Mitt Romney’s Taxes: The Battle Escalates

by InvestorPlace Staff | January 18, 2012 9:55 am

For the past decade, Republican Presidential Candidate Mitt Romney has been jobless. But it doesn’t really matter, of course. While the head of private equity firm Bain Capital — until 1999 — Mitt created a fortune that’s estimated to be over $250 million.

However, was this the result of plundering companies and firing employees, as his GOP primary rivals are charging? If anything, such claims are just a warm-up for the epic battle Romney may fight against President Barack Obama.

But for now, it seems that staunch Republicans, Newt Gingrich and Rick Perry, are the ones engaging in “class warfare” as they try to paint Mitt as a “vulture capitalist.” It’s all part of their strategy to get a win in the upcoming South Carolina primary.

And now Romney has added more fuel to the controversy. This week he mentioned[1] that his effective federal income tax rate is roughly 15% — yet he’s still resistant to disclose his return (at least not until April). Now keep in mind that if you have $388,350 in ordinary income, then you’ll be in the top bracket, which is 35%. No doubt, the reason Romney pays only 15% is that most of his income comes from dividends, interest and capital gains, which have preferential rates.

This can be a big deal. For example, let’s say he has a diversified portfolio of stocks, such as with Coca-Cola (NYSE:KO[2]), Proctor & Gamble (NYSE:PG[3]) and IBM (NYSE:IBM[4]). He also likely has bonds, real estate and interests in hedge funds and private equity funds.

If these came to a return of 5%, his income for 2011 would be $12.5 million. At his current rate, his tax bill would come to $1.875 million. Yet, if the income was ordinary — say, from salaries, wages and bonuses — he would instead have to pay $4.375 million.

Not bad, huh?

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Endnotes:
  1. mentioned: http://www.cnn.com/2012/01/17/politics/campaign-wrap/index.html
  2. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  3. PG: http://studio-5.financialcontent.com/investplace/quote?Symbol=PG
  4. IBM: http://studio-5.financialcontent.com/investplace/quote?Symbol=IBM

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