Romney's tax loophole
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Robert Reich Guest blogger
After refusing for weeks to release his taxes, Mitt Romney now says he鈥檒l do so 鈥� by tax day, April 15. But the real news is what Romney has now admitted about his taxes.
It鈥檚 not how much Romney earns. Everyone knows he鈥檚 comfortably in the top one-tenth of one percent.
It鈥檚 how much he pays of it in taxes. Romney says he pays a tax rate of 鈥渁bout 15 percent.鈥�
That鈥檚 lower than the tax rate most of America鈥檚 middle class face and far lower than the 35 percent top rate after the Bush tax cut. (To put this in perspective,聽recall that the top income tax rate under Dwight Eisenhower was 91 percent.)
Newt Gingrich immediately pounced on Mitt鈥檚 admission as evidence that Newt鈥檚 proposed flat 15 percent tax is ideal, and wants to call it the 鈥淩omney tax.鈥� Newt鈥檚 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鈥檚 been his money-gusher of compensation from Bain Capital. Romney hasn鈥檛 released his tax returns yet, but the most obvious answer is he treats his Bain income as capital gains 鈥� 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鈥檚 legal but it鈥檚 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鈥檚 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鈥檛 been able to close it.
Guess why. The managers and executives of private-equity funds are big donors to Republicans and Democrats alike.
Don鈥檛 call it the Romney tax, as Newt wants to do. Call it the Romney tax loophole. And let him explain why he thinks it鈥檚 justified.
