Click here to listen to the broadcast of You Tell Me on KTBB AM 600, Friday, January 19, 2012.
I’m not in the tank for Mitt Romney. If he winds up getting nominated, I’ll support him. But I’m not a Romney apologist. Romney is the subject of this piece only because he is now being pressured to release his income tax returns. He’s reluctant to do so, not because he has anything to hide that I know of, but because doing so is a no-win proposition for him, as I will explain.
This pressure is not coming from Democrats, from whom we expect the boilerplate drivel about “millionaires and billionaires,” “Wall Street vs. Main Street,” and the need for the rich to pay their “fair share” of income taxes.
No, the pressure on Romney is coming from his fellow Republicans in their increasingly desperate efforts to remain in the hunt for the Republican nomination.
Which puts Romney in bad place.
Romney has already disclosed that his effective tax rate is about 15 percent, well below the rate that most middle class taxpayers pay. On the strength of that disclosure, the demagoguery is on, little of it having any connection to the facts.
Here they are.
Mitt Romney is, for tax purposes, unemployed. He doesn’t work for a company. He’s not a salaried employee. His income does not come from a paycheck. Mitt Romney is a very wealthy man, by far the wealthiest of all the Republican candidates now or ever in the 2012 race. (The fact that he will have to defend the fact that he’s wealthy is the subject of a future article.) As a result of his wealth and of his lack of a salaried job, Romney’s income, the money he uses to pay his bills, comes from the return on his assets, the earnings on the capital that he has invested.
In the United States, we tax investment income at significantly lower rates than we tax wage income. We do that for a good reason. Wage income is without risk. Investment, on the other hand, is all about risk. When you invest money, you do so in the knowledge that you can lose it all.
If the return on risk capital were taxed at the same rates as risk-free wage income, there would be little incentive to bear the risks of investment. Capital markets would dry up and the economy would grind to a halt.
A disturbingly small percentage of Americans understand this. Very few wage-earning Americans understand that their wages derive from the fact that someone, somewhere put money at risk to provide the startup capital, the working capital and the debt capital that is absolutely necessary if businesses are to get started, hire employees, expand and thrive.
That so few Americans understand this makes it possible to make political hay out of it.
Thus Mitt Romney’s predicament.
He alone among the candidates has the kind of tax return that is principally driven by capital gains taxes as opposed to ordinary income taxes.
If he doesn’t release his returns, he’s hiding something. When he does release his tax returns, the howl is going to erupt from the media and from the left that Mitt Romney pays a lower income tax rate than a public school teacher in Canton, Ohio.
Such criticism is sophistry. Assuming that Romney is worth $250 million and earns three percent on the totality of his assets, and that these earnings are taxed at capital gains rates, the million plus he pays in taxes versus the five or six thousand the school teacher pays will never see the light of day in the mainstream media.
Such economic illiteracy threatens the republic. That so few Americans understand how money and capital work constitutes a danger to the very economic system that, for the first time in history, made poverty the exception rather than the rule.
That Republicans would be in any way party to such demagoguery is simply unforgivable.