Romney’s Tax Giveaways to Himself and the Rich
His Tax Plan Would Raise Middle-Class Taxes and Extend Loopholes for the Wealthy
SOURCE: AP/David Goldman
The release of former Gov. Mitt Romney’s tax returns is sure to spark a lot of interest in his personal wealth as well as the strategies he employs to pay a very low tax rate. But the real focus should be on how conservatives are promoting tax policies that allow millionaires like Romney to pay less in income and payroll taxes as a share of their income than most middle-class families.
Gov. Romney’s tax policy proposals would do nothing to address this fundamental imbalance, and would, in fact, skew the code even more in favor of the rich. In the accompanying charts we demonstrate how the average middle-class family fairs today under the current tax system compared to Romney, and how they would fair under his tax plan compared to how he would benefit. The comparisons are telling. (see charts)
How is it possible for Governor Romney’s taxes to be so low compared to families making one-five hundredth as much money? Because he benefits from a variety of special tax preferences that most middle-class families can’t take advantage of. These include:
- Extra-low rate for investment income. Capital gains and dividends are taxed at just 15 percent, compared to a top rate of 35 percent for ordinary income. Most middle-class families earn all or nearly all of their income from wages and salaries, and so get taxed at ordinary rates. In 2010 less than a third of Romney’s income came from ordinary income. On the rest, he paid the special low rate.
- The “carried interest” loophole. Making matters worse (or better, depending on your perspective), Romney gets to claim that millions of dollars in compensation from his work at Bain Capital is actually capital gains rather than ordinary income. So he pays only the extra-low capital gains rate instead of the higher ordinary rate. This is a break available only to the managers of investment partnerships like private equity and hedge fund managers.
- Investment income exempt from payroll taxes. Most middle-class families pay 7.65 percent of their income in payroll taxes that go to support the Social Security and Medicare systems. Their employers pay another 7.65 percent. But investment income isn’t subject to the payroll tax. Because nearly all of Romney’s income came from capital gains or gets to count as capital gains, his payroll tax bill is next to nothing.
Romney wants to preserve all these special tax breaks and then create even more. Romney’s tax policies would save him millions of dollars every year. Here’s why:
- Over the past two years, Romney appears to have personally benefitted by $2.6 million from the carried interest loophole, which Romney wants to preserve. Romney’s campaign said today that he received nearly $13 million in carried interest over 2010 and 2011, reportedly taxed at preferential capital gains rates. Had this income been taxed like regular salaries or wages, he would have paid about $1.5 million more in 2010 and about $2.6 million in total in those two years.
- Based on the information in his 2010 return, we estimate that the Bush tax cuts, including historically low tax rates on capital gains and dividends and lower top marginal rates, saved Romney about $1.6 million in 2010.
- Romney is also proposing additional tax cuts on investment income. Currently, only wages and other labor income are subject to the Medicare tax. But under current law, investment income will be subject to Medicare taxes starting next year. Romney would keep investment income exempt from the Medicare tax. Based on the income from his 2010 tax returns, this would amount to an $800,000 tax cut for Romney.
- President Obama wants to end the Bush tax cuts for millionaires and close the carried interest loophole and other special breaks for the wealthy. As a result, millionaires who enjoy special tax loopholes would pay higher rates. Based on the income from his 2010 return, the difference between President Barack Obama’s plan and Gov. Romney’s plan would save Romney about $3.5 million.
What’s more, Mitt Romney’s tax plan would preserve and expand the special breaks that benefit only the very wealthy, shifting the tax burden toward the middle class. This would happen in at least three ways:
- Romney’s plan preserves every single one of the special breaks described above that allow him and other millionaires to pay lower tax rates than most middle-class families, even those that are set to expire at the end of this year.
- Romney adds new tax breaks for the superwealthy in the form of a huge corporate tax cut and the elimination of the estate tax.
- Romney’s plan increases taxes on many middle-class families. His plan includes the repeal of several tax breaks for middle-class families that were enacted under President Obama. The result is higher taxes for more than 40 percent of families with children making under $100,000 a year.
The upshot: Gov. Romney benefits from a myriad of special breaks that reduce his tax rate to a level below that of a normal middle-class family. Instead of targeting these unfair breaks for reform, Romney’s tax plan actually preserves them and even adds several new ones. Mitt Romney’s tax returns reveal not only how much money he makes and how little taxes he pays, but how broken our tax code really is.
Michael Linden is Director of Tax and Budget Policy and Seth Hanlon is Director of Fiscal Reform at the Center for American Progress Action Fund.
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