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.
you site that 25 hedge fund managers would have paid 4 billion more. Wrong.. John Paulson ALONE would have paid over 1 billion more on his 4.5 billion one year income.. look it up..
In answer to your question to me ("Huh?):
In the first instance, thank you for correcting Karen Smith, who rhetorically reports, "First question: was this ( the [Hedgefund] Loophole) where Romney made most of his money? The answer is yes."
As you correctly point out to Ms Smith, her answer, in fact, is based on an incorrect premise. The hedgefund loophole, as you state, is the issue of carried interest, not capital gains, which for many years and many administrations has been taxed at a different rate than ordinary income. The question is, can anyone who has no money or valued assets at risk who makes money on a transaction call this capital gains rather than earned income. I don't think so; as no capital was at risk, it doesn't seem plausible that the gain was a result of capital, but rather of expertise and labor, which should be classified as ordinary income. That is a boondoggle that should be corrected.
So since Ms Smith, as you point out in (#1), misidentifies the loophole, the correct answer to Ms Smith's rhetorical question is "no."
Yet the issue goes further than that, as your question about my comment to Josh indicated.
That sizeable portion of Romney's income, though far less than half, or "most" as the article claims, that might come under the definition of implied interest, as Josh makes clear, might more accurately be classified as capital gains. Josh states that most probably Romney had his own assets at risk in these transaction. Since risking capital, which then results in a gain, makes a stong case for being classified as a capital gain, some, much, or all of that which has been characterized as "carried interest" might truly be capital gains in the first place and totally outside of the loophole discussed here and elsewhere. I was unaware of that and thanked Josh for better informing us on the subject. You too, Ed, for your correcting this aspect of the article as you did.
What is truly amazing is how so many middle class taxpayers buy into this Republican malarkey. There's a fool born every minute!
I mean no offense, Ms Smith, when I say that on the face of this, it is difficult to find it a relevant statement. The relevant question is not whether or not you/America's editors support many of the recommendations of the Bowles Simpson report, but rather whether you supported the Bowles Simpson plan. This plan, one of the wisest and most genuine moves of the Obama administration, was the result of bipartisan compromises shared between 8 prominent democrats and 8 prominent republicans. What you are saying when you say "much" or "many" is that you wish to go back and renegotiate, doing away with the compromises that you oppose and enforcing and enhancing those you support. That, in truth, is opposing, not supporting, Bowles Simpson. It runs counter to the spirit of bipartisan compromise. It also recalls Boehner's charge against President Obama that he "moved the goal posts," coming to a tentative agreement on taxes to be increased, then coming back and presenting a newer, far higher number.
Unfortunately for him and. much more importantly, the country, President Obama, faced with the furor of Schumer and the unions for the Bowles Simpson plan cutting their boondoggles, instead of showing genuine leadership and supporting a plan of genuine substance, gave up and folded the tent, failing to stand up even for the recommendations of his own commission. The damage done by all his violations of his word pales in comparison to this moment that required bold leadership for the good of the country, and he simply backed down. The country's losses from this failed opportunity will likely exceed the costs of both Bush's and Obama's wars.
Charitable contributions a "distraction" and "irrelevant?" (I can understand liberals attempting to downplay this issue, as the facts are embarrassing and undercut their self-proclaimed comparative generosity, that in truth compared to their conservative counterparts they are so much more parsimonious, as Nicolas Kristof verifies in Bleeding Heart Tightwads, NYTimes, 12/08). Suppose that Romney were typical not of the typical conservative's generosity of time and treasure to charitable causes but of the monetary parsimoniousness of, say, Joe Biden, who gave .14 of 1% of his high 6 figure income to charitable causes according to his tax return of 2005, and pocketed the rest. His 16% donations would drop 15.86%. Two things would occur: his tax rate would go up to somewhere north of 15%, and he would have paid well into 7 figures more taxes. (Of course charities would have been out $7 million in the process.) Significant, I would argue.
"That means reform that stops giving all the tax breaks to those at the top, which has been been going on for about a decade now."
That might be an accurate statement, depending on how you define those at the top. If they include the over 3 million federal employees, most union members, etc, you have a legitimate statement. If not, not really. As Amy stated, the amount of tax monies involved in the loophole discussed that you state, 4.4 billion a year, is simply tiny compared to the yawp of the Obama $1.3 trillion deficits. Yet if we move on to the average highly compensated federal employee, who receives an average of $41K in tax free benefits yearly, well over 3 times the average of his compatriot in the private sector. Consider just this one factor: if we allowed a maximum deduction of the average private employee's benefit package of $12K and taxed the $29K surplus the average federal employee receives, that $29K, taxed at 25% (federal salaries average $83K), would result in $23 billion per year, or over 5 times the carried interest boondoggle. And that's without taking into account all the private union members and hot-shot CEO's and financial wizzards commonly chastized here. All told, it would likely be over $50 billion a year in revenue increases.
This also contains the reason why the republican charge that President Obama is playing class politics is substantive. The amounts that would be generated going after the high earners, narrowly defined as by Obama, would be trivial compared to the real needs of the deficit. And for every dollar in tax increase needed, 3 in spending cuts are needed, according to Bowles Simpson. The greatest needs, in entitlement reform, are being neglected, not addressed, by the democratic party.
True.
Members of the military, Police Officers and Fire Fighters all perform an important service by taking on high risk others refuse as well, but their income tax rates are no lower than those to and for whom they provide these services.
Re "The extra coat in your pocket belongs to the poor."
Note the word "belong," not "charity.
Vince, you failed to complete the belongs to who? "Belongs to the poor," of course, not the bureaucracy, who then doles out the "coat" to the federal bureaucrat so that he can enjoy his $41K tax free benefit boondoggle, almost the poverty level for two families of four combined. Obama democrat and tax increase supporter Warren Buffett has committed to giving the great majority of his wealth to private charities rather than voluntary donations to the federal bureaucracy. Why? More will go to the poor, less to the bureaucrats. And a "coat" or dollar from charity given to the poor "belongs" to the poor just as surely as that "coat" or dollar from the federal bureaucracy, only it is more likely to arrive intact, without buttons sniped off.
Marie (#22),
"What if that % (the middle income filer in the US who paid no income tax) were too poor to pay tax?"
The filer at the midpoint in the US has the highest income of all average citizens of industrial nations (those such as Qatar, enriched by oil bonanzas, or Luxemburg, by being a tiny financial center, excluded) of any nation in the world. That includes Germany, France, Sweden, England, etc. To say such a comparatively wealthy person is too poor to pay any income tax whatsoever is a real stretch, by comparison. The devaluation of the dollar and the poor performance of the US economy since early 08, however, is threatening that position of preeminence.
"There is a difference between Romney's capital gains and mine. I suspect that his capital gains are mainly real gains on investments he made with his own money. Mine are mostly capital gains our firm has made with other people's money. This is the carried interest capital gains discussion. I've been loud and clear that I don't agree with the current policy on carried interest taxation and I hope that the law is changed on carried interest. It will cost our family a lot of money in increased taxes but it is the right thing to do." http://www.avc.com/a_vc/2012/01/the-15-tax-rate.html
I, like the VCer in the blog, support eliminating the carried interest rule, but it must be noted that even if the carried interest rule had already been eliminated, Mr. Romney would have paid the lower capital gains rate.
With respect to the 15% on capital gains (again NOT the same thing as the carried interest rule), the theory is twofold: (1) We want to encourage saving and investing rather than spending, so we tax it lower, and (2) many of the capital gains have already been taxed once at the corporate level. The corporate level is higher - 35% (and the President has proposed lowering the corporate tax rate). It's fine talk about "fairness," but we must have all the facts on the table.
Finally, it must also be noted in the "fairness" equation that many of the tax loopholes favor middle class taxpayers to a large extent - the mortgage interest deduction is an example. Conservatives favor a simple principle: reduce the loopholes, lower the rates, and broaden the tax base. This is the precise basis of the Bowles-Simpson. No one disputes that closing loopholes like the carried interest rule would raise revenue; but it would raise an insufficient amount of revenue with respect to the fiscal deficits we are projected to being running. A simple, broader tax code in which more people actual pay taxes (rich included) is the best means for ensuring so.
And I can't tell you how relieved I am to know that the America staff don't think the President is "flawless." (Straw man?)
You equate the poor with the middle income for some reason. I don't know anyone in the middle income range who pays no income tax. Do you?
lol, Josh you are wicked.That statement would send shivers down the spine of Lucifer.
Actually, quite a large number of them don't, and that number is increasing. This, of course, is partly due to the Bush tax cuts.
"Amid complaints that nearly half of tax filers in the U.S. won't pay federal income taxes this year, this has been lost: Those making $75,000-$100,000 a year are the fastest-growing share of people who don't pay federal income taxes.
Not working poor people — but those who are firmly middle class.
They still make up less than 1% of the total number of income tax filers who pay no tax at all, but their overall number has exploded, from fewer than 5,000 not paying taxes in 1996 to nearly 500,000 in 2009, the most recent year of available data."
http://www.usatoday.com/money/economy/story/2011-10-06/income-tax-nonpayment/50676912/1
Man, you write long posts!
Good to read that you agree with Maurin's assertion that accumulated wealth is unjustly held wealth. As to your "bureaucrats" language-how is it that a representative democracy="bureuacrats"? I agree that there's too much corporate influence in our great republic but that just means reform so that we become an even more democratic government.
The next scam to look at is the corporate/foundation/political slush fund CREDIT CARDS. Many bill almost all everyday living, eating, traveling, hotel, country club. ball games. subscriptions, car expenses, vacations are put on a tax free corp. credit card..
''Some have an ability to obfuscate with theoreticals that belong in the classroom.''
No, not classroom but the actual economy. When rates get lowered there is more economic activity and more tax revenues collected. So maybe raising the rates will lower tax revenues and hurt the poor more because in reduced economic activity they are the first to suffer. So maybe those who propose higher tax rates are actually creating more poor and hurting those who are already in that situation.
''You are dealing with true believers here.''
Belief in what works to help the poor? Is that is what is being challenged here?
Romney maids??
I read the link before I responded above. There is nothing there. Maybe the maids only worked 100 hours, which means thay got paid over $200 per hour. You have no idea what this was about but before knowing were casting negatives. Most people do not deduct household help expenses such as cleaning. Do you?
Josh, thanks for making the distinction.
http://www.nytimes.com/2012/01/27/business/economy/mitt-romney-paid-more-taxes-than-he-owed-high-low-finance.html?_r=2
'Campaign officials said Romney had carried interest of $7.4 million in 2010 and $5.5 million in 2011.' and what about past years?
@ Walter.. "Josh, thanks for making the distinction.' Huh?
Is it something that makes me feel better but hurts someone else? Is is something to compensate those who are unfortunate but ends up actually hurting these people more?
It seems that many here would opt for less optimal situations just so they could personally feel better in the short run. The tax system is a mess but what is the proper fix? My guess no one at America nor its commenters knows what an optimum tax policy would be. Suppose the optimum tax policy in terms of promoting the most economic activity is one that they consider unfair, would they then support it?
In the last several hours I have read a lot about ''carried interest'' which is an accounting term that is used in lots of different situations and it is hard to tell exactly what it is. Romney's investments are in three blind trusts that invest in over 50 companies. Just how the returns on these investments should be taxed could take a thousand legendary old time Jesuits years of debating to figure out the optimal rate to tax these returns. Maybe it should be 70%, 50%, 35%, 20%, 15% or maybe it should be zero
What if zero promoted the most common good? How would that influence people's opinions as to the proper rate? David Smith had it right. People are not interested in the optimal rate. They are interested in what ever makes them feel better...in the short run.
Romney is finished as a candidate..So Newt is your candidate .. dumb dumb dumb game set match.
As far as I know, no one has a clue what these expenses are about? Maybe the details will come out but the term ''part time'' was used. I know the good hearted and charitable people here are willing to give people the benefit of the doubt before casting unsupported aspersions. But in the mean time, when someone accuses another of something negative, and does not have any information about it, there is a name the Church gives to that.
But such comments must make some people feel better in the short run while the real poor may still be continually oppressed by the policies they espouse.
Since I'm on record here saying that I belive that the carried interest rule should be discarded, I'm not exactly sure how you can characterize me as a "GOP apologist." My only point is that focusing on the carried interest rule as the bete noir of the tax code without acknowledging the other problems with it makes for a good political speech, but it does nothing to solve the actual problems. Let me be clear: I' FOR people paying taxes. I'm FOR "fairness" in the tax code, but in order to adequately assess and adjust to achieve that goal we need to put aside some of the rhetoric and actually look at the facts on the table. For example, how much revenue would be generated from closing the deduction for mortgage interest? That is a tax break that is heavily targeted at middle class tax payers. Furthmore, people focus on the 15% rate for capital gains, but miss that the "effective rate" Romney pays is much higher when you factor in the corporate rate that was already paid on the gains. This is a link to a New York Times discussion on that very issue: http://economix.blogs.nytimes.com/2012/01/24/buffett-vs-mankiw-on-taxes/
Again, I think we should start the discussion by look at the actual situation before us and determining the goal in mind, not by hurling half-truths and vague conspiarcies about credit cards and maids.
The great progressive hope - Nancy Pelosi - who likes to trumpet the fairness tune as much as anyone has gotten immensely wealthy by way of trading on access to the powerful. Why are these actions - grossly unfair mind you - never bemoaned by America bloggers?
"Nancy Pelosi and her husband were parties to a dozen or so IPOs, many of which were effectively off limits to all but the biggest institutional investors and their favored clients. One of those was a 2008 investment of between $1 million and $5 million in Visa, an opportunity the average investor could not have bought, begged, or borrowed his way into — one that made the Pelosis a 50 percent profit in two days. Visa, of course, had business before Speaker Pelosi, who was helping to shape credit-card-reform legislation at the time. Visa got what it wanted. The Pelosis have also made some very fortunate investments in gas and energy firms that have benefited from Representative Pelosi’s legislative actions."
http://www.nationalreview.com/articles/286704/repo-men-kevin-d-williamson?pg=1
I know, I know, no one here thinks the Democrats are "flawless," so rest easy.
Well said! You get to the heart of the matter. We all realize that life is unfair, however, as Christians we need to work for justice, and we certainly don't need a" thousand legendary Jesuits years of debating" to figure it out. Some have an ability to obfuscate with theoreticals that belong in the classroom.
http://www.huffingtonpost.com/2012/01/24/mitt-romney-maids-salary-tax-returns-election-2012_n_1228843.html
Obama's deficit last year was $1.3 trillion. $1.3 trillion minus $4 billion is $1.296 trillion. So why are we talking about Romney's taxes instead of Obama's deficits?
Note the word "belong." not "charity."
What if those % were too poor to pay tax? Or, is that some of these people are rich and pay no tax?
2. "Obama's deficit last year was $1.3 trillion. $1.3 trillion minus $4 billion is $1.296 trillion. So why are we talking about Romney's taxes instead of Obama's deficits?"
The deficit got into the trillions a billion dollars or less at a time, and it can be reduced the same way.
3. Whatever the rules are, Romney would do whatever is legally permitted to enrich his family. It is the Morman-approved way to be, so long as that tithe gets paid. Check it out. Not taking what can be taken due to some sense of concern for the poor is not part of the equation.