By Justin Sink - 01/25/12 02:37 AM EST
Mitt Romney on Tuesday sought to put an end to questions about his personal wealth that have dogged his presidential campaign by releasing two years of his tax records.
The tax forms, which included few surprises, showed that the former Massachusetts governor earned nearly $43 million over the past two years, mostly from investment gains and management fees associated with projects at Bain Capital, the private equity firm he once led.
They also showed that Romney and his wife will pay an effective tax rate of 13.9 percent in 2011, about the same rate as an average taxpayer who earns $45,000 in annual wages. Most of Romney’s income is hit by the 15 percent tax rate on capital gains.
Named after billionaire investor Warren Buffett, the rule broadly states that the wealthy should pay a higher tax rate than the middle class so that people like Buffett’s secretary pay a lower tax rate than those who employ them.
Obama made that argument a key point of his State of the Union address on Tuesday night by inviting Buffett’s secretary to his speech, and calling for a tax code rewrite that ensures millionaire taxpayers pay at least a 30 percent rate.
Romney wasn’t mentioned, but the White House and Obama campaign were likely thrilled with how the release of his tax forms played into the president’s message.
Romney’s tax forms were a major point of discussion throughout the day, with Senate Majority Leader Harry Reid (D-Nev.) questioning the level at which Romney was taxed. “I think it’s a little strange that someone that’s making that much money is paying less taxes than Warren Buffett’s secretary,” Reid said.
The lack of a “smoking gun” — any evidence that Romney deliberately or cynically exploited tax law — left many political observers questioning why Romney was so reluctant to release the documents, especially after they became a major political issue.
As he struggled with questions about his taxes, Romney’s poll numbers took a nosedive while Gingrich surged to the top of the GOP race and a win in the South Carolina primary. A national Gallup poll on Tuesday showed Gingrich with a four-point lead over Romney a week before the Florida primary.
Romney’s campaign insisted Tuesday that the nearly 500 pages in tax documents turned over Tuesday morning revealed a “complicated and fully transparent” record of how the governor “pays 100 percent of the taxes he owes.”
It also showed that the Romneys have donated generously to charities, handing over 16.4 percent of their annual income. The largest donations in 2010 were to the Mormon Church and the George W. Bush Presidential Library.
Democrats took aim at the revelation that Romney once had money in a Swiss bank account and invested in mutual funds based in the Cayman Islands, with Democratic National Committee Executive Director Patrick Gaspard questioning Romney’s ties to “famous tax havens.”
But the Romney campaign insisted that he paid the same taxes on those holdings as he would had they been based in the United States, and called reports that they were intended to shield Romney from additional taxes “flatly wrong.”
“The blind trust’s investment in the Cayman Funds are taxed exactly the same as if Gov. Romney owned the shares directly and in the United States,” said Brad Malt, the trustee charged with managing the Romney’s finances.
“These are not accounts in any sense of the word, these are investments in third-party entities,” he added. “Suppose I buy 100 shares of Toyota stock. I do not have a Japanese account. It’s a foreign investment, not a foreign account.”
Malt also insisted that other investments in the blind trust — including holdings in a Swiss bank account and in mutual funds invested in Freddie Mac and Fannie Mae — were unknown to the Romneys.
Romney continues to earn income from his work at Bain Capital, bringing in $7.4 million in “carried interest.” That income is paid in a way that allows Romney to pay taxes at the capital gains rate of 15 percent — compared to 35 percent had it been taxed as wages — and avoid paying Social Security or Medicare payroll taxes on the amount.
That revelation brought sharp criticism from Rep. Sandy Levin (D-Mich.), the ranking member on the House Ways and Means Committee, who said the income should be taxed at the same rates as other wages. Levin has twice introduced legislation that would require carried interest to be taxed at the normal income rates.