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Why Mitt Romney’s Tax Returns Undermine The GOP’s Investment Tax Argument

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

February 10, 2012 - Posted by | Election 2012, Taxes | , , , , , , ,

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