Mitt Romney is a fabulously wealthy man, which federal income tax returns released Tuesday make clear.
Self-made wealth is no vice. The question is whether Romney’s tax bill represents virtue.
We don’t think so. Yes, Romney paid what he owed, but his returns are symptomatic of a tax code that has lost progressivity and fairness. Nearly all of the tax Romney paid was on investment income; his effective tax rate was between 14 percent and 15 percent, far below what the average American taxpayer pays.
Wealthy Americans such as Romney can afford to pay more than they are paying now. Tax receipts as a percentage of national output are at their lowest level in more than 30 years.
But reforming the tax code to make it simpler, fairer and more efficient has to be done carefully. Simply boosting taxes on investment income, as some lawmakers suggest, could have the effect of driving capital out of the stock market and thus out of the reach of some American companies that need it to grow and create jobs.
Other approaches should be considered as part of a broad-based plan to cut federal deficits, a plan that should include long-term cuts in spending. One loophole, in particular, should be closed — one Romney benefited from. The tax break on “carried interest” gives private-equity and venture-capital executives a low 15 percent tax rate while the rest of us working stiffs pay a maximum rate of 35 percent. Where’s the fairness in that?
Romney made his fortune, estimated at $250 million, on his own. Most of it was earned while he was a partner at the private equity firm Bain Capital. Romney should release more of his tax returns to give voters a better picture of how he earned that money and to lay to rest questions about his wealth. His late father, George Romney, a former governor of Michigan, set a fine example in 1968 when he released 12 years of tax returns as part of a presidential bid.
President Barack Obama and others who might be tempted to criticize Romney over his income have to tread carefully. That’s because none of them are exactly paupers.
Former House Speaker Newt Gingrich and his wife, Callista, had an adjusted gross income of $3,162,424 from their various business ventures in 2010. They paid $994,708 in federal tax, according to the return, for an effective tax rate of 31.7 percent. President Barack Obama and his wife, Michelle, had an adjusted gross income of $1,728,096 for 2010 — much of it from sales of his books. Th e Obamas paid $453,770 in federal taxes, for an effective tax rate of 26.3 percent.
Great wealth has sought great power from the start of the republic. The early presidents were well-heeled Virginia planters. In more recent times, H. Ross Perot, who ran as an independent in 1992 and cost President George H.W. Bush a second term, was a billionaire. And Sen. John Kerry of Massachusetts, who topped the Democratic ticket in 2004, paid an effective tax rate of only 13.1 percent in the year before he ran, if his wealthy wife’s holdings are considered. Former President Bill Clinton paid an effective rate of just 18.9 percent on his 1990 taxes.
The question isn’t whether great wealth is, on its face, disqualifying. It is not. The question is how to reform the tax code so that those with great wealth pay their fair share. That could mean lower rates overall with fewer exemptions and carve outs — including elimination of the “carried interest” boondoggle. It could mean a long-term shift to a progressive consumption tax that taxes what people take out of the economy instead of what they put in. It could mean some sort of wealth tax, as Obama has proposed.
What it should not mean: A tax proposal such as the one advanced by Romney, which would cut his own taxes by 40 percent, or worse, one championed by Gingrich, which would almost entirely eliminate Romney’s tax burden.
Don’t begrudge Romney his millions. But do ask him and others so situated to pay a little more for the common good.
Milwaukee Journal Sentinel (Jan. 25)