WASHINGTON (Reuters) - Mitt Romney disclosed early on Tuesday that he expects his tax bill to come to $6.2 million on income of $42.5 million the last two years, succumbing to public pressure to shed light on how he became one of the wealthiest Americans ever to run for president.
The Republican Romney, who earned most of his wealth after co-founding private equity firm Bain Capital, bowed to weeks of public pressure by disclosing his 2010 federal tax return and a tax estimate for 2011.
Romney paid an effective tax rate of 13.9 percent on $21.6 million in 2010 income and expects to pay 15.4 percent on $20.9 million in 2011 income, his campaign said. He said previously that he estimates his net worth at $190 million to $250 million.
His surging rival for the Republican presidential nomination, Newt Gingrich, released a form 1040 - the standard income-reporting form for American taxpayers - with attachments last week, showing his income for the year was about $3.1 million and his effective tax rate more than 31 percent. Some sources of Gingrich’s income were unclear because he earns most of his wealth through a holding company for enterprises such as his consulting and production companies.
Romney did not release tax returns from his time at Bain Capital. Romney co-founded the firm in 1984 and worked there until 1999. Tax returns from those years might show how Romney built the bulk of his fortune and would provide a more comprehensive picture of his wealth but the campaign said it would not be releasing them.
Romney’s campaign lawyer Ben Ginsberg told reporters late on Monday: “Frankly we’re not going to get into the game of once you give them something, you demand more. This is a fulsome release and we are very proud of it.”
Even at more than 500 pages, the returns offer a narrow look into a working life of high income, and questions may persist over fairness in taxation. “The tax returns are very complicated compared to those of many Americans,” said Brad Malt, director of Romney’s trusts.
The effective tax rate is the actual tax rate paid after accounting for deductions, credits and the like. An individual might make enough to place among the richest Americans taxed at 35 percent but with deductions and alternative types of income, the actual rate paid can be much lower.
Like many of the wealthiest Americans, Romney gets most of his income through investments, so his rate trends lower in large part because of the 15 percent tax rate on capital gains. Romney had total capital gains income of $12.5 million for 2010 and an estimated $10.7 million for 2011.
Much of Romney’s fortune likely qualifies as what is known as “carried interest,” a share of profits earned by private equity managers taxed at the 15 percent capital gains tax rate rather than the maximum 35 percent wage rate. Private equity managers, some hedge fund executives and venture capitalists benefit from carried interest.
Campaign officials said Romney had carried interest of $7.4 million in 2010 and $5.5 million in 2011.
Critics say the 15 percent rate for carried interest is an unfair tax break because investment managers, as Romney was, are providing a service that should be taxed at the higher rate paid by wage earners.
Democrats in Congress have come close to raising the rate to have it equal the rate paid on “ordinary” or wage income but fierce lobbying has paid off so far for the private equity, venture capital and hedge fund industries.
Romney has a $100 million trust set up for his five sons. The campaign said the Romneys paid no gift taxes on the trust because they were able to use credits related to estate tax.
Romney’s investment funds run through Bain are in offshore tax havens such as the Cayman Islands, a practice the campaign insists is legal and common but that has come under some criticism during the campaign.
The Romney campaign’s answer to questions on this front has been that he does not control the makeup of the funds because they are run as blind trusts.
Some of these investments also are held through two Individual Retirement Accounts and investing IRAs offshore can eliminate all taxes until withdrawals are made.
Malt said that at one point money had been placed in a Swiss bank account and that this had been meant to diversify the portfolio but, aware that some such accounts are used to evade taxes, Malt decided to close it in early 2010 to remove a potential source of embarrassment. He said the account was never meant to evade taxes, and no taxes went unpaid.
As a devout Mormon, Romney gives away at least 10 percent of his income to the Mormon church, a practice known as tithing.
The documents showed he and his wife, Ann, contributed more than $7 million in charity over the two years, averaging over 16 percent of his income.
Editing by Howard Goller and Paul Simao