What’s Wrong with Romney’s Tax Returns

by Nola

Mitt Romney is releasing his tax returns today, literally reams of paper to cover two tax years. Why hundreds of pages for just two tax years? Well, taking advantage of every loophole in the Tax Code requires many forms to be completed. What Romney risks with showing his return is NOT that we learn he is Richie Rich-rich. We arleady KNOW that. And it’s NOT that we learn he committed tax fraud or did anything illegal, immoral or unethical. I’d bet the farm he did not.

What we will learn, if we but take the time to really pay attention, is just how broken our American tax system is. What we already know, and what much more to-do will be made in the coming days, is just HOW LITTLE income tax Romney has paid, legally and within the rules of the laws now written: tax rates that were put into place under Bush and extended under Obama.

What’s happened is this. Mitt Romney worked in a field where his income was largely in cash and stock. In the year he earned that income, I will assume his tax rate was 35% (although I am curious to see if that is the case or if he found a loophole even for that). In the following years, when he had large amounts of that income still on hand, he invested it. And those investments earned income—dividends and interest. And the income on those investments are taxed at 15%

And here’s the problem: Most middle class Americans (and poor Americans) earn more in “earned income,” ie, from your job, than from “passive income,” ie, investments. Rich folks, on the other hand, often earn much more in passive income than earned income. And the end result is that the middle class ends up paying a higher rate of tax than the rich. And this is juuuust the way many in Congress want it. Why? Because much of what they themselves earn is passive. Duh.

A close look at the Tax Code reveals just how conduct-driven our tax system is. Here’s one example that’s the most obvious: Congress deems buying a home more worthwhile than buying a car. How do I know this? Because the Tax Code allows you to deduct from your income the mortgage interest but not the car loan interest. Who DOESN’T own a home? Generally folks who can’t afford one—the poor and lower middle class. But what DO the poor and middle class have that the rich don’t? Credit card debt. If I own my own home, I can take out a home equity line of credit. And THAT interest is deductible. But interest on my credit card? Nope. And so the divide grows between the way the rich get better tax treatment in this country than the middle class. Making, of course, the rich richer by allowing them to keep more of their assets than the middle class.

I would like nothing more than for Romney’s releasing of his tax returns to stir up Americans—wake them up—to the disparity of the Tax Code in favor of the rich and to demand our Congressmen to make real changes to the system that results is better equality. What I expect, in fact, is nothing but left and right spin to follow with no focus on the real issue: tax reform. In the end, it will be that Romney is rich and followed the law and gosh darn it don’t hate him for being a success. After all, EVERYONE is taxed at 15% for unearned income. Not just the rich. And if you achieve the American Dream, don’t you want the benefit of a lower tax rate on those investments?

I don’t hate Romney for being a success or for following the law and paying a lower overall tax rate on his earnings than me. But I do hold it against Congress. And the Americans who support the current tax system.

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