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John Wendle

Taxing the rich won’t stop their investing; it’s how they make money

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By Jack Wendle

February 5, 2012

We’ve been told that Mitt Romney is worth $250 million.

He made $22 million last year and paid $3 million in federal taxes

Let’s do some math.

All but a small part of Mr. Romney’s income came from investing his money and not from wages for work. If all of his money was invested, he made 8.8 percent on these investments. If not all was invested, he made an even greater percentage return on the smaller amount invested.

His federal tax rate paid was 13.64 percent.

For the sake of argument let’s say he uses $1 million for living expenses and not investing. Along with the $3 million in taxes, his net income for reinvestment would be $18 million. Were this rate of return and reinvestment to be the case for this year and for eight more years, his total worth would have doubled to $501 million. In other words if Mitt Romney were to serve as president for two terms, his “blind trust” will have doubled in 10 years — even if the economy remains the same as last year.

Here’s what’s meant to mislead us (put less politely, to deceive us) by today’s political rhetoric. Republican leaders are trying to convince American citizens that taxes on this kind of wealth cannot be raised because the rich will just quit investing their money and the nation’s economy will decline even further. That’s nuts. Fortunes cannot be stuffed into mattresses. That money will be invested somewhere. It might find its way into banks which pay only very small rates of interest. But it will go out the door to find its way to a profit (or loss). Big money has to be invested somewhere, even crazy places, but it will not sit idle.

Scaring voters into believing tax rate increases on the very wealthy to the levels of just a few years ago will lead to disinvestment and further economic decline is a lie meant to mislead.

Consider this: What if tax rates for the wealthy were to go back to the 28 percent rate under President Reagan (which Mr. Reagan proposed and supported)? Even if the economy were to remain as bad as last year and Mr. Romney’s rate on return of investment were to remain at 8.8 percent and his annual living expenses as president were to drop to $840,000 (which allows me to use a round number for the rest of this exercise and, it should be remembered, we do pick up most of the president’s living expenses) Mr. Romney would still net $15 million from his blind trust investments, a 6 percent net return. Even with this higher rate, at the end of his second term Mitt Romney’s $250 million would still have grown to $457.9 million — only slightly short of doubling.

It is disingenuous if not deceitful to suggest that wealthy Americans will cease or reduce investing if rates return to levels used during President Reagan’s administration.

(My dad originally published this editorial at http://www.vindy.com/news/2012/feb/05/taxing-the-rich-wont-stop-their-investin/)

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Written by johnwendle

February 8, 2012 at 3:18 pm

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