In defense of Mitt Romney’s tax returns 6


By Tom Quiner

Quiner’s Diner has invested thousand of words beating up on Mitt Romney. Next to Ron Paul, he is the easiest Republican candidate for Barack Obama to beat in our view.

He’s taking heat for dragging his feet on releasing his income tax records. Why? Because it will reveal that most of his income is derived from investments, which is taxed at the lower capital gains tax rate than income.

Mr. Romney will take heat because his tax rate is “lower than his secretary’s,” to quote Warren Buffet. The  impression is that a millionaire like Romney, one of the reviled “1%,” is proof at how the system is cooked in favor of the “rich.”

Let’s look at this issue as objectively as possible. For starters, Mr. Romney has already paid income tax on this money once. Most investments are made with after-tax dollars. Money earned off of investments SHOULD be less, because it has already been taxed once.

The capital gains tax rate is 15%. President Obama wants to increase it to 25%. Newt Gingrich wants to decrease it to zero. Who will spend that 15% (or 25% if Obama gets his way) better? Romney or the government? Romney will.

We see how the government mismanages money. Just check out the deficit. Just check out the national debt. Just check out Medicare, Social Security, Medicaid. Just check out the debt ceiling debacle(s). Just check out the gridlocked Congress.

The government spends much of our money inefficiently. (For the record, conservatives embrace the idea of a government safety net. The debate centers on degree. There ARE some good government programs.)

What will Mr. Romney do with this 15% tax if his political adversary, Newt Gingrich, prevails and gives it back to him? He will re-invest it. Where? One place would certainly be start-up businesses. That’s where a lot of investment dollars go with wealthy Americans. They invest in the young, emerging businesses where ALL the job creation takes place. And the upside potential of a good investment is very high with a good start-up. By the same token the risk is higher. That’s why we need investment capital: to finance the risk associated with entrepreneurship.

I’ll pick my spots on where I beat up on Mitt Romney. Assuming that everything else is above board on this tax returns, I give Mitt Romney a pass even if he has paid a lower rate.

6 comments

  1. Oh my, here we go! Romney is criticized because he did not pay enough taxes on capital gains. What a great red herring for the Democrats.
    Did Romney pay what was required? If he is guilty of underpayment, did he cheat or was it just plain inattenition? Perhaps he used TurboTax and was careless – then we can ignore it, huh?

  2. Nick,

    Capital gains have NOT already been taxed. Dividends have already been taxed. Your example is correct. For capital gains the question is how long have you held onto the asset before you realize your gain. If, for example, you bought a stock and sold it a month later and made a gain of $1,000, you would pay ordinary income tax rates on that gain. If you held the stock for more than 1 year, then you would pay at the lower 15% long term capital gains tax rate. 1 year seems like a short time to me. The real question is how much of your gain is simply due to inflation rather than a real economic gain? If, for example, you held a stock for 20 years and you doubled your money (invested $1,000, sold for $2,000) then you probably did not have a real economic gain. LIkely, inflation was more than 100% over 20 years. You should pay no tax in that case. But, if instead you sold the same asset after 1 year and 1 day, you would get the 15% rate. That simply does not seem fair.

  3. I don’t understand the notion that capital gains have “already been taxed once.” If I invest $100 in a stock and sell it for $150, I will be taxed on $50, my gain on that investment. That $50 has not been taxed before, regardless of whether I already paid tax on the $100 I invested.

    • To invest a $100 in stock, you have to first earn $153.84, assuming your income tax rate is the top marginal rate of 35%. Using your example, the investor has still not recouped his true investment because of the income tax he has paid. The lower the capital gain tax rate, the easier it is to recoup the actual original investment … and reinvest the gains into productive and job-producing enterprises.

      • Sure the investor hasn’t recouped his “true” investment. The point is that the gain has not already been taxed, and the tax code is premised on the idea that gains are taxed.

        I’m not disputing the idea that lowering the capital gains rate COULD stimulate the economy. That would be the whole point of doing it. But it shouldn’t be done based on the idea that money earned from investments has already been taxed once. It hasn’t.

  4. Dividends paid should be deductible at the corporate level, then should be taxed as ordinary income at the personal level. Capital gains should be reduced for inflation based on how long the asset was held, then taxed as ordinary income.

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