Republican presidential candidate Newt Gingrich released his 2010 tax return Thursday night. In doing so, he forced Mitt Romney’s hand in releasing his tax returns and was able to expose a chink in his chief rival’s armor: the rate at which their incomes are taxed. Gingrich, not surprisingly, used this to his advantage.
Gingrich’s joint return filed with wife Callista listed a gross income of about $3.2 million. His portion of the income was $2.5 million earned through a combination of family owned businesses, a rental property, and investment income. He also paid almost $20,000 in alimony and made about $81,000 in charitable donations. His total tax bill came to $994,708, which works out to an average tax rate of 31.5%. Romney has previously acknowledged that he “probably” paid 15% on his taxes.
How is this possible? A very simple answer: Capital gains are taxed at a different rate than regular income. The majority of the income Mitt Romney earns is from investments and his retirement deal with Bain Capital, the private equity firm he founded in the 1980s.
According to The New York Times, Romney negotiated “a retirement agreement with his former partners that has paid him a share of Bain’s profits ever since, bringing the Romney family millions of dollars in income each year.” Even though he left the firm in 1999, he still earns this income. It is taxed at a rate of 15% because it is classified as “carried interest,” which the IRS classifies as capital gains and thus taxes at a rate of no more than 15%.
Romney pays taxes at a rate similar to a middle class family while pulling in millions of dollars a year. In the middle of what is the worst economic downturn since the Great Depression, that is tough to dance around on a nationally televised debate. His response to taunting by Gingrich was, “I pay full taxes. I'm honest in my dealings with people. I'm not gonna apologize for being successful. I didn't inherit money from my parents. What I have, I earned.”
Though it will outrage many people, Romney pays a fair amount of taxes under federal guidelines. Where this plays to Gingrich’s advantage is that while he is also wealthy, he pays his fair share. Not only does he pay a fair share, he can also say he actually earned his money as opposed to having it funneled to him while he pursued his political career. What his companies do though, is unclear according to the Wall Street Journal. His occupation was listed as “consultant.”
When Rick Santorum blasted Gingrich by saying “Grandiosity has never been a problem with Newt Gingrich,” Gingrich fired back saying, “This is a grandiose country of big people doing big things.”
Gingrich runs on a platform of creating jobs, balancing the budget, and cutting taxes. Romney comes from a background of “vulture capitalism” according to former presidential candidate Rick Perry, despite there being a track record of venture capital firms having a positive impact on the economy. Gingrich's portraying Romney as making millions off the backs of layoffs will only add to his growing lead in South Carolina and beyond.
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