WASHINGTON (Reuters) - Mitt Romney has come under fire from Republican rivals over his disclosure that he pays about 15 percent in federal income tax, a rate far lower than most Americans.
But under plans proposed by Romney’s opponents, he would pay even less. In fact, they are offering competing plans in which the multimillionaire former governor and venture capitalist would pay virtually no income tax.
Tax plans dealing with investment income touted by former House Speaker Newt Gingrich and Texas Governor Rick Perry could net Romney millions in tax savings. Both candidates have attacked Romney’s record as a “vulture capitalist” and his delay in releasing his income tax returns.
“I commend Romney in this regard for not being driven entirely by self interest,” said John Avlon, a former policy strategist for Rudy Guiliani.
Romney, whose net worth is estimated at $270 million, derives most of his income from investments. Romney this week acknowledged that his income tax rate is about 15 percent and said he will release his returns in April, the income tax filing deadline. Romney could not immediately be reached for comment.
Tax experts said Romney would fare even better under plans proposed by his rivals.
“Each of the tax plans would benefit anyone realizing long-term capital gains, investors just like Romney and (billionaire philanthropist) Warren Buffett, could be paying close to nothing,” said David S. Logan, economist with the Tax Foundation, a nonpartisan tax research group based in Washington.
The tax plan that Romney is proposing as he campaigns for the Republican nomination eliminates the capital gains tax for individuals earning less than $200,000 per year and keeps the same 15 percent rate for individuals earning over that level. Romney could pay more under his own proposal.
“If Romney had his druthers, middle income investors would benefit more than upper income investors,” Logan said.
Gingrich and Perry, both trailing Romney in the state-by-state nominating contest to challenge President Barack Obama, a Democrat, for the White House in 2012, offer moderately transformative tax proposals.
Perry’s plan would eliminate capital gains and dividend taxes. For families earning less than $500,000 a year, it would keep deductions for mortgage interest, charitable giving and state and local taxes.
Gingrich’s tax proposals would eliminate capital gains and estate taxes and adopt an optional flat tax of 15 percent.
U.S. Representative Ron Paul, who finished near the top in the first two nomination contests of 2012, would like to eliminate the capital gains tax, as well as taxes on tip income and Social Security benefits.
“Romney’s approach is far less draconian than his rivals’ plans,” said Anthony Corrado, a political finance expert at the Brookings Institution. But Gingrich’s political calculus could win out.
“With respect to policy, Gingrich is arguing that his proposal would allow all Americans to pay the rate that Romney is effectively paying now. Which is a nice way to contrast Romney as taking advantage of the current tax code in a way that is not available to most Americans,” Corrado said.
Obama’s re-election campaign will argue that the Democratic incumbent pays a higher tax rate than Romney, Corrado said.
Former Pennsylvania Senator Rick Santorum, who finished neck and neck with Romney in the Iowa caucuses but near the bottom in New Hampshire’s primary, seeks to lower to 12 percent the capital gains and dividend tax rate.
“Lowering our capital gains and dividends (rates) for everyone will provide economic benefit that Romney won’t provide,” Santorum told Reuters, adding that Romney buys into “the class warfare argument” about different income levels paying different rates.
A key question is whether the bulk of Romney’s income is from “carried interest” - essentially compensation in the form of capital gains for managing investment portfolios - and whether or not it should be treated as income derived from investment or wages. It is currently at 15 percent, not the 35 percent applied to wages.
This debate could be politically incendiary, Avlon said, and voters would not know until April at which rate the bulk of Romney’s income is being taxed.
Romney’s tax returns also could shed light on how Romney and the powerhouse private equity firm he founded, Bain Capital, use offshore strategies to avoid paying higher taxes.
“The frustration being expressed is that many wealthy folks are paying a much lower rate - and they don’t work. This frustration is becoming one of the key fault lines in American politics. The trick for Romney is not coming to represent that,” Avlon said.
Editing by Marilyn W. Thompson and