Why Ryan Makes Romney's Tax Problem Even Worse

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AUGUST 11, 2012

Why Ryan Makes Romney's Tax Problem Even Worse

Already, there is a curious bit of conventional wisdom taking hold that Mitt Romney's choice of Paul Ryan is shrewd because it will draw attention from Romney's ever-more apparent weaknesses, notably the more rapacious elements of his work at Bain Capital and his undisclosed tax returns. Sorry, but this makes no sense. It seems hard to imagine a running mate who would jibe better with the Democrats' Bain Capital attacks than a well-born Ayn Rand acolyte. More crucially, it is hard to imagine a running mate who will draw more attention to the matter of Romney's taxes than Paul Ryan. Why? Because under the "Ryan plan" that made the congressman famous, Mitt Romney would pay zero taxes.

Don't believe it? Romney himself said so, just a few months ago. The Ryan plan -- formally, the "Roadmap for America's Future" -- "promotes saving by eliminating taxes on interest, capital gains, and dividends; also eliminates the death tax." Mitt Romney's income -- more than $20 million each of the past two years -- comes almost entirely from capital gains on his investments, or from "carried interest," a cut of Bain Capital profits that are taxed as capital gains (the infamous "hedge fund loophole.") His only major ordinary income was from the speaking fees he collected ($374,000, or "not much," as he put it.) This explains why his tax rate was only 13.9 percent last year -- because the capital gains rate is 15 percent, well below the top rate of 35 percent for ordinary income. 

But if the capital gains was eliminated altogether? Well, let's let Romney explain the result in his own words, as he did at an NBC primary debate in January:

Hours before he plans to release his 2010 tax returns, Mitt Romney noted at the GOP debate in Tampa that under his opponent’s tax plan, he wouldn’t have paid any taxes at all. The moment came after Newt Gingrich joked about Romney’s 15 percent tax rate, saying: “I’m prepared to describe my flat tax as the Mitt Romney flat tax.”

Romney jumped in to ask: Do you tax capital gains at 15 percent or zero percent? Gingrich’s answer: Zero.

“Under that plan, I’d have paid no taxes in the last two years,” Romney said, alluding to the fact that all his income is from investments.

So, at the very moment when we're all tittering over Harry Reid's wild accusation that Romney paid no taxes for the past decade, Romney picks a running mate whose plan -- supported by virtually the entire GOP congressional caucus -- would have him paying, well, no taxes. I'm pretty sure that the Obama and Priorities USA ad-makers will be able to do something with this.

Not that they even need the Romney example, really. There is an easy broader case to be made against exempting capital gains, which are already taxed at a lower rate than they have been in decades (thanks partly to a certain former Democratic president.) Consider: over the past 20 years, more than 80 percent of all capital gains have gone to the top 5 percent of taxpayers and half have gone to the top one-tenth of a percent of taxpayers. It is the favorable treatment of capital gains that has helped drive income inequality to its current levels and that results in the 400 households with the highest income in the country paying such jarringly low tax rates. And Ryan wants to now eliminate the tax on this income entirely? Just seven months ago, Romney argued convincingly in his exchange with Newt that this was taking a good thing a bit too far. Now he's tied at the hip to the leading champion of this approach -- and has turned himself into the poster boy for why it's a terrible idea. In that sense, Ryan and Romney could hardly be more ill-suited to each other's needs: Romney puts an inconvenient face on the extremity of Ryan's plan, while Ryan's plan sheds even more light on Romney's taxes -- or the glaring lack thereof.

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posted in: alec macgillis, bain capital, democrats' bain capital, ayn rand, mitt romney, paul ryan, the plank

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