Because, he says, “capital gains are also being taxed at the corporate level.”
The Wall Street Journal used the same “double taxation” argument in an editorial published online yesterday:
One reason investment income is taxed at a lower rate than wage and salary income is because it is a double tax—profits are taxed once under the statutory 35% corporate tax rate and then again when they are paid out to individuals as dividends.
Obviously, this argument assumes that corporations are people, and/or that Romney and the corporation in which he has investments are one and the same. Taxing the corporation is the same as taxing Romney. Which is clearly specious nonsense. But Jared Bernstein points out another unwarranted assumption — that all investment income is subject to the corporate tax at all:
But this is almost certainly not the case with income from private equity firms like Bain Capital, because they are invariably set up as “pass throughs,” meaning that profits face only the individual rates of the owners, not the corporate rate.
What about the corporations in which the PE funds invest? Don’t they pay the corporate rate and wouldn’t that be capitalized into their profits (which would be lower due to the corp tax)? But that’s not how the PE guys roll. They profit from buying and selling undervalued stock in the company, or for that matter, selling the undervalued company itself. The corp rate doesn’t come into play in either scenario (Dan Shaviro makes these points here).
And to the extent that these companies are themselves pass-throughs, the corporate rate again doesn’t apply. Based on Romney’s tax returns, it’s impossible to tell whether the capital gains he realized through these companies reflect corporate taxes at all (interestingly, Romney’s trustee actually made this point to the WSJ, which chose to ignore it).
Bernstein is referring to these two sentences from the WSJ editorial:
We asked the campaign if it had tried to estimate Mr. Romney’s effective tax rate including the corporate and shareholder levies. Brad Malt, Mr. Romney’s trustee, called it “a tempting exercise” but impossible because it would require the tax returns of all the underlying companies Mr. Romney holds.