Excerpt: "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.... 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."
Portrait, Robert Reich, 08/16/09. (photo: Perian Flaherty)
The Romney Tax Loophole
18 January 12
fter 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.
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. He has written thirteen books, including "The Work of Nations," "Locked in the Cabinet," "Supercapitalism" and his latest book, "AFTERSHOCK: The Next Economy and America's Future." His 'Marketplace' commentaries can be found on publicradio.com and iTunes.
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Comments
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1. One of the problems with our tax code is that it treats "income" (i.e., what is earned) and "wealth" (i.e., what is owned) very differently. That income, not wealth, should be taxed is one of the arguments for lowering the rate on capital gains and inheritances. And, it also explains why property tax caps are so popular amongst the wealthy.
2. To quote the NYT, "[Romney] characterized as “not very much” the $374,327 he reported earning in speaking fees last year, though that sum would, by itself, very nearly catapult most American families into the top 1 percent of the country’s earners." 'nuff said.
3. That Romney can have any hope of getting more than 1% of the vote can only be explained by the eternal optimism of Americans. That is, they may not be part of the 1% now, they believe that they will be soon. So, it's good to vote for someone who will very shortly be acting in their interests, even if he's got no idea of the mess they're in now.
They kept searching for someone to run instead of Romney. They had us all fooled. We thought the GOP power brokers did not want to run a Mormon. Notice that they never disputed that when Dems brought it up? Instead what is now occurring, is exactly what they are really afraid of.
They are concerned that Mitt Romney would be exposed as the poster boy for their Economic Policy.
You see, their policy plans are to suck all the wealth from the small, private companies would be exposed. Exposed as a murderous plan to redirect all wealth into the hands of an oligarchy elite. They are blind to the true effects of this plan of wealth accumulation and how it will turn on itself eventually and leave nothing. No Oligarchy. Just Poor.
And those that do understand don't care since this self immolation won't be complete until our grandchildren are grown. Until then, Party!
Their lies and deceptions are being exposed for what they are. And they are still hoping that the vast majority of Americans are too caught up in debate gotcha mentality, that they won't notice.
Rather than holding Buffet up as an example of what a handful of folks who earn their income mostly via capital gains and divident income, perhaps he should try leading -- like putting an actual proposal out there in front of the American voters (and taxpayers).
Now - this might be easier to do if Obama had been capable of coercing his Democrat leaders of the House and the Senate to actually pass a federal budget at some point during the past 3 years (and of course, then he'd have to sign it - something he's not had the opportunity to do).
Now, we'll have to be careful (outside of the loophole closure), in how they address tax reforms here, as there are quite a few "not wealthy" folks who's financial wellbeing would be jepordized if they simply just raise taxes across the board on capital gains and dividend income.
And yes, Romney should release his tax records sooner, than later -- just as Obama should have released his college records sometime in the past 4 years.
Perhaps there's another Dan Rather out there somewhere in the Network newsland, who'll just come out and release some forged documents.
They are all irrelevant.
Buffet, unlike Romney, is not running for President. He is not obligated to produce any plans. He is not even obligated, as are neither you or I, to provide an opinion. But all 3 of us are doing so.
There is no Constitutional requirement to produce a budget, and even when we have one, it is really symbolic and not much of a planning tool.
Who are these people that would be affected by raising the rate on dividends and other unearned income? Show the math. What are your marginal rates, deductions, etc? (This paragraph may be your most cogent)
Why is it important to see Obama's college records? Grades are only one measure of intelligence, and certainly not a requirement to be President. Persons with poor grades may learn better in less formal settings, even in the subjects he failed at. Personally, I don't give a rat's tush what any candidates tax forms look like.
Dan Rather's report was accurate and nobody has denied it. The fact the some of the documentation to back up his contention was fraudulent is irrelevant.
They are also amazingly WRONG as well as irrelevant.
Sorry, but forparity's post is still riddled with false statements, regardless of your thumbs down.
I got your point, and thought it was pretty clear. I was surprised myself. Maybe Diebold was tabulating?
GW once bragged that even students with a C average could become president. Surely Obama managed to get a C average as an undergraduate!
Although I don't know anything about Obama's undergraduate transcript, but he was on Law Review at Harvard, which is normally not an honorary freebie given to university legacies whose fathers and grandfathers attended that school. No, it's not like getting admitted to Yale as a legacy like it was for GW -- Law Review is highly competitive and earned - either by excellent grades or by "writing on" with a high-quality piece of legal writing.
I'll give you an opinion. Romney should provide his tax returns.
I didn't say that there was a constitutional req to produce a budget, did I? My opinion, which would be shared by 75-85% of the voting public, if only they knew (and few do - as the press is not asking, or telling) is they should produce a budget and it should be debated & voted on each year, and the elected president should put his name on it.
As with taxes, providing grades is not a req. It's a partisan issue. The D's demand to see the R's - the R's demand to see The D's. They should all demand the same of each other.
Rather wasted our time with his frenzied partisan fixation on that story. And, it was purely partisan. Nobody would deny that.
Oh yea - forged & fraudulent documentation is usually considered to be irrelevant.
A. to Q. There are plenty of average to moderately invested people - and, I'm thinking of those in retirement, or disabled, etc. who derive much to most of their income from capital gains to dividends, etc. Don't want to see them get hurt by some of the proposals out there to simply raise capital gains and dividend taxes.
I'd like to change cap gains tax:
Hold the investment for 5+ years - 0 tax
for 2-5 years - 10% tax
1-2 years - 15%
6 mos to 1 yr - 20%
1 week to 6 mo. 25%
less than 1 week - 35%
Invest in things - not playing the markets
I really don't care about his tax returns, I know how his business operates. That plus his debate performances are all I would need if I were to voting as a Republican. (Don't worry, Barbara, I won't)
And it is true that you did not say a budget was a constitutional requirement. However, you obviously believe that a budget actually means something. It does not, a Congressional budget is merely window dressing. It is a plan that is never completed; totally useless.
Since we have seen President's Obama's on the job performance of what good are his grades? If I hire someone, after 4 years as far as I am concerned whatever grades the person got or claimed to get is irrelevant.
You certainly have a harebrained scheme there. The reality is that income is income. lets not dice it up. Your plan leaves lots of loop holes that rich folk lawyers can manipulate.
Oh and you have it inside out: Invest in People not Markets, not Things.
And last of all:
NEVER, EVER VOTE FOR A REPUBLICAN!
You will feel dirty, and that kind of dirt will never wash off.
Also interesting out in the news yesterday and today, is that Obama just announced the appointment of the new head of the CBO - he's a former Bain employee.
And, Bain apparently contributed more money to Democrats than to Republicans. I don't know the time range there.
Sorry you don't like my plan. It's very progressive - and believe would (if applied to all forms of investing schemes) would do much more to bring Wall Street back into an ethical line of business than any financial reform, they could possibly pass.
Folks used to invest in companies because they felt good about that business - and their investment (capital) was meant to give the company capital to work with - to grow.
Long term investing should be encouraged and, if successful, rewarded.
Day traders, and the like, are just playing in Las Vegas.
I'm sorry you had to be insulting.
Except tha Buffet, like George Soros and a few others of conscience, WANT to pay more taxes and have said so in writing o' thou of the tunnel-vision and selective user of history.
Buffett could always pay more.
As far as Soros goes - his sort of investing, especially at that scale, should be considered a crime against civilization. Dangerous and controlling man.
What the Hell do any politicians get in power for? Idealism in a few cases at first.
Talks't thou not to me about "Controlling!" The lobbyists (bag-carriers, burrowers) are the controls at the ever-ready fingers of the beltway establishment!
You mean the Republicans aren't control-freaks? Except, they want the drones under TOTAL control: no resistance, no freedom of spirit, speech, (thought?), body, womb, employment (self or otherwise), physical well-being, medical help. infrastructure, disbursement of taxes upwards (shall I go on?).
Love being dictated to by a selected few do ya? Soros is WHAT?? explain in verifiable detail or belt up!
Isn't Romney in the same general income and tax scheme as is Obama's pal, Warren Buffet?
Unquote
Not hardly. Buffet's fortune makes Romney's look like pocket change, but that's not the point. Warren Buffet has come out openly in favor of changing this insane tax system from which, admittedly, he benefits greatly.
And nowcomes a the hollow echo of a pseudo republican whose head we canot see - we only hear his voice saying - "but he doesn't HAVE to take all of those tax credits & benefits, now does he?" and I tell you, forparity - whose head remains well out of sight, "Yeah. Sure, but that doesn't change the ill-begotten system with which our benighted Congress has saddled us."
Footnote: Dan Rather was set up!
Again, Liberal Libertarian strikes to the heart of the matter.
Try reading my e-mail again. Can you possibly find where I'm not for some reform?
Can you possibly find where I was comparing Buffet's wealth to Romney's?
I said they are in a similar tax scheme.
According to the Mayans, who were great mathematicians and astronomers, 2012 is the end of one time cycle and the beginning of a new one. There has obviously been a backlog in the evolutionary process and, hopefully, this is the year in which there will be big change, and it could very well be positive if we work towards it. The impending collapse of the Republican Party is a harbinger and could be a good omen.
Bush destroyed this country, and made the corporate powers so influential no one in our government dares goes against them, or their funds would be cut off. Money is greasing the wheel...Romney would be a total corporation shill. Both sides need help, but atleast admit the GOP primary has been a huge joke, they are so ridiculous to watch them with a serious eye would indicate moral blindness.
Anything in this country is legal if you have enough money. Banks and wallstreet have operated in an illegal manner for years, no one is calling them on it, just throwing them tons of money for their illegal behavior.
Let's remember when the top 1% of income earners share of income soared from 13.7% (1993) to 21%(2000) of all personal income earned -- the highest it'd been since the "roaring '20's."
And this - little trip to the moon, by the CEO's
http://www.aflcio.org/corporatewatch/paywatch/images/2010_trend_chart_2.gif
The first thing that happened when Bush became President (other than inheriting the fallout from the March, 2000 collapse of the dot.com bubble of exceptional greed and corporate fraud, and the fallout from turning our backs on Afghanistan as the Taliban seized control in the mid-90's, was that Enron, as did much of the exceptional greedy corporations from the '90's, went down.
Note - that was not a defense of Bush's big social and war spending programs FTR.
But, there is a debate raging, on whether to tax them again, and at what level.
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