Facing a new controversy, his campaign confirmed that Romney has money invested in the Cayman Islands but said he was not getting any tax break.
Newt Gingrich, his main rival in this weekend’s South Carolina primary, poked at Romney anew and disclosed that he personally pays more than twice what Romney does.
Just before Saturday’s South Carolina voting, Romney is trying to wrap up his push for the Republican nomination, but it’s been anything but smooth. He’s spent nearly two weeks answering questions and criticism about his personal wealth and tenure at Bain Capital, the private equity firm he founded, and those subjects are sure to come up again in Thursday night’s debate.
Gingrich slapped at the GOP front-runner, saying in Winnsboro that he himself paid 31 percent of his income in taxes for 2010, more than twice what Romney said he paid. Gingrich’s campaign said the 31 percent was the effective federal rate on income, apparently not including Social Security payroll taxes. Gingrich told reporters that he is not criticizing Romney for paying a tax rate below what many Americans pay. Gingrich has proposed a plan that would give Americans the option of paying a 15 percent flat tax – which he notes is the same rate Romney is citing.
Romney’s campaign was confronted with new questions about his finances Wednesday when ABC News reported that Romney has millions of dollars of personal wealth in investment funds set up in the Cayman Islands, known as a tax haven for Americans. The report said that Romney had the ability to pay a lower tax rate by investing in funds located offshore.
A spokeswoman for Romney’s campaign confirmed that the Romneys have money in the Caymans. But the campaign did not say why. Spokeswoman Andrea Saul also said: “ABC is flat wrong. The Romneys’ investments in funds established in the Cayman Islands are taxed in the very same way they would be if those funds were established in the United States.”
The former Massachusetts governor tried to duck the issue on Wednesday, making no mention of his tax returns or tax rate during a rally at Wofford College and declining to take questions from the news media. Instead, he delivered his standard campaign speech and assailed Gingrich, who has been running second in opinion polls in South Carolina.
Romney aides, too, refused to comment about his tax returns or details of his tax rate when pressed. His campaign held a conference call featuring surrogates who tried to cast Gingrich, the former House speaker, as an unreliable leader, but the wealth and taxes issue showed no signs of going away.
At an event in Rock Hill, S.C., Romney kept away from the issue of his taxes, but he criticized Republicans who “jumped on that bandwagon” of criticizing free enterprise. “My goodness, I listened to Speaker Gingrich the other night talk about the enterprises I’ve been associated with,” Romney said. “I’m proud of the fact that I worked in the private sector, that I’ve achieved success.”
New Jersey Gov. Chris Christie, who has endorsed Romney, sought to help by defending Romney’s tax status on TV. But that may have backfired when Christie, on NBC’s “Today” show, suggested Romney put out his tax returns “sooner rather than later.”
“It’s always better in my view to have complete disclosure, especially when you’re the front-runner,” Christie said.
After months of resistance and under pressure from Republican presidential rivals, Romney now says he will release tax information for 2011 – but not until April, close to the tax filing deadline and when, presumably, the GOP race will have been decided.
Romney disclosed for the first time on Tuesday that, despite his wealth of hundreds of millions of dollars, he has been paying in the neighborhood of 15 percent, far below the top maximum income tax rate of 35 percent, because his income “comes overwhelmingly from investments made in the past.” During 2010 and the first nine months of 2011, the Romney family had at least $9.6 million in income, according to a financial disclosure form submitted in August.
Further focusing attention on his wealth was Romney’s offhand remark to reporters that his income from paid speeches amounted to “not very much” money. In the August disclosure statement, he reported being paid $373,327.62 for such appearances for the 12 months ending last February, a sum that alone would put him in the top 1 percent of U.S. taxpayers.
It recalled other politically awkward moments for Romney in which he unintentionally put a spotlight on his own wealth, including his offer to wage a $10,000 bet with Texas Gov. Rick Perry during a GOP debate last month over a disagreement on health care policy. He also joked to a group of voters that, since leaving Bain in 1999, he has been “unemployed.”
Romney has been consolidating GOP support before Saturday’s South Carolina primary in which a victory could all but seal his nomination.
But the focus on his wealth is an unwanted distraction for him as he seeks to win votes in a state where the unemployment rate, at 9.9 percent, is among the highest in the nation, and amid rising public concern over income inequality. President Barack Obama’s campaign advisers contend voters are unlikely to back a wealthy Republican with financial-industry ties at a time of lingering economic distress.
And White House spokesman Jay Carney said Wednesday that, “as a matter of fairness, it does not make a lot of sense for millionaires and billionaires to be able to pay taxes at a much lower rate than somebody making $100,000 a year.”
The maximum marginal U.S. income tax rate of 35 percent applies – in theory more than practice – to households with taxable income of over about $388,500.
But like many wealthy people, the Romneys have been helped by changes in federal tax policy that have placed much lower tax rates on investment income – from dividends, interest and capital gains from the sale of stocks and other assets – than on wages and salaries, the source of income for most Americans.
Under the Bush-era tax cuts strongly supported by most Republicans, such income, including gains on securities held for a year or longer, is subject to a tax rate of 15 percent.
In addition, the Romneys are able to claim another tax break because of his 15 years with Bain. Although he retired from there in 1999, Romney is still able to benefit financially from the firm’s profitable investments and from “co-investment” deals in which he can invest alongside Bain.
A provision in the tax code treats profits earned by private equity funds such as Bain and hedge funds as “carried interest” – and thus subject to the 15 percent capital gains rate – rather than as ordinary income.
In addition, only income up to $106,800 is subject to the separate payroll tax that funds Social Security and Medicare, so the wealthy often pay much lower effective rates on their total income than other Americans.
According to the congressional Joint Committee on Taxation, an average federal tax rate of 15 percent – including both income and payroll taxes – would apply to households with taxable incomes of from $75,000 to $100,000.
Those with incomes below $94,000 earn less than 4 percent of their income from capital gains, interest and dividends, according to the Congressional Budget Office, while such investment income represents 43 percent of the income of households earning more than $1.87 million a year.
Obama and his wife paid federal taxes of just over 25 percent of their 2010 income of $1.7 million, mostly from the books he’s written.
Perry and his wife paid roughly 24 percent of their 2010 income of $217,447.