How does the uber-wealthy Romney pay so little in taxes?
Romeny's low tax rate, and how he achieved it, provides an important lesson in how tax laws need to change.
Romeny's low tax rate, and how he achieved it, provides an important lesson in how tax laws need to change.
Now that Mitt Romney is the presumed Republican candidate, it鈥檚 fair to ask how he made so much money ($21 million in 2010 alone) and paid such a low rate of taxes (only 13.9 percent).
Not only fair to ask, but instructive to know. Because the magic of private equity reveals a lot about how and why our economic system has become so distorted and lopsided 鈥� why all the gains are going to the very top while the rest of us aren鈥檛 going anywhere.
The magic of private equity isn鈥檛 really magic at all. It鈥檚 a magic trick 鈥� and it鈥檚 played on you and me.
Jake Kornbluth and I have made this 2 minute video that explains it all in eight simple steps. (Thanks to MoveOn.org for staking us.)
By the way, the 鈥渙ther people鈥檚 money鈥� that private equity fund managers (as well as other so-called 鈥渉edge鈥� fund managers) play with often comes from pension funds that contain the savings of millions of average Americans.
The pension fund managers who dole out our savings to private equity and hedge-fund guys also take a hefty slice in bonuses. And like the others, they bear no risk if their bets later turn bad. They get their bonuses regardless.
Nor are any of them 鈥� private-equity, hedge-fund, or pension-fund managers 鈥� personally liable for doing adequate due diligence. They can bet our money on the basis of no more information than what they had for breakfast.
But if these funds lose, you lose. That鈥檚 what happened in 2008 and 2009. Some of the losses are also shifted to the government鈥檚 Pension Benefit Guaranty Corporation 鈥� which means taxpayers lose.
It鈥檚 a giant con game, and it continues to this day.
Here鈥檚 what has to be done to stop it:
1. End the 鈥渃arried interest鈥� loophole that allows private-equity managers like Mitt Romney to treat their income as capital gains, taxed at 15 percent, even though they don鈥檛 risk a dime of their own income. Their earnings should be treated as ordinary income.
2. Hold the managers of private-equity funds, hedge funds, and pension funds to a 鈥渄ue diligence鈥� standard. So if the funds lose money and these managers didn鈥檛 exercise due diligence, the Pension Guaranty Corporation can claw back their bonuses.
3. Raise the capital-gains rate to match the tax rate on ordinary income 鈥� especially for short-term investments. Give a tax preference only to 鈥減atient capital鈥� 鈥� that is, for investments held for, say, five years or more.
4. Resurrect Glass-Steagall.
Mitt and others like him won鈥檛 like any of these reforms. They鈥檇 eliminate the humongous profits they鈥檝e enjoyed at the expense of the rest of us.
But these reforms are necessary if we鈥檙e to take back our economy.
Get #BeyondOutrage.