This morning, former Gov. Mitt Romney released his taxes from last year, and a prospective look at what he will file this year. Over both years, Romney made $42.5 million and will have paid $6.2 million in taxes when he files in April. In 2010, Romney's effective tax rate was 13.9% and his accountants anticipate he will pay an effective rate of 15.4% this year. The Romneys gave $7 million to charities during these two years.
Romney pays a lower rate than most of us because almost all of his income was derived from capital gains on investments. When Ronald Reagan and Bill Bradley negotiated the last serious overhaul of the tax code, they eliminated a special rate for capital gains. The lower rate for capital gains was reinstated by President Bill Clinton in the late 90's in exchange for special tax breaks Clinton wanted. It was one of Clinton's biggest mistakes.
Yes, yes, we want to encourage investment but the fact is that as long as there is money to be made, and as long as the tax rate is not 100%, there is an incentive to invest. If you were offered a chance to invest in a company that you thought had a great product line, do you really think you would decline to invest in that company because you might pay a higher tax rate? Of course not.
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I am sure - at least Mr. Romney better be sure - that all of his tax forms conform to the law, that all the i's are dotted and the t's crossed. With that kind of dough, i suspect he can afford some pretty good accountants. But, I am less interested in Romney's wealth than in the hope that his release of his tax forms will prompt a discussion about the ridiculousness of taxing capital gains at a different rate. The issue actually came up in last night's debate and Romney pointed out that under Gingrich's plan to zero-out the tax on capital gains, Mr. Romney would not pay any taxes. That is the definition of madness.