Eduardo Saverin, the co-founder of Facebook whose falling out with the company and its CEO Mark Zuckerberg was the subject of the 2010 blockbuster The Social Network, renounced his US citizenship last week, and the right has wasted no time labeling him a hero.
Saverin, who owns a roughly four percent stake of Facebook, announced that he was expatriating last week, just in time to avoid paying a federal capital gains tax on the fortune heading his way when the social site files its IPO.
Forbes Magazine, the conservative-leaning and business friendly magazine, ran an article with the headline “For De-Friending The U.S., Facebook’s Eduardo Saverin Is An American Hero.” John Tamny writes:
Saverin’s departure is also a reminder to politicians that while they can obnoxiously decree what percentage of our income we’ll hand them in taxes, what they vote for won’t necessarily reflect reality. Indeed, as evidenced by Saverin’s renunciation, tax rates and collection of monies on those rates are two different things. Assuming nosebleed rates of taxation were a driver of Saverin’s decision, politicians will hopefully see that if too greedy about collecting the money of others, they’ll eventually collect nothing.
Tamny seems to be convinced that Saverin’s departure will open the floodgates for dozens of US executives, investors and other wealthy businessmen who have made fortunes off of stocks and bonds to dramatically renounce their citizenship, break through the shackles of big government and book a one-way ticket to wherever in an attempt to hold on to every last penny they’ve earned. What Forbes and The Heritage Foundation ignore is that the capital gains tax is at a historically low rate, and even proposals to increase it slightly would still fall well short of approaching the rate during the 1970s.
Saverin’s decision to flee the United States is also remarkably shortsighted. As Farhad Manjoo notes on PandoDaily today, Saverin’s life story in particular is one that is quintessentially American.
By: Adam Peck, Think Progress, May 14, 2012
According to Republican gospel, taxes on investment must always be low, or else investors will simply sit on their money, refusing to do the very thing that could earn them more money. However, as David Abromowitz laid out in Bloobmerg View today, Mitt Romney’s tax returns undermine this argument.
After all, Romney made his fortune via investments made by Bain Capital, the private equity firm that he ran. And Bain’s investments between 1984 and 1999 “occurred when capital-gains rates were much higher than they are today. Yet Bain consistently attracted massive amounts of private capital, and thrived”:
Bain’s haul is further evidence that fair tax rates don’t hold back profit-seeking capitalists, at least until those rates reach a point that no one is proposing. From 1984 until 1999, the top rates on capital gains — the profit from investments as opposed to compensation for work — were often at 28 percent, and never lower than 20 percent. Indeed, in 1987, under President Ronald Reagan, the 20 percent rate rose to 28 percent — a 40 percent increase in potential taxation of Bain investment profit. (Yes, Reagan did raise taxes, even on capital.)
An analysis by the Wall Street Journal of 77 Bain deals in that time period showed that the firm “produced about $2.5 billion in gains for its investors,” on about $1.1 billion invested. Clearly, even with capital-gains rates almost double those today, fund managers such as Romney didn’t lack investors.
As billionaire investor Warren Buffett put it, “I have worked with investors for 60 years and I have yet to see anyone — not even when capital-gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain.” It’s worth remembering that it was conservative icon Ronald Reagan who completely equalized the tax treatment of investment and wage income, rejecting the argument that a lower capital gains rate was necessary to incentivize investment.
As Nobel Prize winning economist Paul Krugman has noted, the case for a lower capital gains tax is dubious at best. “Nothing in our history or experience says that unearned income has to be taxed this lightly,” he wrote.
By: Pat Garofalo, Think Progress, February 9, 2012
There are times when I feel a twinge of sympathy for former Gov. Mitt Romney. Really and truly. The Unbearable Heaviness of Being Mitt in the current ideological climate—with its highly-charged suspicions of both “socialism” and conspicuous wealth—forces him to tack left and right in ways that leave him pitifully exposed.
His calculated moves toward the right sometime in the mid-2000s, on key issues like abortion, gay rights, and immigration, are well-known and justly scrutinized.
Less noticed—but no less calculated—have been his efforts to hew to the center.
I’m thinking, first, of Romney’s proposal to eliminate capital gains taxes only for married couples making under $200,000 and singles making less than $100,000. The cap at those income levels is head-scratchingly pointless, as the vast majority who benefit from low capital gains tax rates make well over $200,000.
That sounds nice and centrist-y, but the more likely reason became clear when Romney finally released his tax returns: If he proposed eliminating taxes on capital gains altogether—as former Speaker Newt Gingrich, Rep. Ron Paul and Gov. Rick Perry have proposed—then Romney would be forced to defend the prospect of paying even less than his already low rate of 13.9 percent.
“Under that plan”—meaning Gingrich’s—”I’d have paid no taxes in the last two years,” Romney said, in one of his sharpest lines in the debate in Tampa last month.
Romney is similarly lukewarm, from the libertarian economic perspective, on the issue of the minimum wage. As in 2008, Romney favors automatic increases to keep pace with inflation. The right uniformly hates this idea—they think it will actually eliminate entry-level jobs and hurt the very people it’s trying to help.
As with his suspicious-seeming lurches toward the right to appease the social conservative base, Romney trims toward the center on sensitive economic issues to limit the appearance of rank plutocracy.
Steve Forbes tells Yahoo News: “It goes to show he’s still very defensive about his own wealth. All it does is give the base another reason to be unenthusiastic about him.”
At National Review Online, Andrew C. McCarthy likewise asserted that Romney was “doubling down on stupid to overcompensate for any hint of a compassion deficit.”
Hence my (momentary) twinge of sympathy for Romney. His ideological contortions, whichever direction they take him, land him in the same can’t-win cul-de-sac.
By: Scott Galupo, U. S. News and World Report, February 7, 2012