The release of Mitt Romney’s 2010 tax return today will certainly bring the tax rate for investors into the forefront of the debate. For those that think that the rich do not pay their fair share, his 15% tax rate on investment is not enough. Even though those that receive a return on their investment portfolio will being paying the same thing.
Bloomberg Business Week says….
Romney, who made a fortune of as much as $250 million in the private-equity industry, paid an effective tax rate of 13.9 percent on income of $21.6 million in 2010, according to a tax return his campaign showed reporters last night and will release today. That compares with the 35 percent top marginal tax rate.
The Obama administration and congressional Democrats are seeking to benefit from debate over the so-called carried interest provision, which provides a relative handful of investment executives with preferential tax rates. President Barack Obama views the tax break as a “loophole” that is “just not fair,” White House Press Secretary Jay Carney said last week.
At issue is the U.S. tax code’s treatment of carried interest, or the share of profits that partners in private equity firms, hedge funds and real estate developments receive as the bulk of their compensation. That income is taxed at the 15 percent capital gains rate rather than at ordinary income rates of as much as 35 percent, although many tax specialists say it represents compensation for labor.
‘Once and for All’
Representative Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, said the influence of carried interest on Romney’s tax bill “further illustrates the need to address this issue once and for all.”
“Regardless of whether compensation is earned for managing investments of other people’s money or providing other types of services, it should be taxed at the same rates paid by everyone else in the U.S.,” he said in a statement today.
Levin said on Jan. 18 that he plans to reintroduce legislation that would tax carried interest at ordinary income rates.
The opening round of a renewed effort to tax such carried interest as ordinary income may come as soon as tonight’s State of the Union address, expected to revolve around a theme of “economic fairness.”
For Obama and congressional Democrats, the issue’s appeal is more symbolic than substantive. There is almost no chance that a divided Congress this year would raise the tax rates that apply to such income. The notion that some of the nation’s richest individuals pay tax rates that are lower than millions of typical Americans, however, dovetails with rising public concern about the gap between rich and poor.
A Pew Research Center poll earlier this month found that 66 percent of Americans saw a sharp conflict between rich and poor, up from 47 percent in 2009. The largest increase in such sentiments was among self-described independent voters.
Warren Buffett, chairman and chief executive of Berkshire Hathaway and an outspoken supporter of the president, yesterday again criticized the tax system for touching the wealthy so lightly.
“It’s the wrong policy to have,” Buffett told Bloomberg Television’s Betty Liu in an interview. Romney is “not going to pay more than the law requires, and I don’t fault him for that in the least. But I do fault a law that allows him and me earning enormous sums to pay overall federal taxes at a rate that’s about half what the average person in my office pays.”
Payroll Tax Cut
Representative Chris Van Hollen of Maryland, the senior Democrat on the House Budget Committee, said on Jan. 20 that the carried interest tax break should be eliminated and the resulting revenue used to fund the administration’s proposal to extend the payroll tax cut for workers.
“These are people who are not putting their own capital at risk,” Van Hollen said. “They’re not putting their own dollars in the mix. They’re getting a special deal that’s not available to other people in the economy.”
The Private Equity Growth Capital Council, an industry group, says carried interest is “fundamentally different in character” from regular wages. If such income were taxed at regular rates, private equity investment could decline by $7.7 billion to $27 billion a year, according to a 2010 council study.
Private equity firms, including Romney’s former firm Bain Capital, usually put up a thin slice of a buyout fund’s capital. For example, Bain invested just $3.5 million, or 0.1 percent, of the $3.5 billion Bain Capital Fund VIII, launched in 2004. The company is scheduled to receive 30 percent of the fund’s profits once investors get their initial capital back, according to copies of the fund’s financial statements obtained by Bloomberg News.
Private equity firms also receive a 2 percent management fee, which is taxed as ordinary income.
Seeking to change the tax treatment of carried interest has risks for the Democrats. Brian Gardner, senior vice president for Washington research at KBW Inc., said the party’s strategy could backfire.
“There are Democrats that are close to and supportive of private equity and venture capital — Bay Area Democrats, Silicon Valley Democrats,” he said. “It’s more complicated than people appreciate.”
Senator Charles Schumer, a New York Democrat, also has been in the middle of the policy debate that pits his party’s message against the interests of some of his constituents. In 2007, Schumer opposed tax measures that singled out carried interest compensation at private equity firms or hedge funds.
In a later move that doomed legislation changing the tax treatment of carried interest, he backed a measure that would have affected a broader range of businesses including oil and gas, venture capital and real estate partnerships.
Representative Kevin Brady, a Texas Republican who sits on the Ways and Means Committee, called the Democratic focus on carried interest “a political gimmick” with “zero chance” of passage.
“Make no mistake: most of that provision doesn’t hit those giant hedge funds,” Brady said in an interview. “It’s traditional real estate partnerships that build our office buildings, shopping centers and movie theaters and industrial parks.”
Between 2007 and 2010, the Democratic-controlled House passed legislation that would tax some or all carried interest at ordinary rates. Treating carried interest as ordinary income would generate almost $31 billion in revenue over 10 years for the Treasury, according to a 2008 estimate by the congressional Joint Committee on Taxation.
Half of Carried Interest
A narrower proposal that was passed by the House in 2010 and would have initially taxed half of carried interest compensation as ordinary income was estimated to generate $17.7 billion over the period.
Though lawmakers have debated the tax treatment of carried interest for years, the attention on Romney’s tax bill could capture the public’s attention, said Richard Pomp, a professor at the University of Connecticut School of Law in Hartford.
“The issue has been kick-started,” he said. “People will understand it in a way they never understood it before.”
–Editors: Jodi Schneider, Laurie Asseo
To contact the reporters on this story: David J. Lynch in Washington at email@example.com; Steven Sloan in Washington at firstname.lastname@example.org
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As the GOP candidates gear up for a run against President Obama in 2012, many Republicans and conservatives want to know what does Mitt Romney stand for? Is this the guy we want running our country in 2013? Does he have the economic background to get our country back on the right track? Can he lead America back to greatness? Is he going to help us keep our energy prices down? We know a lot about Mitt Romney from his failed nomination bid in 2008, but he has a better chance to win the GOP nomination for 2012.
Mitt Romney on Energy Policies
Romney has publicly stated that we are using too much oil, and he is in favor of exploring alternative energy sources like nuclear, ethanol, biodiesel, and coal gasification. He also favors oil exploration in the Arctic National Wildlife Refuge. He feels that the United States should be more independent and less reliant on foreign energy resources.
Mitt Romney on Immigration Policies
What does Mitt Romney stand for on immigration policies? Romney favors a strong legal immigration policy, and he favors deporting illegal aliens who have not followed the proper procedures for entering the country. He is against amnesty for illegal aliens, but at the same time, he does not feel we can round up all of the illegal aliens who have entered the country. He believes that the federal government should cut off funding to sanctuary cities that encourage illegal immigration.
Mitt Romney on Foreign Policy
Romney states he believes that the US Congress does not need to officially declare war to take military action. He believes that Guantanamo Bay should stay open. He is opposed to using torture as part of US military interrogation strategies, but he does approve of enhanced interrogation techniques. He has not specifically indicated whether he believes that waterboarding is torture, but he has stated he would refer to military experts on the subject.
Mitt Romney on Gun Control
Romney has stated that he supports the second amendment of the U.S. Constitution, which gives citizens the right to bear arms. Despite his views regarding the second amendment, he is in favor of a ban on assault weapons. He supported the Brady Bill in 1994. In earlier days, Romney did not support the NRA, but in 2008, he stated that he is a member of the NRA. He hunts small game in Utah, but he does believe in some gun restrictions.
Mitt Romney on Healthcare
Romney passed a statewide healthcare mandate for the state of Massachusetts when he was the Governor of Massachusetts from 2003 to 2007. He signed the bill in 2006 requires all Massachusetts residents to purchase healthcare coverage. This bill could complicate matters in his run for the presidency, as many conservatives want ObamaCare to be repealed if Obama is not re-elected in 2012. Romney has publicly stated that he feels ObamaCare is not right for the United States, but he still supports his own state legislation from Massachusetts.
If you want to know what does Mitt Romney stand for, you don’t need to look any further than his recent statements since 2008. He is consistently moving more to the right as we close in on the 2012 elections.