Here's what we know about Mitt Romney's money in 2010 and 2011, based on 500 pages of tax returns he released late Monday night: He made $43 million in income over those two years. Almost all that money came from investments such as capital gains on investments and compensation from Bain Capital. None of it came from wages.
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Here's what we know about Mitt Romney's taxes: Romney has donated more money to charity -- $7 million, including $4.1 million to the Mormon church -- than he owed to the IRS over the last two years. In 2010, Romney's effective tax rate was 13.9 percent. In 2011, his estimated effective tax rate will be 15.4 percent. Romney's average effective tax rate is considerably lower than most people in the top 10 percent -- or even the top 0.1 percent -- because his income comes almost entirely from capital gains, dividends, and interest, which are taxed at a lower rate than earned income from wages. Romney's effective tax rate is also lower than that of many middle-class families, who -- unlike the former Massachusetts governor -- owe payroll taxes.
And here's why Mitt's taxes matter. Politically, they matter because the people who matter (voters) think they matter. That sounds circuitous. But it's true. Since Romney's wealth and tax rate became an issue, the frontrunner has lost a 10-point lead in South Carolina, watched a 20-point lead reverse itself in Florida, and seen a 19-point lead collapse nationwide. It's impossible to say that Romney's wealth and IRS filings don't matter to voters. They obviously matter.
But substantively, Mitt Romney's wealth doesn't really matter. It's the tax code that matters.
"Gov. Romney has paid 100 percent of what he owes," a Romney spokesperson said on a conference call this morning. I believe him. Mitt Romney is a remarkably successful businessman, and his wealth reflects a legally gained fortune which is being taxed according to the law.
But the law doesn't make any sense! And Romney's documents show it. Over the last two years, Romney has earned $13 million from profits shared by Bain Capital. This is earned income, for all intents and purposes. But it's taxed like capital gains, at 15 percent, as though Bain Capital's profits represent Romney's money at stake. It's not his money at stake. Therefore, it's a silly tax windfall that saves Romney, or deprives Treasury, of more than $2 million.
It's not that Romney's tax return proves he's done something wrong. It's that his tax returns prove that the tax code is wrong. Households worth $200 million earning $20 million in investment income a year shouldn't be paying a lower tax rate than some middle-class families, especially at a time when we're thinking about cutting spending that disproportionately benefits the lower and lower-middle class.
Romney's tax return could serve as an inflection point in the tax discussion. You might say it already has. Consider Monday night's debate in Florida, when Mitt Romney told Newt Gingrich that the former speaker's tax plan goes too far, since it would lower Romney's own tax rate to zero. This was a remarkable moment. The GOP front-runner, who's won the endorsement of almost every serious conservative mainstay, stood athwart tax cut-mania conservatism and said, "Stop." Or at least, he said: "Too far."
In an election that will be about inequality and taxes, Mitt Romney's tax returns are a glowing artifact of inequality in the tax code. And by proposing to make capital gains entirely tax-free, Gingrich favors a tax plan that would make our law even more unequal. That's why, even without the polls, you can fairly say that Mitt Romney's tax returns matter.
CORRECTION: An earlier version of this article mischaracterized Romney's rates in relation to the middle class. They are lower than most.
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