Ordinary income?

Okay, this post is a bit dry. But I want to know if what I'm thinking is true.  Hopefully some reader can point me in the right direction.  Because it is time to get serious, and it is hard to find serious information in the circus atmosphere of politics these days.

Today Mitt Romney reluctantly mentioned that he thought his effective tax rate on his income for the past year is somewhere around fifteen percent.  He still isn't releasing his tax return, but he did reveal this tidbit of vague disclosure.  His lack of specificity makes one think perhaps it might be a little less than that. On an annual income of millions of dollars.  He says that his income is taxed at fifteen percent because it is all investment income now, from the buying and selling of equities and other investments, as he is not employed by Bain Capital anymore.  It is legal.

What he is not yet discussing is whether he ever paid more than fifteen percent rate on the income when it was originally received.  Odds are he did not.

Even those of us who are not particularly knowledgeable of the tax code have heard the general argument that one of the reasons that taxes on capital trades are so low is that the capital was taxed as income at some point as it was being earned and saved, so it should not be taxed again at the same rate.

But that is not the case with Private Equity Managers, such as Bain Capital, for whom Mitt Romney worked.  Private Equity Managers have eked out a loophole for themselves, saying that the compensation that they receive from their company is comprised of assets that have appreciated, and therefore not subject to ordinary income tax, but rather capital gains tax.  In other words, it is common for Private Equity Managers to never pay an ordinary tax rate on compensation they receive from their employment.

So, I am wondering.  Did Mitt Romney ever pay more than ordinary income tax rates on compensation when he was paid it by Bain Capital?

I don't know, but I suspect it won't be just me considering this question in the next few days.

If you already know the answer, please let us know by commenting.

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