John Berlau and Trey Kovacs of The Wall Street Journal point out that Mitt Romney’s capital gains income was paid with after-tax corporate dollars and, therefore, taxed twice.
I don’t expect people on the left to understand this. And even if they do, I don’t expect them to stop their anti-rich, class-warrior, Buffett secretary nonsense. But hope springs eternal.
Mitt Romney’s True Tax Rate: 44.75%
Wall Street Journal op-ed, Romney and the Burden of Double Taxation, by John Berlau & Trey Kovacs (both of the Center for Investors and Entrepreneurs, Competitive Enterprise Institute):
When double taxation of investment income is taken into account, Mr. Romney most likely underestimated his effective tax rate on the campaign trail. 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 is ironically the embodiment of the “corporate personhood” legal doctrine otherwise so decried by the left. The law taxes corporations as if they were separate beings from the shareholders who own them and then levies a separate tax on shareholder payouts and gains. 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. …If the traditional disclosure of tax returns is elevated into a “teachable moment” about the burdens of double taxation, all Americans could be winners.
Related Posts:
- Why Capital Gains Income is Taxed at a Lower Rate than Ordinary Income
- Lower Capital Gains Rates Stimulate Investment
- Gingrich has Highter Tax Rate than Buffett’s Secretary
- I Am Spartacus: MoveOn.Org Perpetuates Buffett Tax Lie
15 responses so far ↓
1 MP // Jan 25, 2012 at 2:08 pm
It is NOT 44.75%…that’s just political double speak. If Mitt rec’d $100 of income from, let’s say, dividends, then that $100 is net of the 35% corporate tax, which means it started out as $154. So if you want to claim his money has been taxed at both 15 & 35%, then you have to INCREASE his income to the gross number and say he made $154 not $100. THEN you can claim the 44.75% tax rate, but you have to increase his income by 54% to do that…….So he $30 million.
2 David // Jan 25, 2012 at 5:07 pm
can you explain the difference between the 15% tax on previously taxed corporate dividends and the 15% tax on Carried Interest which it appears is what Romney was getting ?
3 Peter // Jan 25, 2012 at 5:09 pm
MP,
That’s exactly right. His income is not the point, its his effective tax rate that we are talking about. So, okay, using your numbers, he effectively made 30 million and paid taxes at a rate of 44.75%. I think that rate is higher than Buffet’s Secretary’s.
4 MP // Jan 25, 2012 at 6:31 pm
well, no, because if we apply (illogically) the gross amount and corporate tax rate for Mitt, then why not do the same for Debbie Bosanek (thank you Google for giving me his secretary’s name)? To be consistent, her income is not just her salary, but it is the gross that Berkshire Hathaway earned and paid takes on. It would be the same 35% as Mitt, so they cancel each other out, and all that is left is his 15% vs. her whatever %.
5 Mike // Jan 25, 2012 at 10:06 pm
It’s still not 44.75% until you factor in the effective tax rate bain capital paid, not what the current 35% corporate tax rate is. G.E. paid an effective tax rate of a whopping 0.0% in 2010, Google paid an effective rate of 2.5%. So no, Mitt Romney’s tax rate is not closer to 45%. I would not expect the far right who thinks the rich pay too much but poor people dont pay enough to objectively look at this issue much less understand it.
6 Peter // Jan 26, 2012 at 8:32 am
MP,
Give me some time to think this through. You’re making smoke seep from my eyelids.
7 Peter // Jan 26, 2012 at 8:36 am
MP,
Bosanek is an employee and her salary is fixed. Berkshire Hathaway has to pay the corporate tax on the income it earns to fund her salary. She doesn’t pay that.
In Romney’s case, he would have personally received more money from Bain had Bain had not had to pay 35% tax on the gross income it earned to fund his capital gains distributions.
8 Peter // Jan 26, 2012 at 8:46 am
MP,
By the way, the corporation deducts Bosanek’s salary as a business expense so there is no corporate tax on the income earned to pay her. In other words, it’s a wash. The dividend distributions Romney received, on the other hand, are not deductible by the corporation.
9 Allan // Jan 26, 2012 at 9:56 am
Ahem.
You make one assumption: all the companies Romney invested in paid 35% in taxes. However, most businesses pay less in taxes and some pay nothing. To get Romney’s actual tax rate, assuming you accept the double taxation theory, you must do some more detailed calculations.
All we can say is that Romney’s tax rate, under your theory, was between what he stated plus 0 to 35%.
10 MP // Jan 26, 2012 at 9:59 am
Yeah, I thought of the deductibility issue on the way home last nite too, so I agree that its not the same to compare a corporate expense to a dividend distribution. But the point I was trying to make is that it is illogical to apply the corporate tax rate to the amounts an individual declares as income. Hell, a corporation can generate $0 of taxable income and still distribute dividends….The WSJ article itself raises the issue of corporate personhood, and the fact that the corporation has its own identity: separate from the shareholder owners, whether they be taxable entities such as Mitt/you/I or tax exempt entitites who do not pay 15% on the distributions such as pension funds, foundations, etc. So we have a Supreme Court ruling that they are their own entity, but we can co-opt their tax liability when convenient? Again, that’s silly-season double speak that makes for good editorial page ranting, but it doesn’t balance on a T-square ledger!
Speaking of WSJ editorials, this morning’s got me thinking of another angle: they mention Mitt’s 15% tax on dividends AND CAPITAL GAINS…It seems to me that the latter probably accounts for well more than half of an investors gain (typical div yield is generally 10%) and capital gains are certainly not taxed at the corporate level!
11 Peter // Jan 26, 2012 at 4:42 pm
Allan, good point. He should produce Bain Capital’s returns, too, so we can see what effective tax rate it had in 2010.
12 Mike // Jan 27, 2012 at 8:37 pm
Peter,
You’re argument is completely moot until Bain Capital releases their tax returns.
“I don’t expect people on the left to understand this. And even if they do, I don’t expect them to stop their anti-rich, class-warrior, Buffett secretary nonsense. But hope springs eternal.”
You don’t expect the left to understand this and you haven’t even taken everything into consideration? The right makes themselves look more stupid everyday. It’s like that’s the GOP’s new platform and the current presidential candidates do a great job of advancing this platform!
13 Peter // Jan 28, 2012 at 2:13 pm
Mike,
There is a reason capital gains are taxed at lower rate. I set forth those reasons in my post and the related posts at the bottom. Read them if you want to learn why capital gains are and should be taxed at a preferred rate.
Also, none of this matters because all Romney did was pay the legal tax rate. In fact, Romney would be unqualifed to be President if he paid a penny more in taxes than he was legally required to pay. That would make him wasteful as well as stupid and we wouldn’t want someone like that running the country, would we?
You lose credibility and converts when you refuse to admit facts that are not favorable to your agenda.
14 LDSareChristian // Jan 29, 2012 at 9:40 pm
OK, in lay mans terms….
Mitt invests $1,000,000
A year later, that investment makes 10%. or $100,000
The Investment company pays 35% taxes on that $100,000 ie $35,000 leaving $65,000. which they distribute back to Mitt as interest income.
Mitt pays 15% on the $65,000 ie $9750
So, from the $100,000 , the IRS gets in Taxes $35,000 + $9750 = $44,750 or the 44.75% this article’s title suggests.
Granted, the 35% from the investment company can vary based on whatever tax breaks they may be able to apply.
15 Peter // Jan 30, 2012 at 10:20 am
LDSare,
Thanks. Very nicely done and in fewer words than I used to explain it only half as well.