Romney tries to sidestep tax furor he ignited

By Tom Raum

Associated Press

Published: Wednesday, Jan. 18 2012 4:06 p.m. MST

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.

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.

Raum reported from Washington. Associated Press writers Stephen Ohlemacher in Washington and Shannon McCaffrey in Winnsboro contributed to this report.

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