Why Mitt’s Tax Returns Are VERY Important
In January of this year the Republicans had not yet selected a presidential candidate. Mitt Romney was widely expected to be the ultimate choice, however, and on January 19 Floyd Norris in The New York Times wrote an interesting piece based on that expectation. It was headlined: “Unearned, and Untaxed Unequally.”
It still makes very interesting reading today. Here’s a poignant line from that story: “Perhaps Mr. Romney’s ability to pay little in taxes will evoke interest in the issue this year.”
With that teaser in mind, here’s some tidbits from that piece — and some things it did not note but should have.
Unearned income (capital gains, interest, dividends, royalties, et. al.), on which a top tax of just 15 percent is levied, is the source of almost all Romney’s reported income. And here’s something the Times piece noted that has long seemed obvious to many of us. “It does seem odd,” wrote Norris, “that those who work for their money generally pay higher tax rates than those who simply collect investment income.”
Of course apologists for the rich who are the prime beneficiaries of this tax rate dichotomy have all sorts of rationales for it, the prime one being that it fosters investment. But consider this. You get this favorable unearned income tax rate even if its source hurts, not helps, the economy. It can, for example, come from a company sending jobs overseas that produce a capital gain and/or bigger dividends.
Should we really be giving investors a great tax rate for this sort of thing?
Now let’s turn to an aspect of our present tax system that leaps out from Romney’s tax return, an aspect that neither party likes to mention — the carried interest gambit. Romney doesn’t mention it because he and his Wall Street pals benefit so much from it directly. Obama shies away because some of his biggest contributors, according to news reports, similarly benefit.
Carried interest on private equity investment, noted the Times, “is taxed at capital gains rates even though the executives who get those payments typically made no actual investment, and are instead being compensated for their work in putting together and managing the investments. Mr. Romney, a founder of Bain Capital, continued to share in those payouts long after he left the company.” The piece went to note that it “seems odd that those who work in that one industry — private equity — get to pay lower rates than those who work in other businesses.”
Odd indeed. Unless one views it as a simple payback for campaign contributions. Or less charitably, an example of legalized bribery.
Now let’s move on to a question not raised in this piece but which comes to mind (or should come to mind) anyway after looking at Romney’s just released 2011 tax return. Working stiffs with earned income pay 6.2 percent in Payroll Taxes. Unearned income earners who don’t actually work for their income don’t.
Are there “good” reasons for these differences. Depends how you define good. For me, it would be very, very good if unearned income were taxed for these purposes, and the extra revenue generated were used to lower the Payroll Tax rates of working people with earned incomes, and their employers who also pay 6.2 percent in Payroll Taxes.
There’s going to be a lot of debate after this election, whichever party is in power, about changing the Tax Code. Mitt Romney’s tax returns offer a good starting point for this debate. It raises all sorts of questions about who and how to tax every group of Americans.
One overriding debatable question here that comes immediately to my own mind is this: Given how much folks like Mitt Romney already get away with when it comes to paying taxes, can any sensible, nay, any sane person, actually believe they should get still more?
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Mitt’s taxes should be a hot topic. I believe they would highlight exactly how the tax system has been gamed by the not just the 1%, but by the .1%, to favor them. I think that many of the middle and lower class voters who vote GOP, who so vocally defend the GOP’s tax policies that blatantly favor the wealthy, have no idea just how bad it is. Taking someone like Mitt Romney’s taxes, putting it under the microscope and spotlight would really open a few eyes in this nation. That those who scream “Class warfare” every time we mention letting the Bush tax cuts expire or want to regulate the type of people who are playing games with the economy, are in fact the same people who have been stealthily waging class warfare for years and winning it handily without those being screwed by it ever noticing.
Romney released 2010 and 2011. As has been noted on this website, tax filings can be amended for up to 3 years, so it is very likely these released tax returns represent only a portion of the deductions that Romney actually intends to take. In fact, his 2011 returns show that he absolutely made more charitable contributions then he claimed. Romney has said before that he isn’t embarassed about paying as little as the law allows so I believe he intends to claim those at some point. What America needs to see are his full returns from years that can no longer be amended, and weren’t done with running for president in mind. He seems proud that he pays 14%, which is already quite low, but lets be honest. His past returns will in fact show he paid noticeably less than that in previous years once he has claimed his full deductions and write offs. All perfectly legal no doubt.
Again I don’t think Romney is a bad person. I don’t think he cheats on his taxes, merely uses all the legal stuff that those in his pay grade have worked into the tax code over the years to benefit themselves. I think his charitable giving is a good thing. But nonetheless he is a willing participant and active player in the part of the tax system that is rigged for him and those like him, and its screwing most of America. That needs to be brought to light.
None of this statement seems to really call for looking at Mitts taxes. Complying with the current legal requirements has no effect on the validity or “rightness” of a policy so the only real point is how to use Mitts taxes, or his not showing his taxes, against him.
Sixty Minutes Interview With Scott Pelly
Re; Was it fair that Mitt Romney only payed 14% on his income.
Mitt Romney replied,
“It is a low rate and one of the reasons why the capital gains tax is lower is because capitals already been taxed once at the corporate level as high as thirty-five percent.”
Why shouldn’t the mid-level manager get the same treatment for his income? Isn’t he or she being paid with the same corporate money that has already been taxed?
Why shouldn’t secretaries at the corporation get the same treatment of their income? Aren’t they being paid with the same corporate money that has already been taxed?
Why shouldn’t sales people at the corporation get the same treatment of their income? Aren’t they being paid with the same corporate money that has already been taxed?
Aren’t Corporations People? Why don’t we ask to see the corporations tax returns as well?
It was my understanding that this income from Cap Gains was not money shared out as profit by the firms from whatever is left over. Its profit from the upsurge in price of your equity in the stock. Which isn’t taxed already. This double taxation thing is a load of BS. Salaries and bonuses paid out of the company profits are taxed as regular payroll, and in fact count against your corporate tax liability. This isn’t double taxation, that is Romney lying, sorry, getting it wrong, twice.
Slam, the only way you, or Mitt, can get a dividend- taxed at 15%-, is by OWNING an instrument- equity/stock or debt/bond. If you do you are at risk of losing your entire investment, ask the bond holders of GM. In order to have a capital gain at 15%, you or Mitt would have to own a security- bond or stock that you likewise could sustain a partial or complete loss. Sell it and you have a gain or loss depending on your cost basis.
I am not an accountant, but if you have one he may be able to explain this to you.
Oh I am quite well aware of what it is. And I would tell you that owning these stocks is far less risky, especially when you run your own equity firm, than investing that money in say, a new start up business from scratch. Lets say for instance you had a friend come to you and say he needed $100,000 to start up a sandwich shop. You loan it to him. You are taking a much greater risk on that investment than you are on a typical Cap Gains issue. Yet, you don’t get a magical tax break status. You will pay typical federal income tax on your earnings through that sandwich shop. Risk is not a factor, and if it were, I assure you that your typical Cap Gains investment would be at a higher rate, since by a HUGE margin, they can provide steady growth.
Also, I love when people mention the loss of GM bond money. Most of those people are ones who bought into GM bonds after 2005, who went for the 10% interest rates after the bonds were rated junk, and for some reason didn’t think they were a risk. While I feel bad if people lost all their money on them, those were clearly a big risk if you were paying any kind of attention at all.
Income is income. Cap gains related income is a safe bet, its why just about every single wealthy person makes most of their money that way. Having capital to risk on investing is the privilege of having capital, not some burden you get a gold star and a ice cream cone for because you are doing charity work. I run my own company, I am very familiar with how taxes work.
Which isn’t to say I’m an amateur accountant or anything, but I get the big picture stuff like the difference between stocks and bonds, and how taxes get paid between different entities, what and where the tax liabilities are, etc…
Slam, then how can you say: “This double taxation thing is a load of BS.” Are you a C corp? Yes, do you pay a corporate tax? Yes, does your salary get taxed?
“This isn’t double taxation, that is Romney lying, sorry, getting it wrong, twice.” calling A not bad person- you said it- “lying.”
Mitt’s still lying. Corporate taxes are levied against net profits. Those profits have nothing to do with the stock owned by shareholders in the modern corporate world.
Income is income and it should be taxed, period. There is no way to logically explain a fair reason for why cap gains taxes are so low. It is simple…wealthy people pay off politicians and politicians reduce their tax burden. If you really want to break down it down to the root cause… blame the US voter. We keep voting the same people back into Congress.
Is Mitt Romney a poster boy for the problem, yes. Is he doing what every other person with a bit of money for investment is doing, yes.
All I want to know about Mitt’s taxes is if he took amnesty or not. In 2009 the IRS offered amnesty to roughly 15,000 citizens who were caught sheltering money offshore. The options were to take the amnesty, pay the fine and forgo an expensive trial where he would have been convicted of a felony. If Mitt took the amnesty, that would disqualify him for president.
SL, JS, for anyone that has a mutual fund, in an IRA or other retirement plan or not, in an employer’s pension, 401(k), 403(b), or whatever, is exposed to a capital gains, on a stock that is sold within the MF, so it is either a profit or a loss and the MF will pass that through to the MF owner. Likewise, a stock in the MF that pays a dividend, again the amount subject to the current tax of 15%. So, not only the rich, but anyone that pays Federal taxes gets to pay CG and Div. taxes.
IRAs and other retirement plans only differ your taxes, eventually you pay when you take money out usually at ordinary income tax rate.
Double Taxation: If I own a C corp, the net profit is taxed at the applicable corporate tax rate, maximum 35%. So after that tax is paid I, a one-person newsstand owner with 100% percent of the outstanding stock, has the balance. So, let’s say he paid himself a salary, he has to pay ordinary income tax on that salary. Instead if he declares and distributes a dividend (to himself, in this case) he pays at the 15% rate on that amount. That means he has paid two taxes.
That is as far as I can go so I welcome any help from other TMVers with the capital gains aspect. Sorry I am a little rusty and didn’t want to throw in links.
In any event, true Mitt is taking advantage of all that the law allows to minimize his taxes, but to say he is lying is not fair.
@ShannonLeee
Income is income and it should be taxed, period. There is no way to logically explain a fair reason for why cap gains taxes are so low.
Matthew Yglesias of all people explains why it is fair:
http://www.slate.com/blogs/moneybox/2012/09/21/mitt_romney_s_effective_tax_rate_is_very_low_most_economists_think_it_should_be_.html
Thanks, DG. From that link: “But this is definitely an issue where the conservative position is in line with what most experts think is the right course, and Democrats are outside the mainstream. ”
”
I also agree with statement: This is also separate from the question of whether hedge fund and private equity fund managers should be allowed to pretend their labor income is really investment income by calling it “carried interest” and paying at a low rate.”
Your right dduck, that would be a rotten double taxation for your one person C Corp. Which is exactly why no one person operation in their right mind would set up such an operation as that type of entity when they could, and much easier for a small business, form an S Corp, Sole Proprietorship, or an LLC and have much more streamlined taxes. However, if he did want to go the C Corp route, and avoid the double taxation, your newspaper stand owner could adjust his salary to eat up the profits and take that money out of his tax liability that way. Of course now he’s paying payroll taxes, state taxes, on that money as well, which depending on his state might make the 15% of Cap gains make more sense, but that would be something he would have to talk to his CPA about.
All this to say that the double taxation applies to people who get dividends. But how else would it be? Companies have to pay taxes(but not you GE, Verizon, Wells Fargo et al..), and those who get dividends will pay taxes on that income. But are dividends the primary source of income from those who are making money in the Cap Gains bracket? Or is it on the sale of stock whose value has increased? Could this be why so many executives are paid heavily in stock options? Many of which do not genrate dividends to get caught up in the double taxation? I bet if we go over Mittens taxes we’ll see that his tax liability came that route, and not via the easily avoidable dividend route. Unless your financial advisors are the same ones that suggested you sink your money into GM bonds in 2006.
Ok, that link has one very annoying and very prevalent piece of garbage in it.
“not only are you deferring enjoyment of the fruits of your labor (boring) but when the money you’ve saved comes back to you, it gets taxed all over again”
No, it doesn’t “Get taxed all over again”. Only the profit, the new money, gets taxed. Now it gets a bit more complicated if you are running your own business as opposed to merely being an investor. As you will be require to pay yourself some sort of salary, and regardless of your entity type and profit loss, that amount will be taxed. However, if you were making $100k year on other investments, and you paid yourself $50k over and above that from the new company that didn’t make a profit, while the company won’t have a tax liability, your personal taxes will need to reflect that your income is now $150k per year, even if it was all your own money to start with. That is considered “new” money as your initial investment is essentially a write off against the company tax liability. This is where the risk comes in, if your business fails, you only made back from it what you paid yourself in salary, minus taxes.
It is far less tricky when we are discussing the much safer route of investing in a mutual fund or buying stocks. You invest $1 million, you have a fantastic year, it nets 50%, now worth 1.5 million, and the tax is on the new half million, not the full amount.
Either way, the example given in the link is just absurd. It is seriously trying to imply that the guy who is starting more businesses is in some way losing out by building up his income, and the guy who spends his money like a drunken sailor is smarter so he can avoid paying taxes because he isn’t making more money. This kind of thinking drives me nuts when people want to base tax policy on it.
Thanks for the link DG. I find the authors argument somewhat silly. He is talking about subsidizing investment, not exactly free market talk, but I’ll bite. The sort of bricks and mortar investment in the example is no different that going to work. You are using a tool, money, to make more money. Whether you are swinging a hammer or sitting in a think tank, you are working. Therefore the profits should be taxed like everything else. But what we are really talking about here is the stock world.
In the stock world where billions of trades are happening per day (just a guess), that analogy doesn’t fly. The profits taken by the major investors are more like profits made in a fixed game of poker. For the rest of us, it is more like playing the slots.
There is nothing special about cap gains. They are not more valuable than profit gained from hard labor.
Yes DD, any money I make from my Ira mf whatever, should be taxed like my income from work. The deferring part is the advantage, unless you are making millions.
SL, Slam, I will still go with the majority view: “But this is definitely an issue where the conservative position is in line with what most experts think is the right course, and Democrats are outside the mainstream. “
To All,
Don’t you get tired of this counter intuitive swill. The arguments (and there are lots of them) that run, in essecne, common sense tells you one thing, but the really, really knowledge folks who think deeply about things reach totally different conclusions, and they have to be believed for the common good.
Personally, I amm very, very tired of this nonsense. With respect to the arguments above, the nonsense that says unearned income fabvored tax rates should be lower than earned income taxes because all prudent investors (and oh, yeah, they’re all prudent investors) who take advantage of these tax breaks put their money into good economy boosting investments.
Wake up! An inordinate amount of these investments go into things like generating capital gains by shipping jobs overseas. You want to encourage that? Whatever for? Or it goes to hedge funds that invest in ways that impoverish foreign countries like Greece. You think that should enjoy favored tax treatment? Or to the tune of an estimated $840 trillion, into derivatives, many of which are unneeded (and unregulated) insurance products that generate unneeeded (and phony) protection while generating capital gains-enhancing fees.
Enough with the ‘experts know and the rest of us must obey.’ Romney and his crowd play this one endlessly by hiring experts to tell us what helps the Romney crowd. I know. I know. That’s only obvious so we’re supposed to think the opposite. But in this case of foolish tax policy maybe we shouldn’t.
To All,
Don’t you get tired of this counter intuitive swill. The arguments (and there are lots of them) that run, in essecne, common sense tells you one thing, but the really, really knowledge folks who think deeply about things reach totally different conclusions, and they have to be believed for the common good.
Personally, I am very, very tired of this nonsense. With respect to the arguments above, the nonsense that says unearned income fabvored tax rates should be lower than earned income taxes because all prudent investors (and oh, yeah, they’re all prudent investors) who take advantage of these tax breaks put their money into good economy boosting investments.
Wake up! An inordinate amount of these investments go into things like generating capital gains by shipping jobs overseas. You want to encourage that? Whatever for? Or it goes to hedge funds that invest in ways that impoverish foreign countries like Greece. You think that should enjoy favored tax treatment? Or to the tune of an estimated $840 trillion, into derivatives, many of which are unneeded (and unregulated) insurance products that generate unneeeded (and phony) protection while generating capital gains-enhancing fees.
Enough with the ‘experts know and the rest of us must obey.’ Romney and his crowd play this one endlessly by hiring experts to tell us what helps the Romney crowd. I know. I know. That’s only obvious so we’re supposed to think the opposite. But in this case of foolish tax policy maybe we shouldn’t.
I guess you guys don’t have MFs, or stocks or bond in IRAs and such. Most people enjoy accumulating more money for their retirement BECAUSE of the lower CG and Div rates, and they are helping the economy by being investors in the economy.
MS, By all means, let’s consume all of our income from whatever source, and that includes your pal Selig who is counting on his GS retirement plan. We will make the point real BIG that those crooks on Wall Street are not going to get away with their nefarious ways and the government which has always taxed CG and Div income at a lower rate should treat all income equally.
Now boys to the barricades. You too Selig, and bring that tip jar with money you probably don’t declare.
Well to be honest your right dduck I currently have not such investments and haven’t since 2006. I dumped everything the day I understood every home loan agency in the nation had pretty much abandoned safe business practices and were robo-signing home loans to people without even verifying income. I wasn’t ready to get back into things until 2010 and then decided to go a different route. But I am mildly offended that you think my opinions on the matter are solely a product of not having any skin in the game, I can assure you it will not change down the road when I do.
And I’m for having a progressive Cap Gains just like we do on income taxes. I think retired people that saved up and are making an additional $30k/year to supplement social security should not be taxed at the same rate an the Mitt Romney’s banking $10+ million a year. But to flat tax it has the exact same effect as a flat tax has on regular income, to increase the wealth disparity and eventually create a top heavy economic imbalance that history has shown undermines the overall national economic health. The assumption that people investing in these things directly helps the economy is a bit meh. Far more important is the extension of credit, with proper loan practices, for small business loans, car loans, home loans, etc…That is where we are hurting now, and its not for a lack of capital at the top end. In fact, has there ever been a lack of capital at the top end? Certainly not since interest rates have been in the low single digits.
Basically, we can encourage retirement investment without also having to provide a nifty tax package for the uber wealthy to essentially reduce their liability well below that of median income earners.
Hi dduck
Another fallacy of the notion that unless unearned income from cap gains is taxed at a much lower rate, no one will invest, and all income will be spent — invariably spent foolishly in this false paradigm, since this paradigm demands we think that spending (aka consumption) has no economic merits.
When unearned income tax rates were much higher in the American past, however, investment held up very well. Indeed, when Ronald Reagan backed taxing unearned and earned income at the same rate in 1986, investment did just fine.
The main point to remember here is this. The reason you invest (if you’re smart) is based on the merits of the investment, not its tax benefits. Good investments lead to big investing, with or without special tax breaks.
Slam, I feel we are slowly coming to a little bit of agreement, now that you proposed a graduated CG tax. I might go along with that and means testing for SS and Medicare. I’m sorry you jumped out of investing in 2006, but hey you were subject to the lower CG/Div rates for a while.
I could not know if you had skin in game, but I had to point out the benefits of investing/saving/retirement plans have with the lower the CG/Div rates, for most Americans.
And, if it makes you feel any better, remember, Mitt will be paying at the highest income tax rate when he pulls money out of his IRAs. So if he does really well, performance wise, That money will mean much more money going to the Treasury.
MS, at least we can agree on this (it’s a start):
“The main point to remember here is this. The reason you invest (if you’re smart) is based on the merits of the investment, not its tax benefits. Good investments lead to big investing, with or without special tax breaks.”
So? The taxes aren’t lower because CG are “special” or more valuable, it is because taxing at a higher rate doesn’t always end up getting more taxes. The theory being that not only will people accept higher risk because they get greater return thus putting money in play in the economy. The secondary economic benefits , jobs created etc, are also taxed and by increasing CG taxes you end up with less CG thus taxing a smaller amount a greater percentage so you end up with less than you think off the bat. You then also lose the taxes on the difference in the economy because the lower investment. The op’s argument, as well as many others, seem focused on “fairness” rather than what actually brings in the most cash and is best for the economy. Now I’m no economist but the link was correct in that current economic theory is on the Repubs side. What is debatable is what percentage would bring in the most money, that point where if you increase you actually get less money but to argue there isn’t one ………
The Goldilocks solution is to have sustainable growth and reasonable taxes to help that growth along and so on, and so on.
Growth is the engine that begets higher revenue, without it taxes will be a diminishing return after a while.