|Old Bull Lee
A Voice From the Reality-based Community
Notes from a Study of Things Themselves
Mitt Romney posted his 2010 federal tax return on his campaign website January 24, 2012. In doing so he followed the example of Newt Gingrich, who'd released his own 2010 return a few days earlier.
Romney's tax returns seemed to get more media attention than Gingrich's. The New York Times coverage was extensive, including these articles.
The table below shows a side-by-side comparison of particular items on the returns of the two Republican primary contenders.
|$3 to Pres Campaign Fund?||1040, p1||yes, yes||yes, yes||-|
|Occupation, filer||1040, p2||Consultant||Executive||-|
|Occupation, spouse||1040, p2||Executive||Homemaker||-|
|Interest (taxable)||1040, 8a||26,555||3,295,727||-|
|Interest (tax-exempt)||1040, 8b||10,754||557||-|
|Ordinary dividends||1040, 9a||11,892||4,923,348||includes "qualified" dividends|
|Qualified dividends||1040, 9b||5,990||3,327,678||taxed at 15%|
|Business income||1040, 12||33,124||593,996||mostly speaking fees and director fees|
|Capital gains||1040, 13||-3,000||12,573,249||taxed at 15%|
|Income from rent, S-corps, trusts||1040, 17||2,525,683||-279,884||-|
|Adjusted gross income||1040, 37||3,142,066||21,646,507||gross income less adjustments|
|Total (federal) tax||1040, 60||994,708||3,009,766||-|
|State, local income taxes||A, 5||122,844||672,444||a deduction on federal return|
|Real estate taxes||A, 6||11,656||226,356||a deduction on federal return|
|Home mortgage interest||A, 10||0||0||a deduction on federal return|
|Gifts to charity||A, 19||81,133||2,983,974||a deduction on federal return|
|Foreign accounts?||B, 7a||No||Yes||-|
|Foreign accounts location?||B, 7b||N/A||Switzerland||-|
|Wages paid to household employee(s)||H, 1||14,744||20,603||Newt has one house; Mitt has three mansions.|
|total tax / adjusted gross income||-||31.7%||13.9%||-|
|income taxed @ 15% / adjusted gross income||-||0.19%||73.5%||-|
Newt has a measly $5,990 in income that qualifies for George W. Bush's Tax Breaks for the Rich. Mitt, on the other hand, has almost $16 million that qualifies for that special rate of 15%. Newt's capital gains for 2010 are negative, whereas Mitt got over $12 million from capital gains. And it's important to note that Mitt's $12 million is not the result of a once-in-a-lifetime sale but comes in as a steady flow, year after year, as a result of a tax loophole called "carried interest". Mitt's privileged income comes from his labor, many years ago, as a corporate raider, or "vulture capitalist." The carried interest gimmick allows him to pay low rates of tax on income he earned in the past but paid in the current year. (The word "interest" in "carried interest" is not like the interest reported on Schedule B of the tax return. Rather, it refers to a shared interest in a pot of money built up during his corporate raiding days long ago.)
Vulture capitalism works like this. A bunch of Wall Street financiers and lawyers--the corporate raiders--get together with the goal of getting money out of a vulnerable company's treasury and putting that money in their own pockets. To do this they must take control of the company. That isn't easy or cheap. Generally, it means they must gain control over a majority of the company's corporate shares. This requires borrowing heavily. Their takeover might be hostile or friendly. A friendly takeover means the company management is complicit and takes a cut of the loot. Once the raiders achieve control they dismantle the company, fire (or offshore) workers and executives (thereby reducing the company's expenses and temporarily improving its income statement), sell off assets, reassemble and re-mission the business, and restructure the business's finances by saddling it with debt. Sometimes the raider takes a public company private so these actions can't be observed by outsiders. After a year or so, the raiders pay themselves huge "dividends" from the company's treasury. The raiders' final act is to pump-and-dump the corporate carcass to suckers who think they're investing in a viable business. Once that sale is complete, the raiders can pay off their creditors. Then the raiders move on to another vulnerable company, knowing they'll benefit from their "carried interest" the rest of their lives. Meanwhile, the raided company struggles to survive financially and its fired employees struggle to find jobs.
One argument put forth for supporting continuation of GWB's Tax Breaks For the Rich is that if rich people are taxed less, they'll create more jobs for Americans. Well, Mitt was taxed at a very low rate and he didn't create many jobs at all. Obviously, he had to hire a few people to manage his trusts and prepare his tax returns. And, like Newt, he created one job for his household help. (It's hard to understand how Mitt can manage his three far-flung mansions with only $20K/year in hired help. Does his wife Ann, the "homemaker," spend her days cooking and scrubbing?) But with his history as a job-destroying (and job-offshoring) corporate raider, he seems to be a counter example to the argument.
In revealing their 2010 tax returns Gingrich and Romney have given the public a rare peek into the personal financial affairs of the high and mighty. The returns reveal that both candidates are rich, one extremely so. One candidate makes his money lobbying but calls it consulting. The other candidate lives off money he made as a vulture capitalist long ago.
Economic malaise and the intractably high unemployment rate are likely to be the chief political issues in the 2012 general election. It's hard to imagine how these tax returns will help either Republican candidate in that campaign.