One reason multi-millionaire investors like Gov. Romney face 15% tax rates is because they engage in corporate activities but avoid corporate taxes.  They do so by taking advantage of policy changes that have made it easier to pass capital gains through the corporation to their personal income, where, in the case of PE managers, they tap a double loophole.  First, capital gains are taxed at less than half the rate of normal income, and second, even though these gains are really earnings for the fund managers, they get to claim them as capital gains (this is the notorious “carried interest” loophole).

As my CBPP colleagues Chuck Marr and Brian Highsmith wrote here:

Although businesses operating through C corporations [standard corporations] are subject to corporate taxes, the capital income of non-incorporated businesses is “passed through” to the business owners.  These owners benefit from the same tax deductions and credits as do corporations, but are taxed only at the individual level.  Over the past half century, and particularly during the 1980s and 1990s, states and the federal government significantly expanded the legal benefits of pass-through entities.  These changes have made it easier for firms to operate through such legal structures as S corporations, partnerships, limited liability companies, and sole proprietorships — while also benefiting from limited liability and other provisions that formerly were available only to corporations.

As you see in the figure, the share of receipts passed through to non-incorporated business has almost tripled since 1980s, up from 13% to 35%.

Source: IRS, (h/t: BH)

Moreover, it’s a good example of what happens when you open up these loopholes.   The elasiticities attached to changes in tax rates are wildly exaggerated by conservatives and trickle downers who argue that the slightest increase will end the economy while any decrease will trigger boom times.  The evidence belies their view in terms of jobs, investments, and growth.

But when it comes to sheltering your income (e.g., passing through corporate income to the personal side to tap loopholes like carried interest), how you structure your investment vehicles, your preference for debt over equity financing (debt financing is very much favored by the tax code)—there you see very significant responses.

The question is, as posed above, does any of this add value—real value—to the economy beyond further enriching the rich?  It’s not a simple question and the answer is probably less obvious than it sounds.  There are unquestionably examples of PE firms that have taken over companies and discovered new efficiencies.

But neither is it a coincidence that the ascendency of this type of economic activity and the policies that support it have occurred during a period of sharply increasing inequality, weak job creation, and stagnant incomes for the middle class.

And Republicans think we need more of this, not less.

And don’t whine at me about “double taxation” (corporations paying income taxes, then investors having to pay taxes on dividends). If there weren’t huge benefits associated with being incorporated, not the least of them being the right to buy politicians without having to go to prison if what you do kills a lot of people, then businesses wouldn’t incorporate.

What’s most ironically amusing about all this, though, is that underlying a lot of the attacks on Newt is the complaint that he’s not conservative enough. Weirdly enough, there’s some truth to this by modern GOP standards. Newt’s tone and temperament are perfectly suited to the no-compromise-no-surrender spirit of the tea party-ized GOP, which is why he’s so appealing to the base during debates. But the truth is that for all his bluster, Newt was perfectly willing to do deals during his time as Speaker. He likes to think of himself as a world-historical figure, and that means getting world-historical things done. Simple obstruction is not really his MO. That makes him doubly unreliable, since obstruction is the sine qua non of movement conservatism these days.

The GOP Establishment can read polls as well as anyone. And they’re in damage-control mode: They know they’ve got a good thing going from a financial standpoint (free money for Bank of America, et al., from the Fed just for starters), and they know they’ll have to at least appear to give a little to keep the gravy train running. So you have Bob Dole — a SOB in his day but fondly remembered by Democrats now compared with today’s GOP — coming out and trashing Newt.

But Newt, although he almost certainly wants the same thing, is willing to tell the GOP primary voting base otherwise. In South Carolina, they wanted to hear that badly enough to believe him. It’ll be interesting to see whether Florida GOP primary voters respond likewise.

I deplore eliminationist rhetoric no matter whom it comes from.

At the same time, it is worth noting that the economic policies of austerity enacted in Ireland have not helped that nation’s economy, which just a few years ago was the envy of the world. Indeed, they have had precisely the opposite effect. And yet all the Responsible People here in the U.S. want us to do the same thing Ireland did.

Just based on the brief things that I have read and heard this morning, it looks like Romney had income over $20 million for both years and paid an effective tax rate of 13.9% in 2010.  Unbelievable.

I pulled my 2009 taxes out of my filing cabinet this morning — I think 2010 is still at my office somewhere — just to see how my wife and I stacked up against Mittens and his wife.  I am an equity partner in my law firm, which means I derive income based on firm profits and that I am treated as self-employed under the law, meaning I pay both the employer and employee sides of the FICA tax.  My income can fluctuate quite a bit from year to year as profits ebb and flow, but I make a pretty nice living by any reasonable standard after 25 years of plying my craft.  My wife is a salaried professional who makes a six figure income in her own right, so in terms of family income we hover right around the top 1-2% depending on the year.  (Typical of most people I know in this demographic, we have virtually no investment income to speak of — we fully fund our retirement accounts, pay our big mortgage and tuition bills, take a nice vacation or two, and try to save a bit, but we do not have capital gains or interest income worthy of mention.)

In 2009, which was a very good year for me (although not in quite up to Mitt’s speaking fee income), we paid an overall federal tax rate of 30.3%.  (We get hit increasingly by the Alternative Minimum Tax, which wipes out a good bit of our mortgage interest deduction.)  We paid an additional 7% effective tax rate to the District of Columbia.

I never complain about my taxes. I feel incredibly fortunate to be where I am in life and would not object to paying a bit more for the greater good.  (And I can assure people that marginal tax rates have no impact at all on our business decisions in terms of trying to make money.)   But when I look at the tax rate paid by this “unemployed” rich kid I see red.  The meager taxes paid on capital gains and the gaping tax loophole that allows ordinary income for these investment management types to be treated as “carried interest” are completely outrageous.

The point isn’t that we’re jealous of wealth or high income. The point is that the wealthy and those with high incomes have rigged the system to be even more favorable to them than to us.

For one thing, I took a real vacation earlier this month, which I desperately needed.

For another, I’m back in school. Fun, but major timesuck.

So, what’s been going on?

Well, we’re now down to four presidential candidates on my side. Mitt Romney, lying sack (outsourced to Steve Benen). Newt “Swing” Gingrich, flaming hypocrite. Rick Santorum, who wants government small enough to fit into your uterus. And Racist Ron Paul, the “libertarian” who ain’t, exactly.

Really, GOP? Really?

The Times Almighty wonders out loud whether it ought to point out when lying presidential candidates are, you know, lying. And NBC’s White House correspondent, Chuck Todd, worries that the biggest problem in the presidential campaign might be … wait for it … Stephen Colbert.

I may go back into seclusion.

- 9th in QB rating (which factors in a lot of affirmative stats as well as how well you avoid mistakes)
- 10th in completion percentage
- 7th in passing yards
- 7th in passing touchdowns

So, no, I don’t think you can say he was snubbed.

However, he did accomplish some remarkable things. In addition to the NFL record for rushing touchdowns by a QB and passing yards by a rookie QB, he also ranks 20th overall, and 2nd among QBs behind Vick, in rushing yards per game, and 2nd overall in rushing TDs with 14.

One other interesting fact: In Newton, Williams and Stewart, the Panthers had three backs who each carried the ball 100+ times and averaged more than 5 yards per carry. If any other NFC team did that this year, I missed it. In fact, I may be wrong, but that might be a first in NFL history. Anyone know? That speaks not only to the talent of those backs but also to the hard work of the offensive line, only one of whose members, Ryan Kalil, is going to the Pro Bowl.

Sleep in heavenly peace.

Merry Christmas to all, and to all a good night.

In all likelihood, we’ve got 2000 all over again. Romney now, like Bush then, hasn’t always spoken like a flaming wingnut throughout his political career (and didn’t fully behave like one in the governor’s office)—which means that Romney now, like Bush then, is going to be called a “moderate” during the general election campaign no matter what he says in his speeches. Romney’s Massachusetts past, like Bush’s cooperation with Texas Democrats and prattle about “compassionate conservatism,” is going to give him carte blanche to say anything without the mainstream press grasping the fact that if he’s talking wingnut, it means he intends to govern as a wingnut.

Some beat reporter from 2000—I think it was Adam Clymer—said after Bush took office that his right-wing leanings were obvious all through the campaign if you just bothered to read his policy proposals and listen to him on the stump. This stuff was hiding in plain sight. Everyone just ignored it. And they’re probably going to ignore it again.

I cannot and will not predict at this point who will get the GOP nomination. But I’m confident that if Romney is the nominee, this is exactly how it will go down: The mainstream media will ignore what’s in plain sight.

UPDATE: Also at BJ, John Cole deftly eviscerates Rich Lowry and National Review Online, and by extension the entire GOP establishment, which apparently are freaking right the fark out at the prospect that racist anti-Semite Chomskyite goldbug Ron Paul might actually get somewhere in the Iowa GOP caucus:

Basically, Rich Lowry wants you to believe that Ron Paul is too racist to be President, but just racist enough to be a Republican in the House for several decades.

… the bill would create an Internet “blacklist” that forces ISPs, search engines, financial firms and advertisers to de-list websites accused of copyright infringement, all without any actual court hearing or oversight. The legislation takes aim at the Internet’s domain naming system (DNS), which translates domain names like www.google.com to numerical Internet protocol (IP) addresses.

But an add-on for the popular Internet browser FireFox, called DeSopa, would circumvent DNS blockades with the click of a button.

W00t!

Now, I’m willing to concede that there probably are some legitimate issues behind this. But the U.S. copyright cartel, particularly post-1994, has a history of bribing congresscritters to kill flies with sledgehammers and then bill the American people for B-52s and nukes.

House Judiciary (including my congresscritter, Howard Coble) will mark up the bill next month. Guys and gals, do everyone a favor and just kill this puppy. It hits the Legislative Trifecta: It’s ill-conceived, unworkable and unconstitutional.

Still: In your face, guys.