Tax Lawyer: Romney paid no capital gains tax in 2009.

[RandySF]

Romney’s effective tax rate was 13.9 percent of his adjusted gross income (AGI) in 2010, and is expected to be slightly higher in 2011. Set aside for now the fact that for a high net worth individual like Romney, AGI often understates what you might call “true” income — meaning these effective tax rates probably overstate Romney’s 2010 and 2011 tax liability. It turns out that in 2009, in the wake of the financial crisis, Romney very likely managed to get his effective tax rate much lower than 13.9 percent. In 2010, Romney carried over $4.9 million in capital losses from 2009. This is a consequence of the tax code’s leniency toward investors who take hits in bad years. But as tax lawyer Ed Kleinbard told reporters during a Tuesday conference call organized by the DNC, “that means he paid no tax on any of his capital gains in 2009, including tax on his carried interest in 2009.” That’s not necessarily because Romney actually lost money in 2009, either. As Kleinbard explained, a common tactic for Americans with capital gains is to “harvest” — by selling off certain investments that lose value investors can count the losses against gains elsewhere in their portfolios. If those losses exceed the gains by more than a certain amount, they roll over into the following tax cycle. Unless Romney had significant sources of non-investment income, that suggests his effective tax rate in 2009 was much lower than 13.9 percent. And remember, he jokes he’s been unemployed for years.


http://tpmdc.talkingpointsmemo.com/2012/01/three-key-questions-raised-by-romneys-tax-revelations.php?ref=fpb

[SCantiGOP]

1. not at all surprising

I'm certain there is something in the year(s) prior to 2010 that he couldn't afford to let out. As someone posted elsewhere on DU, would Bain Capital have bought a company with nothing more than their last year tax return and this year's estimate? I hope no one asks him that in a debate so Obama can later.

[Travis_0004]

2. I don't see a problem with thsi

Lets say an investor has 100k in investments. He looses 10k in 2008. He won't pay any capital gains tax, because there were no capital gains. He lost money.

If he makes 10k the next year, then he still has no capital gains. He started with 100k, and still has 100k, he is no better off.

If he instead made 15k, he would now have 105k total, and pay taxes on the 5k profit. I see nothing wrong with this. You can argue about the 15% tax rate, but I see no problem with the way profits and losses are handled.

[quaker bill]

3. You are missing the point

You can make lots of money and still have net reportable capital losses. It all depends on what you sell and what you keep. If I have two even investments and one doubles in value, but I keep it (don't sell it) my capital gain on that investment for the year is $0. The other drops 20% and I sell it, my capital loss is that -20%. Even though in this simple case my total portfolio is up by 40%, I would claim no gains and a post a 10% loss. That loss would carry over to next year because I have no gains to balance against it. Alternately I could sell 10% of the winner to cover my losses and still report no net income and pay no taxes.

As an individual investor, capital gains only happen when you sell stuff. If I put 10K into a stock and get really lucky, it could grow to $1 million, and as long as I never sell it, I will have no reportable income and never pay a nickle of taxes on it (unless it pays dividends).

[Travis_0004]

4. I see what you are saying, and I realize that unrealized gains are not taxed.

Lets use your example. You invest 10k in a stock that pays no dividends, and its now worth 1 million. You are correct, you had no reportable income, but you also had no actual income. The gain of that stock will not pay your rent. If you need the money, you must sell your stock, and at that point you will pay taxes.