Saturday, September 22, 2012

Romney increasingly disconnected…

It was everywhere in the news yesterday that Mitt Romney made 14 million in 2011. Doing what was the first question that came to mind as the guy spent his year on the campaign trail. Does Romney have a job??

He must have made that money through his financial investments, plus the carry interests he had from his Bain Capital days (stakes he had in companies that were bought when he was with Bain and sold subsequently), and also probably speaking engagements, book rights, etc. But I wonder how most people will react to that huge number – especially those who think that they are “productive” members of society and have jobs that serve a particular function, which is most of us I think.

And then there is the question of taxes – he paid about 14% of his income in federal taxes. The highest marginal tax rate is 35% and Romney would definitely be in that bracket, having earned 14 million… So, how come he paid only 14%? What deductions did he take? He must be a Math & Tax Wiz - and I am probably an idiot by the way because the effective rate of my income I paid in federal taxes last year was pretty much what my marginal rate was (25%)…

Well… There is indeed a trick!! It turns out that long-term capital gains are only taxed at 15% and the Private Equity (PE) industry has battled hard to make sure that the Bush and then Obama administrations would keep the income generated by the sale of PE investment stakes classified as capital gain vs. ordinary income. Steve Schwartzman, CEO of heavyweight PE firm Blackstone, famously said that the Obama administration considering a change in that tax rule was equivalent to “a war … like when Hitler invaded Poland in 1939” among other PR gaffes

But I digress… Going back to Romney, I believe that the numbers published yesterday will only further widen the gap between him and most folks out there. He made 14 million being on the road campaigning the entire year pretty much, thus not having a real job so to speak, and he only paid 14% on that amount in taxes – what happened to the progressive nature of taxes, one of the cornerstones of American society??