I am not a Mitt Romney fan. He is a wooden Ken-doll country club Republican who is slightly creepy. However, when I hear liberal politicians, the news media and especially Republican presidential candidates attack him for paying “only” 15% federal taxes on his 22 million dollar income…I feel as though my head will explode. So, after hearing about as much of this economic illiteracy as I can stand, I offer the following primer.
The people in this country who know the very least about economics are politicians. But even they have generally held the consistent view that it was in the best interest of the Republic not to have its citizens putting their cash in Mason jars and burying it in their back yards. So for at least 70 years or so we have agreed that money placed at risk in the market would be taxed more favorably than earned income through labor. This is because money so invested funds risk-taking, job-creating enterprises some of which fail, but others of which become Apple computer. We have in the past and certainly will in the future disagree on exactly how much this incentive should be, but that there should be an incentive seems to be one of the few things our political parties have agreed on. Current law taxes long term capital gains at a maximum of 15%, while taxes on ordinary income are progressive and max out for those earning more than $388,000 at 35%. Now to Mr. Romney. When he worked at Bain Capital, he chose to take a relatively small guaranteed salary. He decided to bet on his ability to succeed at his job as a venture capitalist. Had he been a bust, he would have only earned that salary. Fortunately for the Romneys, Mitt did very well and even though some of his projects bombed, others were spectacular successes that ended up rewarding him to the tune of roughly $22,000,000. Since these earnings took several years to come through, they were paid to him in the form of capital gains, thus the lower rate of 15% was paid on that income. For this outcome he is being characterized as some sort of villain for betting on himself and winning.
Although it made me feel like a scumbag, since it’s none of my business what’s on Mr. Romney’s tax return, I did go to the trouble to sift through the document. I discovered that in addition to the roughly 15% income tax that he paid, he also donated nearly 25% of his income to charity, most going to his church but lots of other donations going to a wide range of charitable causes. By contrast some of the biggest complainers about Mr. Romneys’ wealth are the very people who gave nearly NOTHING to charity, church or otherwise. Our President has given 1% to charity, former President Clinton what with his 70 million dollar income over the past few years has given an equally embarrassing amount. Even though between taxes and charitable giving, Mr. Romney parts with over 40% of his income, it’s Mitt Romney who is taken to task for not paying his fair share. Really?
By all means, argue about fairness. But why demonize success? Romney placed a bet on himself instead of taking a guaranteed outcome. That’s the American way and he was handsomely rewarded. He also filed a perfectly legal tax return and paid the full amount of taxes due, on time, under the law. If it’s the line of work he was in (private equity ) that troubles you, then consider this. Without private equity firms and venture capital, practically nothing that you are reading this blog on would be in existence. People are willing to take chances in the capital markets on unknown companies with new ideas because of the promise of great return, and I for one am glad they do. All of us are beneficiaries of somebody investing a lot of money at great risk of losing it in order to underwrite some geek in a garage somewhere with a great idea. That’s why capital is taxed more favorably than labor. Those who do should be praised, not pilloried.