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Romney's taxes highlight low rates on investment income
The Republican candidate paid 13.9 percent of his income in federal taxes in 2010, a lower percentage than many people with less income pay. But higher tax rates on Mitt Romney's investment income would raise taxes for others, too.
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CORRECTION: The original version of this story incorrectly identified the group that first recorded "The Little Old Lady From Pasadena." It was Jan and Dean. The text has been corrected.
Kai Ryssdal: So here's the thing about that 15 percent rate Mitt Romney paid last year. While the news of the day has centered around how he got it -- that is, by earning investment income, not salary -- there's more to it than just that. 'Cause he's not the only one out there who pays that low rate, and he's not the only one who'll pay more if it's raised.
Marketplace's Nancy Marshall Genzer takes a look at the tax code law of unintended consequences.
Nancy Marshall-Genzer: A certain Jan and Dean song has been running through my head ever since I got this assignment. So, let’s just get this over with.
Jan and Dean's "The Little Old Lady From Pasadena": It’s the little old lady from Pasadena.
I’m supposed to look at who besides Romney would be affected if the tax rate on investments -- the capital gains rate -- was raised. Yes, little old ladies from Pasadena, or wherever, would pay more on their profits from stocks or dividends. Sorry, Jan and Dean. You don’t pay capital gains on retirements accounts like your 401(k). But think about the small nest eggs of little old ladies.
Martin Sullivan is an economist at Tax Analysts.
Martin Sullivan: They may be earning $30,000 or $40,000 a year in investment income. And that puts them well above average but you would hardly say they’re living high on the hog.
And yet they would be paying the higher capital gains rate, right along with Romney. Ronald Posner is a CPA with CBIZ. He says the little old ladies should be remember that the capital gains rate was 20 percent for years before it was lowered to 15 percent in 2003.
Ronald Posner: I mean if it was raised 5 percent, I don’t think it would be a big hardship to them.
But there’s one tax Romney pays that the little old ladies don’t have to worry about: The carried interest tax. It’s a 15 percent tax on the consulting fees charged by partners at private equity firms, like Romney’s Bain Capital. That’s usually their main source of income. But they still pay only 15 percent on it. That’s one rate that could be raised without hurting the middle class.
In Washington, I’m Nancy Marshall-Genzer for Marketplace.
As Krugman points out in "Who Are The Rentiers"
"Financial securities are overwhelmingly held by the rich — more than 60 percent by just one percent of the population, more than 98 percent by the top 10 percent. It’s true that middle-class Americans own significant shares of deposits, and that some part of their pension accounts would be in bonds. On the other hand, middle-class Americans owe the lion’s share of debt; relatively speaking, the wealthy have hardly any.... what we’re seeing in practice is that defending the interests of a small wealthy slice of the population takes priority over a possible recovery strategy."
http://krugman.blogs.nytimes.com/2011/06/07/who-are-the-rentiers/
Keep fighting the good fight guys.
Ah, the American gerontocracy. Pity not the little old lady from Pasadena.
First, if she's earning 35k a year in investment income (assume a 7% yield, which is high these days), then she is sitting on around 500k in investment assets. That alone (ignore other assets like a home, etc) puts her net worth above over 80% of US households. http://blogs.wsj.com/wealth/2007/02/01/rich-o-meter-20/. And if she is feeling pinched, she could also look to spend down this nest egg through an annuity-like investment.
Second, she's also earning income from Social Security, either from her own prior work or her late husband's. Let's call that another 25k in income (did I mention tax-free...).
Third, she probably owes her house free-and-clear. That means that all she needs to pay is the property taxes. For her working-age neighbor, housing is probably his/her biggest expense.
Fourth, she is getting free healthcare courtesy of the federal government. For her working-age neighbor, healthcare may be his/her second biggest expense (esp. if you count employer share of premium).
So the little old lady with 35k in investment income is in the top 20% of wealth and enjoys a living standard of a working age person with 2x that (at least) in ordinary income. Maybe not the 1%, but not too shabby.
And, to be clear, no one is saying that the little old lady should be paying MORE than her firefighter / truck driver / insurance broker / etc. neighbor. All we are asking is that she pay the SAME rate on her "unearned" income as those neighbors who work for their income. Can someone please tell me what would be wrong with that?
Patrick Noonan
Boston, MA
Actually, it was co-written by a songwriter who wrote for the Beach Boys (Roger Christian). The Beach Boys covered it in 1964.
http://en.wikipedia.org/wiki/The_Little_Old_Lady_from_Pasadena
