Mitt Romney’s 2010 tax return (Image courtesy of mittromney.com)
After weeks of hemming and hawing, Mitt Romney has finally released some of his tax returns. In 2008 Joe Biden released ten years’ worth of tax returns. When running for president in 1968 Romney’s father George Romney released returns for twelve years. Romney released just the returns for one, 2010.
In 2010 Romney paid only 13.9 percent in federal taxes on his income of $21.7 million. Does that sound low to you? It should. The highest marginal income tax rate is 35 percent. But Romney has the good fortune to live off unearned income. “It’s slightly lower than the total payroll, excise and lowest marginal income tax rates combined paid by Americans earning between $40,000 and $50,000 per year,” noted Ed Kleinbard, a law professor at the University of Southern California on a call organized by the Democratic National Committee.
The reason is that our tax code gives preferential treatment to unearned income, such as dividend payments and capital gains. Capital gains, which are overwhelmingly earned by the wealthiest Americans, are taxed at only 15 percent. That’s why, as Brad Plumer shows at the Washington Post, our wealthiest presidential candidates have often paid the lowest rates. This is obviously unjust. The argument in favor of this policy is that it encourages investment and by extension economic growth. Unfortunately, it’s not true: the economy has grown the most during periods when the capital gains tax rate was closest to the income tax rate. That’s why, as I’ve argued before, liberals should make taxing capital gains as regular income a top priority and a major deficit reduction proposal.
Conservatives, naturally, have found an intellectually dishonest justification for Romney. They argue that since Romney’s dividend income was first taxed as corporate income, “a competent campaign, and candidate, would explain that Romney’s real federal tax rate on his investment income was more than 40 percent (being conservative, after deductions and such), since the revenue stream was subject to both a personal tax rate and the corporate tax rate,” writes John Hood of National Review. “A competent campaign would then point out that state taxes would bring the effective income tax rate on Romney’s investment income to 50 percent or higher.”