Friday, January 20, 2012

Mitt Romney, the Forbes Fortune 400, and Taxes

Mitt Romney doesn't even come close to a ranking on the 2011 Forbes Fortune 400 list, but with an estimated net worth of over $250 million, Mitt easily belongs in the top 1%.

Bill Gates, with a net worth of $59 billion is ranked at #1. While Roger Wang, with a net worth of $1.3 billion, ranks at the very bottom of the list.

But they all benefit from "capital gains" and pay a lower tax rate than you.

First of all, very quickly, for those of you who aren't familiar with the concept of "capital gains" and capital gains taxes. Simply put, it's this: Anything that one acquires (buys, is given, is loaned, receives as compensation in lieu of a wage for "performance", or receives via a trade) at a certain value, and then is later sold for a higher value (as for profit) for personal financial gain, it is a capital gain.

This could be a house, an antique car, a SWAG investment (silver, wine, art, and gold), or one of many different financial instruments, such as stocks in a company (or the infamous derivatives that were sold by AIG and Goldman Sachs that collapsed our housing market).

But it's primarily stocks....billions and billions of dollars of stocks are traded every day on the world's stock exchanges. Investment bankers such as Goldman Sachs and hedge-fund mangers trade stocks for profits. Your 401ks, IRA accounts, and pensions are usually heavily invested in stocks -- although YOUR funds are taxed as regular income when you retire and draw on those funds -- or you can be penalized 10% for early withdrawal.

CEOs also benefit from stocks in the form of stock-options, usually issued to them at "strike price" (below par value), and after one year can cash them out and only pay 15% to the IRS as a capital gains tax. There are many other ways they benefit from stocks (etc), but to explain them here would only complicate the issue for the sake of this post.

Many wealthy people such as Warren Buffett benefit greatly from capital gains, and have publicly admitted to this (and paying a lower tax rate than his secretary); while those such as Bill Gates has been conspicuously silent on the topic. And some are also dispelling the myth about these "job creators" entirely.

But only lately have most people been focused on Mitt Romney for his 15% tax rate, because he's been running for president; but it's every single person on the Forbes Fortune 400 list (and most of the top 1% like Mitt Romney) that has been enjoying these historically low tax rates since the Bush tax cuts (and even for many years before that).

Before George W. Bush (under Bill Clinton) "capital gains" were still only taxed at a very low rate of only 20% (How do you think the rich got to be, sooooooo rich? Just by hard work and taking risks?)

But unless the 1% were also involved in illegal tax evasion (which many are, much more so than the 99%), then the top 1% has been most likely obeying the law -- because they're not "morally" obligated to pay any more than is required by law. And if only a handful of these very wealthy individuals chipped in to voluntarily contribute more, it would be much too little to make any real difference to the overall deficit. (But the idiots at Fox News keep using this lame and ludicrous argument.)

But if you taxed everyone on the Forbes Fortune 400 list (and those like Mitt Romney) on their capital gains (and carried interest, dividends, estates, annuities, trust funds, earned interest, gift taxes, etc,) at the same exact tax rate as someone earning only $36,000 a year as earned income (25%), over a very short period time that would bring in plenty of tax revenue to the U.S. Treasury.

Or better yet, if we taxed these same people at the top marginal rate of 35% as "ordinary personal income" instead of the much lower 15% rate as capital gains, (because it's still "income"), we'd have a revenue windfall! No more budget cuts and a balanced budget in 10 years! And the nation's money supply would be better circulated within the economy for accelerated job growth - - it would jump start a much healthier and robust economy by creating CONSUMERS.

Right now over $2.3 trillion is being hoarded just by U.S. corporations, and idly sits in off-shore bank accounts, rather than being invested in our economy or work force and paying a "living wage". With just a small portion of these funds as tax revenues, we could have invested in ourselves. (Read my post: Keystone Pipeline: It's WE who should get into the oil business!)

Of course, the GOP and pundits like Bill O'Reilly will claim that people won't invest anymore (or as in Bill's case, quit their jobs) if we raise taxes to the rates we had 10 years ago. This is pure nonsense, based mostly on greed and/or the ideology of not wanting to pay for any social programs such as Social Security....because the top 1% doesn't NEED Social Security!

The Republicans will also argue that "government doesn't create jobs". Oh yeah? The government funded World War II (which included the Manhattan Project). The government funded NASA (which included the lunar landing on the moon). We spend over $650 billion every single year on just "defense". How many jobs does that create? (Or should I have asked, how much corporate profit does that generate as opposed to Social Security?)

When the income tax rates were at their highest level ever in U.S. history, businesses were born, grew, and prospered...and lots of people became rich. (See my post: Tax Rates during the Fabulous Fifties) This was also when the middle-class was born and thrived.

Since 1921, and more recently since the 1950's, it's been the members of congress who have enacted these unfair tax laws for the uber-wealthy (and for themselves), and that's why the American people need new people elected into office -- with a pledge to change the tax code that's been historically tilted for decades to preferentially benefit the uber-rich. (See my post: How the 1% bilks the 99%)

Speaker of the House John Boehner says we don't have a "revenue problem"; but that's always been an outright lie, and that's also why we currently have a deficit problem. Let's go back a little in tax history.

The Tax Revenue Act of 1921 was enacted near the end of the first Gilded Age and was the first Republican tax reduction following their landslide victory in the 1920 federal elections.

The new Republican U.S. Secretary of the Treasury (and banker) Andrew Mellon argued that significant tax reduction was necessary in order to "spur economic expansion and restore prosperity". Does that sound familiar? (See my post: Mellon: The Banker Who Rigged the U.S. Tax Code)

Andrew Mellon obtained a repeal of the wartime excess profits tax, a tax that was previously implemented to fund the U.S. involvement in World War I (just like for all other wars before and since). But George W. Bush did just the opposite, and he imposed no such tax to pay for our wars in Iraq or Afghanistan, but instead, lowered the tax rates even more, mostly to the benefit of the uber-wealthy.

In 1922 the top marginal rate on the wealthiest individuals fell from 73 to 58 percent, and a preferential tax treatment on their capital gains was first introduced at a rate of 12.5 percent (far much less than the previous 73 or 58 percent on the top marginal income earners).

Mellon had hoped for more "significant tax reduction" (Does that also sound familiar?) In 1921 a rate of 10 percent was levied on the net income of corporations, then 12.5 percent thereafter. In 1926 it was raised to 13.5 percent (again, much less than the 73 or 58 percent top marginal rate on the corporate leader's personal income.)

Then 8 years later after those massive tax cuts for the rich in 1921 ("to spur economic expansion"), in 1929 we had the stock market crash and the Great Depression. And 7 years later after Bush's massive tax cuts for the rich ("to spur economic expansion"), in 2008 we had another stock market crash and the Great Recession. Coincidence?

But back to Mitt Romney, Bain Capital, and the Forbes Fortune 400 list.

At the Huffington Post Sam Stein says: "Faced with the need to replenish state coffers, then-Massachusetts Gov. Mitt Romney chose on multiple occasions to target corporations that lowered their tax liabilities by transferring profits outside of his state. The move helped raise tens of millions of dollars in additional revenue for the State and, on occasion, put Romney at odds with anti-tax advocates, both in Massachusetts and nationwide.

It also appeared to go directly against the business practices being conducted by Bain Capital, the private equity firm Romney started and in which he maintained investments.

According to an ABC News report released Wednesday night, Romney continues to hold roughly $8 million of personal wealth in as many as 12 Cayman Islands-based funds. Bain Capital itself has 138 offshore accounts in the Cayman Islands alone, designed for the firm to benefit financially from the island's lenient tax structure, according to tax experts.

Reuters, meanwhile, reported on Wednesday that Bain Capital funds in which Romney is invested are scattered from Delaware to the Cayman Islands and Bermuda, Ireland and Hong Kong.

And Romney and Co. only pays a 15% tax rate (on carried interest, capital gains, dividends, etc).

Capital gains were once taxed as high as 40% in 1975. Economist Paul Krugman at the New York Times explains that capital gains tax rates were then lowered close to 30 percent from 1986 through 1997. Economist Jared Bernstein says, "I’m more convinced than ever that all this favorable treatment just needlessly loses scads of [tax] revenue and redistributes income upwards" to the top 1%.

Notice the chart below: As CEO pay and profits have continually gone up for the last 40 years, their capital gains tax rate has gone down. But yet, at the same time, our national debt and annual budget has risen drastically in an attempt to accommodate another 100 million more people due to our population growth since the mid-70's.

Most income from the top 1% comes from capital gains, but they have the lowest tax rate of anybody else (unless you're earning less than $8,700 a year, which is taxed at 10%). But Speaker of the House John Boehner keeps repeating, "We don't have a revenue problem, we have a spending problem." Do you still believe him now?

Our middle-class began it's 40-year decline since the mid-70's and our society began seeing a massive upsurge in two-family incomes, necessitated by the ever rising cost of living (when "latch key" kids started becoming more prevalent. In 1967 I was already one).

This was also about the same time (right after the Vietnam War) when CEO pay began skyrocketing, while wages were being kept depressed as union membership was also in decline as "Right to Work" legislation ("union busting") was being pushed by the Republicans on behalf of large corporations (as they still are).

Also around this same time, outsourcing jobs began escalating for cheaper labor overseas, but the Republicans never mention this is their arguments, always blaming "high taxes" (even when they're low) and "regulation" as their excuse for those jobs leaving our shores.

But the real truth is, because of the many loopholes in the U.S. tax code over the last 25 years or so, on average, the largest U.S. multi-national corporations and banks already pay a lower effective tax rate in corporate taxes (14% to 18%) than they would in China (25%). It's not over-regulation or taxes that keeps businesses from hiring, they just don't have to hire right now, because they're using a reduced work force with lower wages and higher productivity to meet reduced consumer demand.

Because the GOP also despises labor unions, they blame them for attempting to negotiate wages that only keeps pace with inflation. The GOP uses this argument that union workers shouldn't be paid more than those in the private sector, when it's become common knowledge that wages in the private sector have remained stagnant or fell over the past 40 years -- just to pay CEOs ever rising and excessive salaries.

That's why Boeing wanted to move jobs from their home state of Washington to South Carolina...for lower wages. Union (or government) workers haven't been getting rich on the taxpayer's backs, the uber-rich like Mitt Romney and the top 1% (such as Boeing's CEO) have been getting rich on the taxpayer's backs - - with an unfair tax code that exempts Boeing from corporate taxes and allows the CEO to pay 15% on capital gains from stock-options...even through Boeing gets government subsidies and defense contracts. The system is rigged from top to bottom. Don't believe me? Ask Joe the Machinist.

And all the huge U.S. multi-national corporate conglomerates and CEOs have been doing this at every turn...ripping us off...thanks to their accomplices in congress. (But they call it "class warfare". Yes it is, against us!)

Now in 2012, even with two jobs per household, it's barely enough to live on when 50% of all American workers earn less than $27,000 a year (the poverty line for a family of four is $22,314). Most of these people were taxed at the same rate (15%) as multi-mega-millionaires like Mitt Romney.

How's that "free enterprise" and "capitalism" working out for average American workers? Not very well if we have 30 million under or unemployed Americans and another 75 million earning near poverty wages. But for the top 1%, they couldn't be happier! It's like the Roaring Twenties all over again for them! They've been partying like it's 1929!

But I digress, let's get back to Mitt Romney, Bain Capital, the Forbes Fortune 400 list, and "capital gains taxes".

There are those such as David Leonhardt at the New York Times that defends Mitt Romney's 15% tax rate, and uses the old tired argument of "double taxation" to skew the real argument of income inequality and an ever increasing disparity in wealth in this country...the widest income gap than in any other industrialized society today -- not seen for 100 years since during the first Gilded Age.

David Leonhardt stated that "economists, with good reason, like to apportion all taxes to people, rather than to an entity like a corporation. If you also include indirect taxes — mainly corporate taxes, effectively paid by stockholders — Mr. Romney’s rate rises higher."

One reader who commented on David Leonhardt's article wrote. "But wait a minute...Romney said corporations are people too. They can't have it both ways!"

Another reader commented, "What?! This is absurd. If corporations are people, they pay their own taxes. On the other hand, if corporations are people, stockholders are slave owners."

And another reader commented, "It is bizarre to assume that all corporate taxes should be assigned to those who hold stocks. Why not determine the effect on the final price of goods or services to consumers? They are paying a form of sales tax if the corporate tax rate is passed through. Perhaps the corporate tax rate is a weird payroll tax that reduces the amount employees are compensated. The corporate taxes might also influence the debt-to-equity ratio for the company, changing the proportion of revenue that goes to owners. Corporate taxes are paid by corporations, and unless you have a good reason to assign them to the stockholders instead of any of the other parties involved in a revenue stream, it shouldn't be mentioned."

He continues, "I should also add that the link provided by the author just vaguely points to the Congressional Budget Office's general information web page, but eventually leads the interested reader to this statement:

"CBO assumes in this analysis that the employer’s share of payroll taxes is passed on to employees in the form of lower wages and that corporate income taxes are borne by owners of capital in proportion to their income from interest, dividends, capital gains, and rents."

In other words, instead of being supported by evidence from the CBO, the author's assertion is merely simplifying an assumption in a government report without empirical basis.

David Leonhardt also claimed in his article that "if you widened the lens beyond direct federal taxes — to all taxes, including indirect, state and local taxes — the conclusion would likely be [that] Mr. Romney does not pay a lower tax rate than most Americans [and] he also doesn’t pay a much higher tax rate, despite being much more affluent."

So I also commented, "No, don't widen the lens...just stick to the facts. Anyone earning between $8,700 and $35,350 a year is in the 15% tax bracket, just like Mitt Romney." (Just like every other single person on the Forbes Fortune 400 list -- the top 1%).

And the lower income people must also pay local and state taxes too. They must also pay Social Security and Medicare taxes on 100% of their earnings, whereas Mitt Romney and the top 1% pays none of these taxes on carried interest or capital gains.

And even if these bankers, CEOs, hedge-fund mangers, and lobbyists (or even members of congress) earned a wage (as in a "base salary"), their Social Security taxes would be capped at their first $110,000 when they might earn a $1 million salary (and/or in conjunction with stock options).

So essentially, poor people actually pay more as a percentage of their incomes, and also because a greater percentage of their income is also spent on actual consumption -- and usually for just the very basics -- such as food, medicine, electricity, and food.

Mitt Romney and everyone on the Forbes Fortune 400 list actually pays a lower tax rate than everybody earning between $35,350 and $85,559 a year -- the entire middle-class -- whose tax rate is higher at 25%. And the middle-class also spends a greater percentage of their income on actual consumption.

The top 1% also enjoys many other tax shelters that we don't have (or can access, or can afford to benefit from), such as expensive art and wine collections (See my post about SWAG investments).

It's odd that the richest people in this country complain the most about taxes, when they pay so much less as a percentage of their income, and have so much more than everybody else. I'm tired of hearing people like Bill O'Reilly and Sean Hannity whining like a stuck pigs. Those people never have to fear sleeping on a sidewalk in the cold rain or ever fear going hungry. But people like they and Mitt Romney wants us to believe that Mitt once worried about getting a pink slip.

And in closing, that writer of the New York Times article (David Leonhardt) should be writing for the Wall Street Journal instead. Maybe it is I who should be writing for the New York Times.

More on Mitt Romney:

My Related Posts:

Other Related Outside Articles:


  1. P.S. - If you want my opinion on anything else, just Google my name Bud Meyers followed by any key words or phrases you're looking for...that's how I find my older posts to link to ;)

  2. More on Capital Gains and Investment by Jared Bernstein

  3. Why Mitt Romney Should Pay Higher Taxes by Kevin Drum


    Mitt Romney's undisclosed bank accounts

    The Los Angeles Times/Tribune Washington Bureau found at least 23 funds, including 11 based in low-tax foreign countries such as Bermuda, the Cayman Islands and Luxembourg.

    Many of the funds are affiliated with Bain Capital, the Boston-based private equity firm Romney ran for 15 years.

    Several others are apparently unrelated offshore entities with mysterious names such as Babson 2006-1, which is based in the Cayman Islands, and Barracuda Investments, which has an address in Dublin, Ireland, but appears to be solely owned by Golden Gate Capital, a private equity firm based in San Francisco.

    Among the assets omitted is a Swiss bank account in Ann Romney's blind trust that campaign officials said held $3 million of the couple's money until it was closed in 2010.,0,1504762.story?ncid=edlinkusaolp00000008