The New York Times front page report about Mitt Romney’s two year tax return, released to the public this morning, answers a few of the questions and topics raised by readers of my recent blog (1.19), The Hedge Fund Loophole. First question: Was this (the loophole) how Mr. Romney made most of his money? The answer is yes.
Wrote the Times (my bold face): “Mr. Romney also said that there were ‘no surprises’ in his tax returns. Referring to the fact that nearly all of his income is taxed as capital gains at a 15 percent rate, rather than as earned income at rates of up to 35 percent, Mr. Romney questioned a proposal by Newt Gingrich, the former House speaker, to reduce capital gains taxes to zero.
“‘Under that plan, I’d have paid no taxes in the last two years,’ Mr. Romney said.”
Second question: Would closing the loophole generate anything meaningful? In the original blog, I cited RJ Eskow’s claim that more than $4 billion a year could be raised from just the 25 richest hedge fund managers if they paid the same tax rates as others. In 10 years, that handful of people would have added $44 billion to the U.S. Treasury. Now, with Mr. Romney’s disclosure, one can almost compute the revenue the I.R.S. would have collected, had the tax rate on capital gains been at 35 percent, the top tax rate that Mayor Bloomberg, for example, said he pays. An extra 20 percent from each of the nation’s hedge fund managers would have more than doubled what most of them paid the public coffers. Obviously, that is significant, millions of dollars per taxpayer.
It is also significant that the leading GOP contender for the nomination, Newt Gingrich, would propose that anyone of Mr. Romney’s wealth should pay zero in taxes. I hope the American people are listening to that.
For the record, I and other America editors and authors have supported in print (I’m not sure how much has appeared on the blog) much of the published Simpson Bowles report and would still like President Obama to follow many of their recommendations, including closing this loophole. There is not a person on staff who thinks the President is flawless. He should have heeded their advice when it was first given. Perhaps now, public pressure could make that point all the clearer.
Finally, the notion that private equity firms perform an important service by taking on high risk others refuse to is true. But there is no reason to suppose that tax payers (the government) should assist them or provide a safety net. Rather, these firms charge huge fees and high rates for their services, which is their recompense, which "the market" seems to allow. Why should taxpayers be asked to protect and subsidize such high rollers?
The point I wish to make is a simple one. It isn't about people donating to the federal government; that notion is a distraction and off the subject. It is about fairness in tax laws, which is something people of both parties and none should support--even demand. That means reform that stops giving all the breaks to those on the top, which we have had for about a decade now.