In this tough economic environment, former Massachusetts Governor and GOP presidential hopeful Mitt Romney has shown an inability to relate to voters on their financial struggles and fears.
Experts have analyzed Romney’s communication strategies and rhetoric, questioning his struggles in identifying with voters and their financial concerns.
The real answer is obvious — Romney has no financial struggles or fears.
After enduring weeks of criticism from GOP challengers and the media alike, Romney finally released his tax returns Tuesday — all two years’ worth, providing only a partial snapshot to his vast personal wealth.
Romney chose not to follow the example of his father, who, as a presidential candidate in 1968, released 12 years of returns.
The release of Romney’s tax returns revealed no surprises. Romney’s personal finances only reinforce him as a poster child of what’s wrong with the American tax system.
The disclosure shows Romney had an adjusted gross income of $21.6 million in 2010 and an estimated $20.9 million in 2011, largely all of it profits, dividends or interest from investments.
No income was reported from earned wages, as Romney collected millions in capital gains from a myriad of investments, as well as stock dividends and interest payments.
In 2010, Romney and his wife, Ann, paid about $3 million in federal taxes to the IRS on their adjusted gross income, for an effective tax rate of 13.9 percent. And for 2011, Romney estimates he will pay about $3.2 million, for an effective rate of 15.4 percent — significantly lower than rates paid by President Obama and Romney’s biggest GOP challenger, Newt Gingrich.
How can this be possible? Very simple.
Romney has taken advantage of tax loopholes that are a direct reflection of the archaic American tax system.
The most glaring loophole in current law that Romney has taken advantage of is the treatment of “carried interest.”
Romney and his wife earned $7.4 million in so-called carried interest in 2010 and $5.5 million in 2011, reflecting his share of profits from the private equity firm Bain Capital, which he co-founded in 1984 and retired from in 1999.
That money is currently taxed at the rate normally reserved for long-term capital gains — the 15 percent top capital gains rate rather than the 35 percent top rate for ordinary income earned by people providing personal services.
Managers of private equity funds, such as Bain Capital, don’t receive a salary but take a percentage of the fund’s profits, which is taxed as capital gains at 15 percent, even though it’s a personal service.
In an interview with ABC, Rebecca Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice, noted “most of the income is capital gains, which comes through Bain, all of which is probably carried interest.”
The unethical matter is that the carried interest should be taxed at the rates which normally apply to earned income, which tops out at 35 percent. If Romney’s carried interest income in the last two years had been taxed at that higher rate, he would have owed about $4.8 million in federal taxes, almost $2.6 million more than under the current tax code.
Romney’s investments in foreign entities, some located in Luxembourg, Ireland and the Cayman Islands, are all famous tax havens. Bain Capital, as well as Romney’s individual retirement account, have significant holdings in funds based in the Caymans and other low-tax countries to take advantage of these loopholes.
These offshore accounts have provided Romney and Bain Capital with various potential financial benefits, such as higher management fees and greater foreign interest, all at the expense of the U.S. Treasury.
Many of the steps that Romney has taken in his returns are measures that are effectively available only to the wealthy, which brings to light just how crooked the American tax code is.
The progressive ideals that the tax code was designed under — the more you earn, the more you are supposed to pay — have carried no weight with millionaires such as Romney.
And while Romney slithers his way to personal tax breaks, the middle class foots the bill.
If Romney were elected president, the media would have far more to talk about than an election outcome — most notably, the death of the middle class.