Why is Mitt Romney alone among the Republican presidential candidates in refusing to release his tax returns? And why is the former Massachusetts Governor also the only major GOP contender not calling for the complete elimination of the capital gains tax? As it turns out, the answer - horrible political optics - is the same to both questions. Because Romney's continuing millions in annual income from Bain Capital are taxed at the 15 percent capital gains rate, Mitt already pays a much lower share to Uncle Sam than most middle class families. And if he called for changing the capital gains rate to zero, Mitt Romney would have to explain to voters why the $250 million man should pay virtually no tax bill at all.
Despite his famous demand in the 1994 Senate race that Ted Kennedy release his tax returns to show he has "nothing to hide," Romney last week reiterated his own paperwork would not be forthcoming. "We don't have any current plans to release tax returns, but never say never," Romney said, adding:
"I can tell you we follow the tax laws, and if there's an opportunity to save taxes, we like anybody else in this country will follow that opportunity."
Truer words were never spoken.
Just how much Romney pays in taxes is, for the moment, a private matter. But his income is public knowledge. In August, Romney disclosed that in 2010 he and his wife made between $1.1 million and $2.8 million in royalties, salary, speaking fees and interest, most of which was likely taxed at a marginal rate of 35%, after accounting for deductions. The Romneys made an additional $5.5 million to $37.3 million from dividends and capital gains, which is generally taxed at a much lower rate of 15%.
Two weeks ago, the New York Times shed light on that "$5.5 million to $37.3 million from dividends and capital gains" that represents most of Romney's income. Though Mitt left Bain Capital in 1999, 13 years later his windfall continues uninterrupted:
In what would be the final deal of his private equity career, he negotiated a retirement agreement with his former partners that has paid him a share of Bain's profits ever since, bringing the Romney family millions of dollars in income each year and bolstering the fortune that has helped finance Mr. Romney's political aspirations...
In the process, Bain continued to buy and restructure companies, potentially leaving Mr. Romney exposed to further criticism that he has grown wealthier over the last decade partly as a result of layoffs. Moreover, much of his income from the arrangement has probably qualified for a lower tax rate than ordinary income under a tax provision favorable to hedge fund and private equity managers, which has become a point of contention in the battle over economic inequality.
And that creates what Steve Benen aptly called "Romney's 'carried interest' problem."
In case anyone needs a refresher, there's a tax loophole on "carried interest" -- sometimes called "the carry" -- that taxes private equity and venture capital income at a lower, 15% rate, as compared to 35% on ordinary income. Hedge-fund managers and the Wall Street have fought tooth and nail to protect this loophole -- even after the Obama White House tried to eliminate it -- and so far, they've been successful.
Which is why Mitt Romney has thus far refused to join his fellow GOP White House hopefuls in proposing the elimination of the 15 percent capital gains tax. Newt Gingrich, Rick Perry and Herman Cain all called for zeroing out the capital gains levy, which is one reason why their tax plans represent such a huge windfall for the wealthy. (Their support for a flat-tax is another.) The Washington Post explained why for the rich that would be "better than any Christmas gift":
While it's true that many middle-class Americans own stocks or bonds, they tend to stash them in tax-sheltered retirement accounts, where the capital gains rate does not apply. By contrast, the richest Americans reap huge benefits. Over the past 20 years, more than 80 percent of the capital gains income realized in the United States has gone to 5 percent of the people; about half of all the capital gains have gone to the wealthiest 0.1 percent.
For his part, Romney has proposed reducing the capital gains tax rate only for the first $200,000 in income. But as ThinkProgress pointed out, Romney's claim that "The people in the middle...I focused my tax cut right there" is preposterous:
Romney may think he focused his tax cut on the middle-class, but according to a ThinkProgress analysis of Tax Policy Center data*, nearly three-fourths of households that make $200,000 or less annually would get literally nothing from Romney's tax cut, due to the simple fact that most of those households have no capital gains income.
But while Mitt Romney didn't want to create the appearance of slashing most of his own tax bill, that doesn't mean his proposals wouldn't produce a massive payday for his own and other rich families while piling up yet more debt. Romney's 59-point economic plan calls for extending the Bush tax cuts, ending the estate tax and reducing corporate taxes. The result, as ThinkProgress explained:
Romney's tax plan includes a $6.6 TRILLION giveaway to corporations and the wealthiest Americans. Meanwhile, Romney's Medicaid cuts are even more draconian than the ones in Paul Ryan plan. Both of their plans end also end Medicare, naturally.
Still, in an interview last weekend the reliably Republican Wall Street Journal wondered why Romney had been so "timid" compared to his rivals. In a rare moment of candor, Mitt revealed that his real preferences would make for very bad politics:
What about his reform principles? Mr. Romney talks only in general terms. "Moving to a consumption-based system is something which is very attractive to me philosophically, but I've not been able to sufficiently model it out to jump on board a consumption-based tax. A flat tax, a true flat tax is also attractive to me. What I like--I mean, I like the simplification of a flat tax. I also like removing the distortion in our tax code for certain classes of investment. And the advantage of a flat tax is getting rid of some of those distortions"...
Amid such generalities, it's hard not to conclude that the candidate is trying to avoid offering any details that might become a political target. And he all but admits as much. "I happen to also recognize," he says, "that if you go out with a tax proposal which conforms to your philosophy but it hasn't been thoroughly analyzed, vetted, put through models and calculated in detail, that you're gonna get hit by the demagogues in the general election."
"The president," Romney complained, "will characterize anyone running for office, and me in particular, as just in there to lower taxes for rich people, and that is not my intent." Perhaps, but that's the inevitable impact. As John McCain learned in 2008, refusing the release the details of his beer heiress wife Cindy's fortune while calling for tax policies delivering his family lottery-sized winning courtesy of the U.S. Treasury is not going to endear you to working Americans. (In Mitt Romney's case, revealing the 10 percent tithe he dutifully pays to his Mormon church probably won't endear him to the GOP's evangelical primary voters, either.)
All of which explains why Mitt Romney won't release his tax returns or call for abolishing the capital gains tax, the love which dares not speak its name. Besides, Mitt Romney wants Americans to believe he's just part of the "80 to 90 percent of us" who are middle class.
And, no doubt, Mitt's willing to bet you $10,000 to prove it.
(This piece also appears at Perrspectives.)