Obama’s State of the Union vs Romney’s Tax Returns
by Linda Beale
Obama’s State of the Union vs Romney’s Tax Returns
Obama took the high ground in his state of the union address, where he pointedly noted the importance of applying fair tax rules to ensure that millionaires pay taxes at rates more similar to those paid by secretaries and firefighters. He wants a 30% rate on those with incomes of a million or more.
We can either settle for a country where a shrinking number of people do really well, while a growing number of Americans barely get by,” Obama said in his address to a joint session of Congress. “Or we can restore an economy where everyone gets a fair shot, everyone does their fair share and everyone plays by the same set of rules.” STeven Sloan, Obama Says High-Earners Should Pay at least 30% of Income as Tax, Bloomberg.com, Jan 24, 2011.
That would mean that Romney wouldn’t enjoy the exceptionally low rate of tax he had in 2010 after Congress enacted Obama’s suggested reforms. Romney released his tax returns on Tuesday. See this handy link on the New York Times at which the 2010 and 2011 returns and accompanying documents are available, including links showing where Romney earned his $528,871 in speaking fees, etc.. Romney paid only 13.9% on $21.6 million of income, benefitting enormously from the low preferential capital gains rate of 15% that he paid on his returns from his investment of capital. Romney benefitted, too, from investments in the Cayman Islands, a well-known tax haven. And he is still earning “carried interest” from Bain Capital to the tune of multiple millions a year–that’s a share of the profits of a partnership he managed, treated as though it were a return on an investment of capital though it is paid for services. Romney is most definitely one of the 1%–actually in an even more rarefied class cluster of the top 0.006% of multimillionaires with lots of very low taxed income. See Kevin McCoy, Romney tax returns show he’s no average multipmillionaire, USA Today (Jan. 24, 2011) (noting that only 8274 returns out of 140 million filed had income of $10 million or more in 2009); Lori Montgomery et al, Mitt Romney’s Tax Returns shed some light on his investment wealth, Washington Post (Jan. 24, 2012); Nicholas Confessore, Romney’s Tax Returns Show $21.6 Million Income in ’10, New York Times (Jan. 24, 2012).
As the Times story puts it:
What Mr. Romney’s returns illustrated, instead, was the array of perfectly ordinary ways in which the United States tax code confers advantages on the rich, allowing Mr. Romney to amass wealth under rules very different from those faced by most Americans who take home a paycheck.
Obama’s proposals sound reasonable. But I’d extend the basic concepts to the corporate tax. Every corporation that is making book profits of more than some amount ($5 million? $10 million) ought to be held to a similar minimum tax rate on those book profits.
Funny, that is what the original Alternative Minimum Tax (for individuals, and one for corporations) was supposed to achieve–to ensure that everybody paid at least a reasonable rate on their income, even if they could cumulate lots of preferences like mortgage interest deductions, state income taxes, property taxes, and similar deductions. Over time, the AMT has eroded–too many exceptions made, too many taxpayer friendly amendments, and then the Bush tax cut bills that lowered rates so that the AMT rates aren’t really working well as a “broader base but lower rate” tax that ensures that even high-flying income recipients pay a more reasonable tax rate on their income.
The reason that there is a lower tax rate on capital gains is to ENCOURAGE INVESTMENT, as investment is what creates jobs here in the US.
Instead of complaining, go ahead and make the case that increasing tax rates from say 15% to 30% (and thus halving net returns on investment) will NOT reduce investment.
You will invalidate nearly 100% of economic theory, and will win a Nobel prize in Economics.
The reason that there is a lower tax rate on capital gains is to ENCOURAGE INVESTMENT, as investment is what creates jobs.
Instead of whining, go ahead and make the case that increasing the tax rate from, say, 15% to 30%, will NOT reduce investment.
You would invalidate nearly 100% of economic theory and win the Nobel in Economics.
no one here whining cept you. what are you going to do with your money if you don’t invest it?
here is a hint for you
if you decide to just spend it on beer, someone will invest in a brewery.
when obama says “strengthen Social Security” he means cut it.
Hasn’t AB’s Mike Kimel hypothesized that the reason higher taxes lead to more growth in GDP (or any other measure) precisely because of the difference in tax rates between income and investment?
Sammy, they have heaps of money right now, and are not investing or hiring. Looks like proof to me.
Sammy, You need to be made aware that many people are learning to turn off the second the “whining” word is used. Any good argument wouldn’t need such a statement. Of course, you made no good argument, did you?
That was indeed the theory. Like a lot of other supply-side thinking, it didn’t work. When you know you can pay less tax on passive capital with no risk, why invest? The purpose of investing is to make more money than you can by just leaving your money in the bank. But, to do that, you have to take risks. You could lose money. But, hey, with lower capital gains taxes, just letting it all sit will let you get richer every year with no effort. Furthermore, with the right bond investments, you can pay no tax at all or kick the taxes into the future every year and end up with a zero rate. Now as soon as I can figure out how to do that, what with my taxable pension and savings interest, I’ll buy in. Otherwise, let them pay taxes! 😎 NancyO
I’ve wondered about that purported relationship and the relevance of Kimel’s work, too, felipe, and fwiw I’ve come up with a tentative answer of “mostly no,” a difference doesn’t matter, except possibly when the top marginal income tax rate is high. Attempting to explain his statistical findings, the Kimel idea as I understand it is that high top marginal income tax rates (up to a point) led to less extraction of business receipts in the form of income taxable at that rate, which meant more of the receipts are spent on the businesses to produce bigger/better businesses. Historically, however, when we had high top marginal income tax rates, I believe they were significantly higher than the capital gains tax. So I would hesitate to recommend that the rates be equal at a high level like 60 or 70 percent. At lower rates, like today’s rates, it probably doesn’t matter whether they are equal.
Just a point of clarification. The super low rate of tax on all capital gains and dividend income was part of the Bush tax cuts which would have expired at the end of 2010 if obama had not sold his soul to Mitch McConnell ? Do not believe a word any politician tells you
Please tell the Nobel Laureates to send my prize to the email attached (I will share):
so what are you going to do with your money if you won’t invest it for a 4% return instead of 5%?
hint: if you decide to just spend it on beer, someone is going to invest in a brewery.
that was not the only lie he told.
“strengthen Social Security” is code for “cutting benefits to below survival levels”
“raising taxes on workers” is code for “not letting them pay for their own Social Security retirement insurance.”
“cutting taxes on earners of less than 250k” is code for “not being serious about the deficit.”
we need to have a huge deficit to justify shrinking government in the bathtub.
i have been hoping that kimel would answer this himself, but i think felipe has it wrong. the idea that i think kimel has come to is that you don’t take money out of the business.. as pay OR capital gaines if the tax level is high enough that it makes more sense to “invest it” in the business to grow it toward more “income” in the future. has nothing to do with whether the tax is on income or on capital gains.
and i will insist that at the end of the day the “investor” is going to invest whether his return is 6% or 5%, though he will bitch if the difference is caused by taxes…note i think the difference between 6% and 5% is “15%..of the “gains”, or the difference between a 15% tax and a 30% tax… though i don’t think the particular numbers are important, just wanted to help sammy see where i am coming from.
the other thing about investment, is that if the tax rate is higher, the investor will just insist upon, if he can, a higher “return” to make up the difference… that is, if he can, and if he really cares.
i suspect he only cares in the case where he can compare one investment with another. a uniform tax rate would remove that as a factor in the analysis.