tax rate of “about 15 percent.”

That’s lower than the tax rate most of America’s middle class face and far lower than the 35 percent top rate after the Bush tax cut. (To put this in perspective, recall that the top income tax rate under Dwight Eisenhower was 91 percent.)

Newt Gingrich immediately pounced on Mitt’s admission as evidence that Newt’s proposed flat 15 percent tax is ideal, and wants to call it the “Romney tax.” Newt’s flat tax is a fraud. It would dramatically lower the taxes of most of the top 1 percenters and increase the taxes of most of the rest of us.

The real smoking gun is how Romney manages to pay only 15 percent on what’s been his money-gusher of compensation from Bain Capital. Romney hasn’t released his tax returns yet, but the most obvious answer is he treats his Bain income as capital gains — subject to the current capital gains rate of only 15 percent.

A loophole in the tax laws allows private-equity managers like Romney to treat their compensation as capital gains. It’s legal but it’s a scandal. Income from employment is employment income, period.

Private-equity managers cling to the technicality that the money they take out of their companies comes from the appreciation of assets they own and sell. That may be true, but it’s still income they get from their jobs. Common sense would dictate it be treated as ordinary income.

Congress has vowed for years to close this loophole. But somehow it persists. Even when Democrats have been in charge, they haven’t been able to close it.

Guess why. The managers and executives of private-equity funds are big donors to Republicans and Democrats alike.

Don’t call it the Romney tax, as Newt wants to do. Call it the Romney tax loophole. And let him explain why he thinks it’s justified.

Published by arrangement with RobertReich.org.

Robert Reich is Chancellor’s Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.

 

Comments

  • cityguyusa

    We just need to eliminate the two rates and make them the same regardless of how you come by your money.  Is it really fair to take more money from someone that has to use up their bodies in performance of their jobs than someone that’s just milking money out of the system?

  • John Ross

    It’s strange how so many Republicans forget that prosperous capitalism depends on spreading the money as far and wide as possible. Instead they want most of it for themselves to become millionaires and billionaires, even though the economy starves from the lack of money circulation.

  • http://twitter.com/nationaladvocat Sherri Hawn

    We’ve now seen Romney’s 2010 tax return–and he should be ashamed.  Does Romney really feel he’s contributed his fair share to the on-going concern that is America?  Has he given as generously of his wealth to roads, education, the military as he’s spent running for office?
    Romney has taken great care to provide generously for his charities–which he then deducts from his taxes so he pays into America less than 15%.  I raised 2 kids alone on an income that required me to pay 30% to the Feds, and another 10% to my State.  No matter what type of income (wages or interest) or deductions or how off-shore accounts–everyone netting over $1 Million in any type of income annually should pay 30%.  If I could do it with less than six figures & 2 kids to support, they can.