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The ABC News report that came out last night about “Mitt Romney’s offshore tax havens” appears to get the data wrong, so you end up with a muddled analysis of the situation. What is actually happening here, as Pat Garofalo untangles, is that Romney invests in funds from his old company Bain Capital that happen to park their money offshore to avoid taxes.
As one of the wealthiest candidates to run for president in recent times, Romney has used a variety of techniques to help minimize the taxes on his estimated $250 million fortune. In addition to paying the lower tax rate on his investment income, Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.
The advantages really go to Bain Capital here, not Romney. Because it’s Bain that can then reap the benefits of avoiding US taxes on the fund. This increases the interest in the fund from foreign investors looking to dodge local taxes, and makes the fund more lucrative generally. And Romney is involved with this at some level. He doesn’t want to release his taxes until April, and at that point he will release only the 2011 copy, by which point he will have shifted around his investments to avoid the offshore accounts.
Tax havens are definitely a problem, and if Romney is found to actually have some, there are laws involved. But all of this has little bearing on his 15% tax rate; after all, the point is to hide the money entirely, so that it doesn’t exist in that equation. The low tax rate comes mostly because capital gains are taxed that way. And it’s long overdue that we start talking about the low capital gains tax rate, which is an historical anomaly, and why we have it. Mitt Romney was in office in Massachusetts in 2003 when the capital gains tax lowered to 15%. In the heyday of American prosperity, the postwar period from 1946-1973, the capital gains tax rate was mostly around 25%. In fact it went up at the end of that period. Contrary to conservative belief, the capital gains tax has little bearing on business investment.
Plotting the top cap gains rate against real business investment doesn’t show much (biz investment is in natural logs to show proportional growth over this long time series). The cap gains rate bounces around based more on politics than policy, while investment pretty much grows with the cycle. Hard to see anything in the picture supporting the view that either the level or changes in cap gains taxes play a determinant role in investment decisions.
Remember, the ostensible reason for the favoritism in tax treatment here is to incentivize more investment and faster productivity growth. But that’s not in the data and the reason it’s not in the data is because investors aren’t nearly as elastic to cap gains rates as their lobbyists say they are (more precisely, they’ll carefully time their realizations to maximize their gains around rate changes, but that’s not real economic activity–that’s tax planning).
So this is not a way to goose business investment, it’s a straight money hose streaming into the pockets of the wealthy. And nothing explains income inequality more than the low capital gains tax rate of the past decade. The President has proposed changing it but not in an insistent way. His likely opponent in November has gotten fat off it, and Obama needs something or other to sell as a second-term agenda. Sounds like a plan.
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That remains to be seen. With the Santorum victory in Iowa, if Gangrene wins in South Carolina, the race is wide open.
Mitt Romney stripped of Iowa win after recount
But isn’t just amazing that Clinton’s balanced budgets coincided with his massive 30% cut in the cap gains rate? Hmmmm.
Wonderful! Poor Mittens.
Capital gains tax rates? Criminal. We know this. They know this.
Will it change? Nah.
David Cay Johnston discussed this with Ian Masters last night. Worth a listen.
Zero Hedge also has something…
I started reporting cap gains on my 1991 tax returns. Dvds, as well, and earned income. Over the years I’ve watched the steady tilt to capital and away from labor just on my very small (but worthy) potatoes taxes. And I can’t get over how many ordinary people with no cap gains and, maybe, tiny little dvds, visions of Dynasty dancing in their heads, vote time after time for their own ruin. Up the asses in debt, two earner families, running hard just to keep (barely) in place and they buy that classic labor capital war propaganda of the glory of capitalism. Hoist with your own petard, indeed.
Police and firemen who risk their lives for society are taxed at 35%.
By what logic do we reward vulture capitol vultures a 15% tax rate for risking some of their money w/0 risk to their lives ?
Which police and fire are taxed at 35 percent? The fire in my boro are volunteer and the police, while decently paid, are not in that bracket. What police are in the top bracket? This is a chart of the current brackets breakoffs: http://www.moneychimp.com/features/tax_brackets.htm. $379,150 NET, not gross, is an awful lot of money for a cop. I wouldn’t think most are even close. And taxable income is net, after deductions, so the gross is likely quite a bit higher.
Used to be that ministers and teachers were exempt from taxes. These kinds of favors run to fashions and tax rates should be reasonable enough that they apply across the boards and not here and there according to which groups we especially favor now. I see your point but I wouldn’t support special rates for any group. The problem in our current tax system is the ability of monied groups to buy special, favorable, rates.
I’m no Clinton fan, and I completely disagreed with Clinton cutting the Cap Gains tax rate (for the record, I actually have a, um, nice portfolio, so Cap Gains taxes are something with which I am quite personally familiar).
One part of the “deal” with Clinton having balanced budgets at that time is that Clinton engaged in only a few, smaller WAR, Inc activities that didn’t run up a huge bill. It took GW Bush to run the nation into the ground with GIANT WAR, Inc – useless, unnecessary & LIED about, but quite financially lucrative for the Bush Crime Syndicate & their bastard pals – in Iraq, Afghanistan & elsewhere.
And that’s where Team USA really started to feel the pinch from those lowered Cap Gains tax rates. Again: I totally *opposed* the lowering of those rates, even though it has a direct impact on me personally.
It’s utterly & laughably *meaningless* that Bill & Hilary Clinton call themselves “Democrats.” They are not, at least not in the old school definition of that terminology.
After 8 years of Bush and 15% capital gains rate, corporation were holding $2T in cash domestically and another $1T offshore, we had 10% unemployment and 2 million jobs lost over the eight years. The case for a capital gains tax preference as a spur to investment stands in the complete absence of supporting evidence.
I say abolish the tax preference, and tax all income at the same rate, regardless where it comes from. Republicans want to simplify taxes? Simplify this.
Clinton balanced the budget? I was under the impression he sharply reduced the deficit, but not balanced the budget. And, of course, the debt remained. How many times has this country actually balanced the budget? Not many, I would guess.
Quite agree, and as I said previously, raising Cap Gains taxes will directly affect me. However, I strive not to be a greedy bastard. And guess what? It’s really not all that difficult to follow the golden rule. quelle surprise.
This poster has no idea what he’s talking about.
“Tax havens are definitely a problem, and if Romney is found to actually have some, there are laws involved.”
This suggests that using offshore accounts or “tax havens” to defer or avoid tax is illegal. In general, it is not. Legal offshore tax strategies are widely used by businesses and wealthy individuals of all political persuasions. Many firms (especially tech and financial) would be at a substantial competitive disadvantage if they did not use offshore tax strategies (for example, many tech firms put their IP assets into a Irish subsidiary for tax reasons). If you want to blame someone, blame Congress for failing to design a tax system that keeps capital within US accounts.
“The low tax rate comes mostly because capital gains are taxed that way.”
That’s overstating things. Assuming his 15% tax rate is largely attributable to a deferred compensation arrangement from Bain under which he takes advantage of the carried interest rules, it is both the carried interest rules and the 15% capital gain rate that are relevant. It is very possible (and common) to object to the carried interest rules which still supporting a 15% (or other low) long-term capital gain rate.
“”The ostensible reason for the favoritism in tax treatment here is to incentivize more investment and faster productivity growth.”"
That is only one of many policy reasons for the lower LTCG rate. Other reasons: (1) cost basis is not adjusted for inflation, so much of the “gain” that is taxed is illusory — it is only gain in nominal, not real, terms; (2) reducing the double-tax caused by the corporate tax; (3) encouraging asset sales and gain realization (under the U.S. constitution, the federal government generally cannot tax gain on appreciated assets unless there is a sale or exchange).
Finally, it’s worth remembering that the overall effective federal tax rates are very progressive, despite a lot of banter to the contrary. In 2007 (most recent year for which the CBO has released data), the bottom 20% paid an average effective federal tax rate of 4%. The top 1% paid an average effective tax rate of 29.5% in 2007. The effective rates of the intermediate percentiles are a fairly smooth curve. http://www.cbo.gov/publications/collections/tax/2010/AverageFedTaxRates2007.pdf
Precisely and unacceptable. We need (and should be demanding) complete tax returns (including all subsidiary schedules) from the mid-1980′s, forward.
Yeah sure, he makes tons, pays little in taxes. He his a 1% type of guy!
I had eggs, bacon hashbrowns and an english muffin for breakfast this morning, AND it’s going to rain today.
Hmmmm…