Last night’s GOP debate did nothing to change my sour opinion of Mitt Romney.
During a discussion about tax reform, he attacked Newt Gingrich for the supposed crime of not wanting to double tax capital gains. Here’s how Politico reported the exchange.
Newt Gingrich joked about Romney’s 15 percent tax rate, saying: “I’m prepared to describe my flat tax as the Mitt Romney flat tax.” Romney jumped in to ask: Do you tax capital gains at 15 percent or zero percent? Gingrich’s answer: Zero. “Under that plan, I’d have paid no taxes in the last two years,” Romney said, alluding to the fact that all his income is from investments.
Romney’s remarks are amazingly misguided. Getting rid of the capital gains tax doesn’t result in a tax rate of zero. It simply means that there is no second layer of tax on top of the punitive 35 percent corporate income tax.
I’ve had to correct Warren Buffett when he makes this mistake. One would think, though, that GOP presidential candidates would have a better understanding of taxation.
In addition to being wrong on policy, Romney also is politically tone deaf. By demagoguing against Gingrich’s tax plan, he lends credibility to the dishonest claims that his personal tax rate is “too low.”
In a column for today’s Wall Street Journal, John Berlau and Trey Kovacs of the Competitive Enterprise Institute explain how the GOP candidates should deal with this issue.
The former Bain Capital CEO and Massachusetts governor caused a brouhaha last week when he estimated the tax rate on his investment income at 15%. “How unfair!” pundits exclaimed, noting that the top marginal rate for wage income is more than 30%. The tax rate on investors is unfair, but for the opposite reason. Our tax code layers taxation of dividends and capital gains on top of a top corporate tax rate of 35%—which even President Obama acknowledges is one of the highest in the world. …This double taxation brings the effective tax rate on investment income to as much as 44.75%. In other words, after the combined top tax rates hit $100 of corporate income, $55.25 remains for the investor. And this figure doesn’t even include various state and local taxes, or the death tax. Moreover, like the rest of us, Mr. Romney paid income taxes before investing… Mr. Romney and other presidential candidates should use the opportunity of releasing their tax returns to make an important policy statement. They should include not only their individual returns, but information about the taxes their corporations pay. …In this way the candidates can help explode the myth of the U.S. as a low-tax nation. As Cato Institute tax experts Chris Edwards and Daniel J. Mitchell write in their book, “Global Tax Revolution,” while the U.S.’s “overall tax burden . . . is lower than in many other nations,” the country “imposes more punishing taxes on savings and investment than many advanced economies.” The most popular tax reforms—from the “9-9-9 plan” of former candidate Herman Cain to flat tax proposals—all have in common the reduction or elimination of double taxation on investment. …If the traditional disclosure of tax returns is elevated into a “teachable moment” about the burdens of double taxation, all Americans could be winners.
The authors are very kind to reference the book Chris and I wrote, but I mostly like this article because it does such a good job of explaining double taxation.
I made many of the same points in my video on capital gains taxation.
And keep in mind that the capital gains tax isn’t indexed for inflation, so the rate of double taxation in many cases is far higher than these estimates suggest.
As illustrated by this chart, double taxation is a serious self-inflicted barrier to American growth and competitiveness. Too bad Republicans are too short-sighted to address this issue intelligently.
[…] That may be true in some cases, with Mitt Romneybeing an obvious example. […]
[…] That may be true in some cases, with Mitt Romney being an obvious example. […]
Double taxation of investment is a bad idea. Every dollar is in a sense double taxed already, mainly due to state, local and federal taxes.
One last question…. How come every 1st world country on earth, with a progressive taxation system; are USUALLY the most stable, healthy, and safer societies?
This deep desire for less government (code for less taxes) has left America behind all other countries of its equal, around the world, as they are more “realistic” and united, often with better education, healthcare, mass transit, cleaner environment, lower crime, and a longer life span!
Romney does NOT pay a 35% tax on his capital-gains as being a part of Bain Capital. Bain Capital is a PARTNERSHIP therefore Romney is required to pay only 15% tax. There is NO Capital-Gains Tax on a “Partnership”!
[…] complaining that I must be an Obama supporter since I periodically post critical information about Romney and […]
[…] Romney (Tweedledum) […]
[…] I’m not a Romney fan, and it irks me to defend good tax policy on behalf of someone who is incapable and/or unwilling to make the same principled arguments. […]
[…] Daniel J. Mitchell notes: I’ve had to correct Warren Buffett when he makes this mistake. One would think, though, that […]
[…] complaining that I must be an Obama supporter since I periodically post critical information about Romney and […]
I think the mere fact Romney thought he was scoring points by telling Gingrich he would have paid zero taxes under Gingrich shows how absurd this whole campaign had come. In trying to be both the “capitalist” and side with populist Gingrich it shows he has no clue who he is.
Anyone else think that actually HELPED Gingrich? I did.
I celebrate Romney’s ability to make a lot of money. To pretended the son of a Harvard educated, former Governor’s son didn’t have any advantages is a reach for him – but there are plenty of those who never “made their way.”
Fact is, his 59 point plan is the weakest (by far) of the field. Everyone understands if you ONLY cut Cap Gains and Biz Tax to zero, 10% or whatever – you stimulate the economy.
The real goal is to find a candidate who will also reform Obamacare, entitlements, and the obscene growth and power of the Federal government.
I think you are being too hard on Romney. The interesting thing about Newt’s win in SC is that now voters gt to actually think of him in the White House instead of just another candidate. I for one have trouble thinking of him sitting in the oval office. Too bellicose, too full of himself, no real experience outside of DC politics, too divisive. If you don’t like Romney, Santorum, not Gingrich is the better alternative. At least I think Romney and Santorum can be trusted.
I’m no Romney apologist, but I think you’re taking this out of context, Daniel. Gingrich has repeatedly attacked Romney for paying “too little” in taxes. He’s bragged about his own effective tax rate being double that of Romney and has been using it as a wedge for class warfare rhetoric. I think Romney’s comment was meant to illustrate that under Gingrich’s proposed plan (not one that Romney necessarily objects to), he would have paid even less in taxes. Zero percent in fact! Romney is merely demonstrating the irony that under Gingrich’s plan, he would have paid nothing. Basically, stop criticizing him, Newt!
In fact, Daniel, I’m almost positive that I have heard Romney argue for an elimination of the capital gains tax. I want to say I’m about 99% sure he favors its elimination. I love your commentaries, but you should look into that before taking Romney’s statement out of context.
An interesting observation of how Romney has allowed a teachable moment to pass him by. Moreover, by his self-defeating critique of Gingrich’s 0 percent capital gains tax, he underscores a point Hayek raised in his essay ‘The Intellectuals and Socialism‘:
How can anyone now take seriously Romney’s claim that he is the Republican party’s best defender of the Capitalist system?
Reality has little to do with the words which are spoken by politicians (or Warren Buffet or George Soros and their kind for that matter). It is all about the moment, the audience, and the ignorance of the average person. With the selective reporting of the media, the fine educational system, and personal laziness almost anything can be said and most people will accept it.