Romney’s taxes highlight low rates on investment income

Nancy Marshall-Genzer Jan 24, 2012

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.

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