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Romney’s Estimated 15 Percent Tax Rate Rekindles Fairness Argument

Publication Date: 
January 18, 2012
Source: 
NBC Politics
Author: 
Tom Curry

The following NBC Politics article by Tom Curry mentions professor Joseph Bankman for his comments at a Senate Finance Committee hearing in 2007.

Mitt Romney’s estimate that he pays a 15 percent effective tax rate has suddenly become the dominant theme in the Republican campaign. While Romney has rekindled the long-running argument over tax fairness and whether investment income ought to be taxed at a lower rate than salary and wage income, it isn’t surprising that his effective tax rate is what it is – since much of his income is from investments and the tax code has long provided a preferential lower rate for them.

Romney’s focus on his taxes has also revived a debate which Congress had in 2007 over whether the specific type of income he gets from his years at Bain Capital -- a kind of investment income called “carried interest” -- ought to be taxed at the lower capital gains rate of 15 percent, or the higher tax rate on earned income, which for the highest income taxpayers is 35 percent.

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The case against taxing “carried interest” at the lower capital gains rate was made in a Senate Finance Committee hearing in 2007 by Joseph Bankman, a professor of law and business at Stanford Law School.

“We ought to have the same rate of tax apply across different occupations or investments,” Bankman told the committee. “The relative profitability of different professions, or investments, ought to be dictated by the market, not the tax law.”