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Being Rich Is Not Mitt's Political Problem

Comment

It's no secret that Mitt Romney is rich. He was born rich and got mega-millions richer as a financier. Nor is it a secret that his income is mostly taxed at 15 percent, a far lower rate than middle-class grunts pay. Nor does he have any obligation to pay more in taxes than he legally owes.

The problem releasing tax returns poses for the former Massachusetts governor is as that he apparently has no problem with what they reveal — a messed-up tax code that magnifies wealth at the top while helping feed our raging deficits. Mitt has basically held that special tax deals are what get leveraged-buyout artists like himself up in the morning, and that's good for America. The second part is not true.

For a vivid picture on how evolving tax laws have wrecked America's fiscal standing, consult Bruce Bartlett's new book, "The Benefit and the Burden: Tax Reform — Why We Need It and What It Will Take." An economist in the Reagan White House, Bartlett does not endorse tax policy as a means to even out wealth, but to pay America's bills in the most efficient manner.

For a historical perspective, consider what the Tax Reform Act of 1986 asked of the upper incomes. Ronald Reagan wanted to lower the top income tax rate to 28 percent, from 50 percent. Democrats said they'd go along, if Reagan agreed to end the special low rate for capital gains (profits on investments), which was then 20 percent. He did, and what many remember only as tax cuts included a hike in the effective capital gains tax rate for top earners to 28 percent.

Bartlett writes that Reagan regarded raising the maximum capital gains rate as "a reasonable price to pay for getting the top rate on all income down to its lowest level since the 1920s."

Tax policy experts must grapple with fairness issues.

One is that capital gains reflect inflation, in addition to profits.

But another is that the richer you are, the more of your income is likely to be capital gains. For taxpayers with an adjusted gross income of under $75,000, only 1.8 percent on average comes from capital gains, according to the Tax Policy Center. For taxpayers with adjusted gross income of $1 million or more, 39.5 percent derives from capital gains (and that doesn't include dividends income, also taxed at 15 percent).

When Republicans took over Congress in 1994, they pushed President Bill Clinton to support cutting the maximum capital gains rate to 20 percent. In 2003, President George W. Bush and the Republican Congress shrunk the rate further to 15 percent. In 2010, President Obama agreed to extend that low rate for two more years.

Executives in the private-equity business — folks like Romney — enjoy an especially outrageous loophole. The magnificent management fees they earn from their work get magically treated as capital gains, rather than as ordinary income. This kind of income is called "carried interest."

The immensely rich mayor of New York City, Michael Bloomberg, has refused to condemn Romney for profiting from the carried-interest loophole. It is legal, after all. But he questions why it is legal. Bloomberg says most of his income comes from his media empire and is taxed at the highest city, state and federal rates.

Romney clearly does not want to share his intimate tax secrets with the world, but since that's unavoidable, he might as well turn them into a teachable moment. The lesson should be why people like him ought to pay more taxes. If he goes there, Romney could take some of the "at-least-he-has-guts" momentum back from Newt Gingrich. Does he have the guts?

To find out more about Froma Harrop, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

COPYRIGHT 2012 THE PROVIDENCE JOURNAL CO.

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Comments

6 Comments | Post Comment
Re: "The lesson should be why people like him ought to pay more taxes." First, I am not rich. I just don't understand the arrested mental development of those who use the "It's not fair. He should pay more" whine. Children are envious of those who have more, but most of them grow up. Rich peopl pay 60% of all taxes. The real problem is the government spends money on non-Constitutional programs, wastes vast amounts of tax-payer dollars and are addicted to the power they have over individual rights.
Comment: #1
Posted by: David Henricks
Tue Jan 24, 2012 10:40 AM
Here is the other side that the writer fails to bring up. The thousands of retirees that are now drawing on the proceeds from their traditional IRAs, many of them on fixed incomes and firmly middle-class members, are also taxed at that 15% capital gains rate. If you up it for capital gains many middle-income retirees with mutual funds and traditional IRAs are going to be hurt significantly by doing so. It is not so easy to say just up the capital gains rate. A lot of current retirees don't pay it because they worked during the era of traditional pension plans or didn't have a pension period. But in the next few years the percentage of retirees who have IRAs and 401k plans is going to go up exponentially and they will be severely hurt by any large increase to capital gains. We all know the whole tax system needs a complete overhaul but who in either party has the balls to admit it? No one!
Comment: #2
Posted by: Paula
Tue Jan 24, 2012 3:07 PM
@Paula - excellent point. Increasing capital gains without making provisions for retirement income could be catastrophic for many seniors on fixed incomes.

@David Hendricks - It is a fallacy to claim that just because rich people pay 60% of all taxes means that they should not pay taxes at a comparable rate as everyone else. That is ridiculous logic - of course they pay the majority of taxes rates are based on income - the more income the more you pay in dollars. But - the point is that they get to keep a larger percentage of their income than the average person which should not be allowed. A person who earns more than $1 million per year does not have to budget to put food on the table for their family. They can easily meet their families needs - even extravagantly so - with plenty of expendable income left over. So why should they pay a lower percentage than the family who earns far less and therefore uses most of their earnings to meet the basic needs for their family. These folks have very little expendable income left after they pay their taxes, and that is just fine if they are paying taxes at the same rate as everyone else. But when a poor person pays taxes at double the rate of the wealthy that is abominable.
Comment: #3
Posted by: sharnee
Wed Jan 25, 2012 8:56 AM
Re: sharnee Envy is an ugly emotion. Paying the same rate is demanded by the "it's not fair" children. It's not supposed to be fair. Get over yourself and grow up.
Comment: #4
Posted by: David Henricks
Wed Jan 25, 2012 12:07 PM
@David Henricks: Our tax system isn't supposed to be fair? You're happy to pay a higher rate than Mitt Romney or Warren Buffet? I'm sure they appreciate your efforts on their behalf.
Comment: #5
Posted by: Bruce Strickland
Wed Jan 25, 2012 3:51 PM
Froma,

Re your article 1-27-2012 about Being Rich Isn't Mitt's Problem...

Before you shoot your mouth off you should find out the facts. Mitt wasn't born rich nor did he inherit money. He worked for every cent he earned, he made his own money and he turned it into what he has today. And yes he's rich, and HE earned it. Sounds like you are a jealous bigot.

He has explained this over and over and blind people like you just don't listen and print whatever you make up in your tiny little minds. And that goes for all reporters not just you. I look things up and find out the actual facts before I say anything, I don't make them up like you and others do. You owe Mitt and your readers an apology, will you be decent enough to do that...well I won't hold my breath!

Who died and made you the authority on all things? Shame on you and everyone like you.
Comment: #6
Posted by: Matilda
Fri Jan 27, 2012 1:42 PM
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