Smart TaxesSmart Taxes

Romney's GOP rivals want to cut his taxes

Candidates want to eliminate or cut taxes on long-term capital gains, already taxed at a lower rate than wages. That would benefit primarily wealthy investors, such as Romney.

By MSN Money Partner Jan 19, 2012 2:14PM

This post is by Janet Novack of the furor over Mitt Romney’s none-too-surprising disclosure that his effective federal income tax rate is “closer to the 15% rate” than the top 35% levied on salary income, one point needs to be made: If Romney’s Republican rivals had their way, he’d pay a lot less.


Centimillionaire and former Massachusetts Governor Romney pays such a low rate because most of his income (with the exception of some hefty speaking fees) comes in the form of long-term capital gains and corporate dividends, which are currently taxed at an historically low top rate of 15%. Yet Romney, who made his fortune at private equity firm Bain Capital, is the only one of the Republicans taking the stage to debate in South Carolina Thursday who hasn’t proposed lowering the current 15% rate even further for rich investors.


Former House Speaker Newt Gingrich, Rep. Ron Paul of Texas and Texas Gov. Rick Perry (before he dropped out of the race) all want to eliminate all taxes on long-term capital gains, while former Pennsylvania Sen. Rick Santorum would reduce the top tax rate to 12%. Gingrich and Perry would also eliminate taxes on corporate dividends, while Santorum would reduce the rate to 12% on that income source, too.


Romney, by contrast, would eliminate the tax on long-term capital gains and dividends, but only for married couples filing jointly with income under $200,000 and for singles earning less than $100,000. For wealthier folks, he would leave the current 15% rate where it is. (A handy Tax Policy Center table comparing all their plans is here.) Post continues below video.

So while Romney’s Republican rivals can attack him for not promptly releasing his tax returns, their proposals make it difficult for them to credibly criticize him for paying at only a 15% rate. Indeed, Gingrich, who released returns Thursday showing he paid a 31.7% rate in 2010, acknowledged as much on Wednesday. Noting that he had proposed an optional 15% flat tax on other income (along with the elimination of capital gains and dividend taxes) Gingrich told reporters: “My goal is not to raise Mitt Romney’s taxes. It’s to let everybody pay Mitt Romney’s rate. And so I’m not going to criticize Mitt Romney. I’m going to say, shouldn’t we all have the option of a flat tax at the same rate he was paying.”


President Barack Obama, on the other hand, has no problem making hay over Romney’s modest 15% tax rate. In the last campaign and past budgets, the Democrat proposed increasing to 20% the tax on long-term capital gains and dividends for couples with income above $250,000.  


Last September, as part of his proposal for additional deficit reduction, Obama called for a new  "Buffett rule" -- in honor of Berkshire Hathaway CEO Warren Buffett, who has complained for years that he pays taxes at a lower rate than his secretary and recently disclosed the effective federal income tax rate on his adjusted gross income in 2010 was just 11%. That rule would require those earning more than $1 million to pay as high a rate as middle-class folks.


While Obama has never translated his Buffett rule into a specific tax proposal, his goal could presumably be best accomplished by raising the top rate on capital gains, which go largely to those earning more than $1 million. (Remarkably, for 2008, the 400 highest income Americans reaped 13% of all net capital gains reported to the Internal Revenue Service.) In addition, last October Obama endorsed a plan by Senate Democratic leaders to impose a 5.6% surtax on income over $1 million per couple, beginning in 2013, to pay for his proposed $447 billion jobs package.


With Republicans now in control of the House and having filibuster power in the Senate, a millionaire’s surcharge has little to no chance of becoming law. But as part of the health care reform package Obama pushed through in 2010, investment income above $250,000 will be subject to a special 3.8% "Medicare surcharge" beginning in 2013. Moreover, if  the Bush-era tax cuts are allowed to expire as scheduled at the end of 2012, the top rate on long-term gains will revert to 20%, while the rate on dividends will more than double to 39.6%.


Another rate, too, should be noted. The historic Tax Reform Act of 1986 that Republican icon Ronald Reagan pushed through had a top tax rate for long-term gains and for dividends of 28%, the same rate as for ordinary wage income. Today, all the Republican presidential contenders would reject such a rate, even though a more equal rate on salary and capital income would seem necessary. as it was in 1986, to pass any bipartisan tax reform.


Looking for still more numbers? Here, for 2008 (as reported by the IRS and calculated by Forbes) are the average effective individual income tax rates, as a percentage of adjusted gross income, for various income groups.

  • Adjusted gross income of $1 to $25,000: effective tax rate of 1.76%.
  • Income of $25,000 to $50,000: tax rate of 5.32%.
  • Income of $50,000 to $100,000: tax rate of 8.41%.
  • Income of $100,000 to $200,000: tax rate of 12.59%.
  • Income of $200,000 to $500,000: tax rate of 19.5%.
  • Income of $500,000 to $1 million: tax rate of 23.92%.
  • Income of $1 million to $10 million: tax rate of 24.47%.
  • Income of $10 million or more: tax rate of 20.89%.
  • The top 400 earners: tax rate of 18.11%.

More from and MSN Monday:


Jan 20, 2012 3:49PM
Never understood why earned is taxed at a much higher rate than LTCG. You need to have a good income to even invest in the markets but most people can't afford to do that, especially if they are raising a family. It is hard enough for even a 2 income family to pay for housing, fund their 401K plans,  while raising kids and hoping to help with college. Raise the LTCG and lower earned income, they still get to write off their losses and they are still making money. It's a joke that Romney pays that low a tax rate while I have to pay a much higher rate on my earned income.
Jan 21, 2012 6:02PM
That is what the groups called  "OCCUPY" message is all about
Jan 23, 2012 11:45AM

The "occupy movement" is ALL about getting relief of personal debt.

wahh, i can't pay my student loans, mortgage, credit cards etc etc etc.

It's all motivated by personAL GREED!


A complete bunch of losers:

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.