How Did Mitt Romney Avoid Paying Taxes?
If you have someone who does your taxes, tell him or her that you want “the Romney Rate,” because it is a pretty sweet deal: 15 percent or less.
How does a multimillionaire get away with a far lower marginal tax rate than most middle-class Americans? In 2010, the presumptive Republican nominee paid “an effective rate of just 13.9 percent,” reported Aaron DeHoog for moneynews.com, and just about 15 percent in 2011. Meanwhile, the top marginal rate is 35 percent, which Mayor Bloomberg recently said he pays.
The reason Romney and many other managerial types like him who have amassed fortunes by leveraging and acquiring companies — and then restructuring, consolidating, and selling them off at a profit like the way people flipped houses — can get away with this legally is because the Internal Revenue Service gives preferential treatment to certain kinds of income. Capital gains on investments are less deducted than “ordinary” income, like wages and salaries.
In other words, if you make your living with investments — especially if they are based on a firm you created that still pays you compensation years after you left to run for public office — the government gives you a better deal than if you make your bread paycheck-to-paycheck. It gets too technical, and after all the tax code runs into the tens of thousands of pages, but the basic idea is that the “carried interest” of those capital gains almost entirely comes back to you. Apparently, the idea that the wealth from the very top will magically “trickle down” to everyone else still holds a lot of adherents. However, as DeHoog warns, that kind of talk is “class warfare.”
But as billionaire hedge fund investor Warren Buffett said in 2006 to Ben Stein, “There’s class warfare all right, but it’s my class—the rich class—and we’re winning.”
DeHoog chose other Buffett quotes to encapsulate the issue, however, like this one, referring to Romney: “He makes his money the same way I make my money. He makes money by moving around big bucks, not by straining his back or going to work and cleaning toilets or whatever it may be. He makes it shoving around money.”
Romney says he should not have to “apologize” for his wealth, a defensive posture he began to take after repeated attacks on his tenure at Bain Capital by Newt Gingrich, the insurgent GOP candidate. Ordinary working people, however, do not seem to be looking for apologies but, rather, a fair share.
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