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Home Publications Blogs Beat the Press Mitt Romney's Income Was Not Taxed at the Corporate Level

Mitt Romney's Income Was Not Taxed at the Corporate Level

Tuesday, 25 September 2012 14:42

I really don't want to waste my time talking about Governor Romney's tax returns, but come on folks. He was asked on 60 Minutes about whether it was fair that he paid a 14 percent tax rate on his income, compared to the much higher tax rate paid by many middle income families. According to the Huffington Post's account, he responded by saying:

"It is a low rate, ...  And one of the reasons why the capital gains tax rate is lower is because capital has already been taxed once at the corporate level, as high as 35 percent."

If the question is why does Mitt Romney pay a low tax rate, this answer is wrong. The bulk of his income comes from Bain Capital. Bain Capital is organized as a partnership. This means that income is not taxed at the corporate level. It is only taxed when partners like Mitt Romney receive it. So the story of double taxation simply does not fly in Romney's own case.

For those who are making a sport of dissecting the Romney tax returns, this is a really big one to let slide through the cracks. Other folks who get dividends or capital gains from owning shares of stock can tell the double taxation story (even here it doesn't really fit; they got the benefits of corporate status in exchange for the corporate taxes), but in Romney's case this justification doesn't pass the laugh test.

Comments (12)Add Comment
romney's answer
written by mel in oregon, September 25, 2012 3:57
romney supposedly is a religious person being a mormon & all. i'm not, but one of the 10 commandments is (in the king james version), "thou shalt not bear false witness". so what is it mitt, are you a hypocrite, a liar or both? i lean toward the last one.
double taxation
written by Art Perlo, September 25, 2012 8:10
I can understand (tho don't agree with) the double taxation argument for dividends. But Romney said that capital gains is taxed at the corporate level. Huh? I buy stock (from another stockholder) for $100/share. I sell it (to another individual) for $200/share. I realize a capital gain. That is not paid from corporate profits, which may be subject to corporate income tax. The capital gain comes because I was a smarter gambler (investor) than the other sucker. So Romney's argument is doubly spurious. Or am I missing something.
..., Low-rated comment [Show]
written by Rajiv Sethi, September 26, 2012 1:11
Art is right about capital gains. To the extent that the corporate tax depresses asset prices it does so not only at the point of sale but also at the point of purchase. Without it the stock would have cost more to buy and the return would be the same, unless elimination of the tax affects the growth and not just the level of post-tax earnings. One can make a growth argument but one can't just mechanically add the two tax rates.
written by jacko, September 26, 2012 2:13
So poor Mittens is over taxed now. Pretty sure everyone learned during the dot com bubble that a stock's price can go through the roof even when there are no profits and no taxes. The idea that a stock's price moves in lock step with profits is hogwash. A smaller than expected loss can send the price up.

Bottom line no matter how hard they spin it is that Mittens faces no tax burden. Even if he was paying a 50% tax, he would still have plenty of money to invest and spend. Capital gains subsidy is a waste of tax payer dollars and simply welfare for the top .1%.
Ferragamo Handbag, Low-rated comment [Show]
Everyone is double-taxed anyway
written by Burk, September 26, 2012 11:20
The whole argument is absurd anyway. Workers paid wages are paid from companies that are taxed as well. Does that make them double-taxed? Public employees are paid from taxes that are collected on the income of workers already taxed in several other ways.. does that make them triple-taxed?

All income that comes from outside to a person should be taxed at the same rate, and company income should be separately taxed as well. Every level needs to give up its cut for a fair system.
Consumption tax
written by Floccina, September 26, 2012 1:09
Allowing people put all their investments in a before tax IRA and progressively taxing all withdraw + income not put in the IRA each year would solve all these problems. It would tax all consumption the same.
retained earnings
written by Floccina, September 26, 2012 1:40
To everyone above.
1. Retained earnings are taxed and they are a major contributor to stock price growth.
2. Also capital gains are taxed without regard to inflation.
3. It is better to spend today than wait. Let's say it is 3% better to spend now than a year from now.
Don't understand the double tax argument.
written by beezer, September 26, 2012 1:42
To me the double taxation position implies that once a dollar is taxed, it need never be taxed again. Which I think is a silly position to take.
I agree with beezer
written by Nick, September 27, 2012 9:47
"...capital has already been taxed once at the corporate level..."

But gains to the individual investor (new income) has not been taxed. Hence, capital gains tax. Just like corporate gains were once-upon-a-time the after-tax income of consumers.

Or am I missing something?
Doesn't the term "Income Tax" say it all?
written by Mark Standiford, October 02, 2012 5:09
Perhaps I'm missing something in the samantics and jargon, but isn't it income tax? Doesn't it mean that if your income is taxed, that any income, repeat: any income should be taxed? Don't think all the capital lying fallow now makes the case for "gambling / speculation" winnings being a spur to our economy.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.