“Investment” and Romney’s taxes

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Economics / Political Commentary

One of president Obama’s favorite rhetorical tools is to use the term “investment” when discussing his economic philosophy. Common examples include “infrastructure, education, green jobs and basic research.” He calls these “investments” as he makes the case for more government spending (aka higher taxes and bigger government). Mr. President, I don’t think that word means what you think it means.

“Investment” without a greater return is just an expense. Pumping $500 million into a solar power company like Solyndra is not an investment if the company goes bankrupt. Billions spent on “Cash for Clunkers” is not an investment if it takes money from the private sector, turns thousands of decent used cars into scrap metal, then helps people buy new cars that have to be subsidized in order to make them cost-effective in the first place. I could go on and on.

Despite the rhetoric, federal spending over the last few years has funded a litany of unpopular and failed projects for Democrat constituencies and lobbyists. Obama has increased the National Debt more in four years than Bush did in eight. Furthermore, evidence that this has produced any substantial increase in productivity, efficiency, innovation or economic growth is nil.

Government spending is ineffective for a very simple reason: it is easy to waste other people’s money. The private sector is much better at putting money to work because of the reverse: investors demand results if they are going to put their money on the line. Those results (returns) represent added value, and multiplied a million times over we get economic growth. And Romney gets this.

Mitt Romney is an investor in the true sense. It was once his vocation, but today he hires experts to manage his personal investment portfolio. Romney’s 2011 tax forms—released Friday—show that the vast majority of his annual income is based on investment returns. These “capital gains” are taxed at a lower rate than regular income—maximum 15 percent for long-term capital gains—because the government has already taxed corporations that gain. Because of this redundancy, many countries have no capital gains taxes at all.

Romney’s tax report included the following details:

– He paid $1.94 million to the government in 2011 (14.1% of income)
– He gave over $4 million to charity (almost 30% of income)
– He has faithfully paid all taxes legally required for at least the last 20 years
– His average tax rate was 20% over that 20 year period
– He claimed fewer deductions than he could have in 2011, therefore paying more than legally required

Looking at these numbers, it is hard not to conclude that Mitt Romney, though very wealthy, is a law-abiding and quite generous individual. But somehow the media flipped this into something negative. They emphasize his large income, and the fact that he reduced his claimed deductions in order to stay consistent with previous statements about never paying less than 13 percent.

If the news media were objective, they would have spent their time explaining why Mitt pays such a low rate, rather than criticize him for it. They’d show that his income is fair, his taxes are too high, and his charitable giving is substantial. But this would run against the narrative that the Obama campaign and many in the media have built up about Romney. It would suggest that they have been dishonest in painting him as a greedy, out of touch Wall Street mogul that doesn’t care about the plebeians.

Romney is a very successful businessman, investor and governor who has amassed enormous wealth due to his ability to bring real value to others. The only thing he can be faulted for is being a stiff speaker, and not knowing how to play the media’s games.

Obama hardly has a case for his reelection, but that doesn’t seem to have mattered. He is a master campaigner. If Obama wins this election, he will do so on the basis of illusion and class resentment. It is bad enough that this could determine an election, but my real concern is what it says about our culture. If we no longer understand how to grow our economy, and how to effectively invest our resources; if we look down upon business and wealth, while praising Hollywood and hip-hop stars; if we vote on the basis of rhetoric instead of principle, we are doomed. Democracy has given history its best, and failed.

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