Romney reveals his income tax burden: about 15%
FLORENCE, S.C. - Mitt Romney said yesterday that he has been paying close to a 15 percent tax rate on his income in recent years, a rate that is lower than what many Americans pay and one that fueled further attempts by his Republican rivals to cast the former Massachusetts governor - the wealthiest candidate in the race - as out of touch.
With just four days left before the primary in South Carolina, which is beset by high unemployment and typically ranks among the nation’s poorest states, Romney faced intensifying scrutiny of his wealth, how he earned it, and how he talks about it.
He also is being placed at the center of a national debate over taxes and wealth that is likely to escalate as the campaign marches closer to the general election. The battle has been highlighted by the Occupy Wall Street movement, as well as by business magnate Warren Buffett, who has argued that, as a billionaire, he should not be taxed at a lower rate than his secretary.
Romney’s statement that he is paying about 15 percent is the most specific he has ever been about his taxes, and it comes after increased pressure to reveal more about his income before Republican voters decide on their nominee for president. He also said he planned to release his 2011 return in April. In all his years seeking office, Romney has never released his tax returns.
“What’s the effective rate I’ve been paying?’’ said Romney, in response to a question at a press conference yesterday. “It’s probably closer to the 15 percent rate than anything. Because my last 10 years, I’ve - my income comes overwhelmingly from investments made in the past, rather than ordinary income.’’ Ordinary income refers to wages, or earned income.
“I got a little bit of income from my book, but I gave that all away,’’ he added. “And then I get speaker’s fees from time to time, but not very much.’’
According to his most recent financial disclosure statement, he earned nearly $375,000 for nine speaking engagements from February 2010 to February 2011. The fees ranged from $11,475 to $68,000. Those statements also show his assets total $190 million to $250 million.
Many Americans pay taxes on the wages they earn from employment at rates from 10 percent to 35 percent, based on their income levels. But investment income - such as dividends and capital gains - is treated differently under the tax code, allowing investors to pay a 15 percent rate on their earnings.
In addition to his own investments, Romney has benefited from a retirement agreement with Bain Capital. Bain managers qualify for a 15 percent tax rate on “carried interest,’’ or profits made on their investment deals, instead of paying higher earned income taxes. Under the deal, Romney received payouts from Bain for at least a decade after he left the firm in 1999. When asked last month if he took advantage of the lower 15 percent rate for this and other income, he said, “I can tell you we follow the tax laws, and if there’s an opportunity to save taxes, we, like anybody else in this country, will follow that opportunity.’’
Bob McIntyre, director of Citizens for Tax Justice, said Romney’s tax rate highlights the tax advantages that are available to the wealthy but are generally not utilized by the middle class, who have fewer investments and are often taxed at higher rates.
“The fact that his Bain Capital income, even though it’s work income, has been treated as investment income, has been pretty controversial,’’ he said. “Why do people who make $100 million pay lower taxes than their secretary? And Romney’s one of those people who does pay less.’’
Douglas Holtz-Eakin, who was John McCain’s economic adviser in 2008, defended Romney yesterday, saying he was becoming a scapegoat for a tax policy that critics don’t like.
“I just don’t see why Mitt Romney bears the brunt of that,’’ said Holtz-Eakin, who is not advising any candidates this campaign. “He complied with the tax code. He’s paying the right amount.’’
He also thinks the 15 percent tax on investments is a fair way to levy taxes while still encouraging economic activity. Romney’s wages were initially taxed, so his investment income should not be taxed highly a second time, Holtz-Eakin asserted.
In their tax policy blueprints, Ron Paul, Rick Perry, and Newt Gingrich all call for reducing taxes on investment income from 15 percent to zero, which would benefit investors such as Romney. Rick Santorum has called for a maximum rate of 12 percent; Romney’s plan would keep the rate at 15 percent for the wealthy, but exempt from capital gains taxes households with income of less than $200,000.
Most observers have thought Romney’s wealth would be a major touch point in a general election, but the issue is breaking open during the Republican nominating process.
Romney yesterday said he would release his tax return in April, and suggested the return would cover only one year. “If I’m the nominee, people will want to see the most recent year, and see what happened in the most recent year and what things are up to date,’’ he said.
Gingrich yesterday called “nonsensical’’ Romney’s explanation for not releasing his tax returns until at least April, when the nominating contest could be effectively over. And Perry called on Romney to release all tax returns going back at least six years - not just the most recent year.
Perry, the Texas governor, has been releasing his returns annually, and Gingrich’s staff said he is planning to release his soon, possibly today. Santorum’s communications director, Hogan Gidley, said the former Pennsylvania senator plans to release his tax returns but cannot specify a timeline.
Santorum said, “I’m not going to criticize Mitt Romney for what he does or doesn’t pay in taxes. I am going to criticize the tax code. Mitt Romney is doing what everybody else does with a ridiculously complex tax code, and that’s find loopholes.’’
The Paul campaign did not respond to questions about whether the Texas congressman would release his returns.
According to the Christian Science Monitor, Perry paid a tax rate of 23.4 percent on his 2010 income. Rates for the other candidates will not be known until they make their returns public.
The White House seized on Romney’s comments as a way to drive home a point that is sure to be highlighted in the months leading up to November. President Obama has been hoping to make his case that tax cuts for the wealthy should expire at the end of this year and should be extended for everyone else.
“This only illuminates what he [Obama] believes is an issue, which is that everybody who’s working hard ought to pay their fair share,’’ White House press secretary Jay Carney said yesterday at a briefing, while also saying Romney should release his tax returns. “That includes millionaires who might be paying an effective tax rate of 15 percent when folks making $50,000 or $75,000 or $100,000 a year are paying much more.’’
Although Romney has significant momentum - he won the first two nominating contests, and has been leading in the final days in South Carolina - he has struggled whenever issues come up about his wealth and how he can relate to average working Americans.
His biggest debate gaffe in otherwise smooth performances was over making a $10,000 bet with Perry. Before the New Hampshire primary, Romney said he understood what it was like to fear a pink slip and then said, while talking about health insurance companies, “I like being able to fire people who provide services to me.’’
Romney also said that his father told him never to run for office if he needed the income to pay his mortgage, a comment that supporters say would exclude career politicians but one that critics say would mean only the wealthy would be able to hold office. (His father, George Romney, released a dozen years of his tax returns when he was running for president in 1968.)
But questions over Mitt Romney’s tax returns seem to be gaining traction. Although he has not released them in the past, he did challenge Senator Edward M. Kennedy to release his in their 1994 US Senate race. Because Kennedy never did, neither did Romney.
Obama released six years of his tax returns March 25, 2008, trying to pressure his then-Democratic rival Hillary Clinton to do the same. Eventually she released hers. Senator John McCain released two years worth of his tax returns on April 18, 2008.
Globe correspondent Shira Schoenberg and Tracy Jan of the Globe staff contributed to this report. Matt Viser can be reached at firstname.lastname@example.org.