Just for making speeches, Mitt Romney made 7.5 times the median U.S. household income in the year to last February.
For the Massachusetts millionaire, that $374,327 amounted to “not very much,” a rounding error compared to his still undisclosed income on investments.
It is hard to tell which revelation says more about the man who wants to be president.
Is it his acknowledgement that he “probably” paid an effective federal income tax rate of about 15 per cent in recent years?
Even if that sounds scandalously low for someone worth more than $200-million, it is still a higher rate than the one paid by 75 per cent of Americans, rich and poor alike.
Probably more damaging is Mr. Romney’s suggestion that his income from speaking engagements is so inconsequential as to barely merit mentioning.
The former corporate buy-out mogul has a colossal ability to show just how out of touch he is with average Americans, who live paycheque to paycheque, or worse, unemployment cheque to unemployment cheque.
It is not clear how much this will hurt him in Saturday’s South Carolina primary. Last minute attacks on his record running buy-out firm Bain Capital did not stick in New Hampshire and even backfired against their perpetrators, Newt Gingrich and Rick Perry.
But if the front-runner for the GOP nomination does indeed carry the party banner against President Barack Obama in the fall, it is now clear that Mr. Romney will make a delightful foil for Democrats seeking to make this election a referendum on income inequality.
Does Mr. Romney even know what “the 99 per cent” means?
Or is that just a reasonable rate of return for him?
“I get speaker’s fees from time to time, but not very much,” Mr. Romney said on Tuesday in enumerating the sources of his abundant income.
The problem with that statement is that most Americans earn less in one year than Mr. Romney makes from a single speech. A few might have $375,000 in pension savings, but only if you had to live on that sum for the next 20 years would you call it “not very much.”
“That says a little bit more about governor Romney and his connection with the American people than his tax rate, which is driven by a tax code,” former Pennsylvania senator Rick Santorum, Mr. Romney’s challenger for the Republican presidential nomination, told Fox News on Wednesday.
Mr. Romney’s acknowledgement that he likely paid a federal tax rate of around 15 per cent in recent years was hardly news to anyone who has followed the political debate that has swirled around U.S. tax policy for the past decade.
Voters will not know for sure the exact rate Mr. Romney paid until April, when he promises to release his 2011 tax returns. He is under pressure to release his returns from earlier years now, but has so far resisted.
Since he left Bain in 1999, the bulk of Mr. Romney’s income has come from investments, which are generally taxed at a lower rate than wages.
The tax rate on capital gains, interest income and dividends was cut to 15 per cent from 20 per cent in 2003 under George W. Bush. Mr. Obama wants to return to the 20 per cent level and, indeed, if Congress fails to act, the Bush tax cuts will expire at the end of 2012.
The rate fell to 20 per cent under Democratic president Bill Clinton from the 28 per cent level set by Republican Ronald Reagan in the early 1980s.
The long-standing justification for taxing corporate dividends at a lower rate than wages is that companies already pay taxes on their profits. Taxing dividends at the same rate as wages would amount to a double taxation, discouraging equity investment.
Whether the appropriate rate is 15 per cent, 20 per cent or zero will be much debated on the campaign trail in 2012.
Mr. Gingrich, the ex-speaker whose Monday debate performance has renewed his hopes of a strong finish in South Carolina, has proposed eliminating all taxes on capital gains and dividends. He argues it would stimulate economic growth.
Mr. Gingrich revealed on Wednesday that his own effective tax rate in 2010 was 31 per cent, but insisted he was not advocating that Mr. Romney pay the same rate.
“My goal is not to raise Mitt Romney's taxes, but to let everyone pay Romney's rate,” said the former House of Representatives speaker, who proposes giving Americans an optional flat tax rate of 15 per cent.
Mr. Romney promises to keep the existing Bush-era rates on investment income for the wealthy, but eliminate capital gains taxes altogether for Americans earning less than $200,000. He argues that would stimulate savings.
If Mr. Romney’s 15 per cent “effective” federal tax rate sounds low to most Americans, it is not unusual or unexpected. More than half of Americans pay no income tax at all, once various deductions are taken into account.
Meanwhile, workers’ Social Security contributions have been cut by the Obama administration to 4.2 per cent of earnings from 6.4 per cent. That cut expires in February, but is expected to be renewed by Congress until year-end at least.
It is unclear how much of Mr. Romney’s recent income has come in the form of so-called “carried interest” from Bain. (Even though he has left the firm, he still gets some of his income from Bain.) Carried interest is taxed at the 15 per cent rate. But taxing the income of private-equity managers at that rate is considered unfair by many tax experts.
Who has the biggest right to complain about Mr. Romney’s tax bill? Middle- to upper-middle income Americans who earn most of their income in salary and have fewer deductions than the wealthy are most likely to pay an effective tax rate higher than 15 per cent. The question is whether they will hold Mr. Romney’s rate against him.
If he keeps on showing how out of touch he is, who could blame them?