- David Cay JohnstonPulitzer Prize-winning journalist who writes about tax issues for Reuters. He is a former New York Times reporter and author of several books, including Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill).
As presidential hopeful Mitt Romney campaigns ahead of next week’s Super Tuesday primary vote, we look at the winners and losers under his proposed tax plan. Romney has vowed tax breaks for all Americans, but a recent analysis by the Tax Policy Center found his plan would mostly benefit the wealthy, while raising taxes on the poorest 125 million Americans.
“All the Republicans have the same basic strategy: reduce taxes on people who are already wealthy, and take away tax benefits for poor people, particularly who are striving to try and get out of their poverty, and restrict tax benefits for people who are workers in the middle class,” says David Cay Johnston, a Pulitzer Prize-winning journalist who writes about tax issues for Reuters. “Romney’s plan is George W. Bush’s plan on steroids.
George W. Bush gave 12.5 percent of his tax cuts to the top 10th of 1 percent. Romney’s plan gives a third of the tax cuts to the top 10th of 1 percent. And Romney’s plan gives 57 percent of the total cuts in his package to the top 1 percent. That’s people who make more than about $400,000 a year. It’s astonishing how heavily weighted it is to the top. Under his plan, there would be no estate tax and no gift tax, which means that very wealthy families can move money around freely, pass it from one generation to the next.” said Johnston, author of “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill).” [includes rush transcript]
JUAN GONZALEZ: Presidential hopeful Mitt Romney will be campaigning across the Northwest today in North Dakota, Idaho and Washington state ahead of next week’s Super Tuesday vote. We end today’s show looking at the winners and losers under Mitt Romney’s proposed tax plan. At last week’s debate in Arizona, Romney vowed tax breaks for all Americans.
MITT ROMNEY: Number one, I say today that we’re going to cut taxes on everyone across the country by 20 percent, including the top 1 percent. So that’s number one.
AMY GOODMAN: But a recent analysis by the Tax Policy Center found Romney’s tax cut plan would mostly benefit the wealthy while raising taxes on the poorest 125 million Americans. Under Romney’s plan, the poorest fifth of taxpayers will pay $157 more in taxes in 2015. Meanwhile, the top 10th of 1 percent would save, on average, $464,000 a year.
To talk more about Romney’s plan to tax the poor, we’re joined by David Cay Johnston, Pulitzer Prize-winning journalist who writes about tax issues for Reuters now. He’s a former New York Times reporter, author of several books, including Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill).
David, welcome to Democracy Now! It’s good to have you with us. Talk about Romney’s plan.
DAVID CAY JOHNSTON: Well, Romney’s plan is George W. Bush’s plan on steroids. George W. Bush gave 12.5 percent of his tax cuts to the top 10th of 1 percent. Romney’s plan gives a third of the tax cuts to the top 10th of 1 percent. And Romney’s plan gives 57 percent of the total cuts in his package to the top 1 percent. That’s people who make more than about $400,000 a year. So it’s astonishing how heavily weighted it is to the top. Under his plan, there would be no estate tax and no gift tax, which means that very wealthy families can move money around freely, pass it from one generation to the next. And I believe—and I wrote in my Reuters column—it would lead to dynastic wealth, which is damaging to the idea of a democracy.
JUAN GONZALEZ: And what about the increases to the poorest taxpayers?
DAVID CAY JOHNSTON: Well, that’s the really amazing part of Romney’s plan. One of the things that Romney would do—and remember the deriding that’s going on by Republicans of public education, the attacks on teachers, Rick Santorum about misstating what President Obama said and then talking about colleges being snobs. Romney would not continue the principal tax credit that currently benefits poor families trying to get ahead by having one or more children go to college. And he has no plan to replace that. And, of course, we have turned college from an enterprise that was essentially free, at the time that I went to college in the late ’60s and early ’70s, into now an enormous lending business that, at relatively high interest rates, has kept people in heavy debt who are trying to get ahead.
AMY GOODMAN: I want to play a clip for you, David Cay Johnston, while we talk about Mitt Romney’s tax plan. I also want to ask about Romney’s personal taxes. This is a clip of Romney responding to a question about his income tax rate while he was in South Carolina in January.
MITT ROMNEY: What’s the effective rate I’ve been paying? Well, it’s probably closer to the 15 percent rate than anything, because my last 10 years, I’ve—my income comes overwhelmingly from investments made in the past, rather than ordinary income or rather than earned annual income. I get a little bit of income from my book, but I gave that all away. And then I get speaker’s fees from time to time, but not very much.
AMY GOODMAN: By “not very much” in speaker’s fees, Romney meant more than $374,000 in one year. And it turned out Romney’s tax rate was actually 13.9 percent. David Cay Johnston, your response?
DAVID CAY JOHNSTON: Well, you know, let’s deal with the speeches first. His average fee per speech was more than the total income of—I think it’s 60 percent of American households. That’s the first thing to keep in mind, what he calls a little money. And to him, it is a little bit of money.
Romney benefits from a peculiar tax rule that very few people who do not benefit from it can defend. And it is a rule that says that if you manage other people’s money, which is what Romney did when he ran Bain Capital, you get to treat your fee for being successful as if it was capital income, and you pay a 15 percent tax rate instead of the 35 percent rate everybody else pays on their wages if they make as much money as Romney does.
Romney was also able to pass $100 million to a trust for his sons without incurring any gift tax. The Romney campaign acknowledged to Reuters in writing that no gift tax was paid. Well, up to 2009, the maximum amount the Romneys could have passed to their sons, five sons, was $2 million without incurring a gift tax. So they were able to put in assets and treat them under the tax law, as many other very wealthy families do, in a way that they get around the estate tax. And the estate tax is not a barrier to very wealthy families passing money forward, contrary to Romney’s assertions.
JUAN GONZALEZ: And the trust funds he’s created for his children?
DAVID CAY JOHNSTON: Yes, the sons effectively have $20 million each in a trust fund, and Mom and Dad pay the taxes. So the children get income tax-free from these funds, which further reduces the size of Ann and Mitt Romney’s estate.
AMY GOODMAN: David Cay Johnston, you mentioned Bain, but now keep talking about it. Explain—you were just talking about Mitt Romney himself. Can you also talk about the offshore accounts, both of Mitt Romney and of his corporation, Bain?
DAVID CAY JOHNSTON: Yeah, there’s absolutely nothing illegal or improper, Amy, about his offshore accounts. Here’s what happens. If you or a regular American, you or I, wanted to invest in Bain, we just do it. But if it’s a charitable endowment, a college endowment or other charitable fund, or if you’re an offshore investor, you go through a foreign entity. So you buy stock in a company in the Cayman Islands, and it invests. That’s because, for the American nonprofit, otherwise its gains would be taxable; for the foreign citizen, otherwise you would have to pay—file an American tax return. By the way, if you buy stock in a foreign company in the New York Stock Exchange, you don’t want to file a Japanese or an Italian tax return. That’s why you buy something called an ADR. So there actually is nothing improper.
However, I’ve called on Romney, in my column for Reuters, to release his tax returns since 1984. We should see the entire record of what he did. The returns he’s released indicate perfectly clean behavior. But I think we should see his entire record. Did he buy tax shelters? There’s some hints that he may have in the tax return. Did he do anything questionable or aggressive or improper since 1984? And his father set the standard by releasing 12 years of tax returns, and his father is nowhere near as wealthy as the Romneys or, in fact, any one of the sons.
JUAN GONZALEZ: And we didn’t touch on Romney’s plan in terms of the Bush tax cuts that have drawn so much attention and so much debate in Congress over the past couple of years.
DAVID CAY JOHNSTON: Well, the Bush tax cuts were temporary. They were to last 10 years. Obama agreed to extend them for two. Romney would make the cuts permanent, but then he would tremendously add to them at the top. He would cut the tax rates by 20 percent on people at the top. He would eliminate the estate tax, which he calls “the death tax.” He would get rid of other taxes that affect people at the top. He would get rid of the alternative minimum tax, which he paid some of. And his plan is much, much more weighted: 57 percent of it, according to the Tax Policy Center, goes to the top 1 percent of Americans, if it’s put into place.
JUAN GONZALEZ: Now, you also do note that there are some positive aspects of his tax plan, as well. Could you talk about those?
DAVID CAY JOHNSTON: I think I haven’t had enough sleep, Juan, that I—they’re not coming up in my memory at the moment. I apologize. I’m out here on the West Coast with not a lot of sleep.
AMY GOODMAN: We’re speaking to you, I should say, David Cay Johnston, who usually lives upstate New York, in Portland, Oregon. You also wrote about “Newt and the NEWT Act.” Explain briefly.
DAVID CAY JOHNSTON: Yes. Well, Newt Gingrich reported most of the income from his video production company, of which the only two principals are Newt and Callista Gingrich, as dividends. Now, he pays the full income tax on that, but he avoids paying the Medicare tax. This is the same tax strategy that John Edwards used, for which the Republicans heavily criticized him for his use of it, to avoid the 2.9 percent, if you’re self-employed, Medicare tax. We just had a ruling by the Eighth Circuit Court in St. Louis that a CPA, an accountant, in Iowa was limited in his ability to use this. He reported virtually no income subject to that tax and took it as dividends, and the court said, “No, that’s unreasonable.” So I think it’s appropriate that the IRS should in fact look at Mr. Gingrich’s tax return. He should ask the IRS, in view of this court ruling, to pass or not pass on the propriety of his strategy. I don’t expect he’ll do it, but I think that as a matter of honor, he should.
AMY GOODMAN: Finally, tax advice for people like Mitt? That was the name of one of your columns.
DAVID CAY JOHNSTON: Well, put—the number one thing to do is become a hedge fund or private equity manager, so that you get, without having your money at risk—you’re not an investor; you’re a manager. Off other people’s money, you get the benefit of having money put at risk. You get money that’s taxed at the 15 percent rate and arrange, when you leave the company, to keep getting paid. Wouldn’t it be nice if every job you ever left, you could make a deal with your employer and say, “By the way, I’m leaving, but I want you to pay me for the next X years anyway”? Which is what Romney did.
AMY GOODMAN: And did you do any assessment of presidential hopeful Santorum, his proposal?
DAVID CAY JOHNSTON: Only in the sense of looking at it. All the Republicans have the same basic strategy: reduce taxes on people who are already wealthy, and take away tax benefits for poor people, particularly who are striving to try and get out of their poverty, and restrict tax benefits for people who are workers in the middle class. All them say they wanted to lower taxes. Here’s the thing we’ve forgotten, Amy. You remember this bugaboo of the federal deficit? “This is the worst thing hanging over us. We have to deal with this enormous federal debt.” Well, these plans would all add to the federal debt. They take us away from a balanced budget. If we simply got rid of the Bush tax cuts for all of us, we’d be very quickly toward a balanced budget. If we just did it for the top, we’d be on that path. And by the way, if we got a modern healthcare system, like every other country in the world has, that alone would also eliminate the federal budget deficit. But the Republicans are going in a different direction.
AMY GOODMAN: David Cay Johnston, I want to thank you for being with us, Pulitzer Prize-winning reporter, used to write for the New York Times, now writes for Reuters.