David Abromowitz writes that Mitt Romney’s own tax returns prove that higher tax rates do not deter capital investment, in his column, “Romney’s Returns Refute His Tax Argument:”
For all the attention devoted to Mitt Romney’s tax returns last month, one element went largely unnoticed: They directly refute the Republican candidate’s argument that higher tax rates deter capital investment.
Simply put, all of the investments made by Bain Capital LLC, the private-equity company Romney cofounded in 1984 and ran until 1999, occurred when capital-gains rates were much higher than they are today. Yet Bain consistently attracted massive amounts of private capital, and thrived.
Bain’s haul is further evidence that fair tax rates don’t hold back profit-seeking capitalists, at least until those rates reach a point that no one is proposing. From 1984 until 1999, the top rates on capital gains — the profit from investments as opposed to compensation for work — were often at 28 percent, and never lower than 20 percent. Indeed, in 1987, under President Ronald Reagan, the 20 percent rate rose to 28 percent — a 40 percent increase in potential taxation of Bain investment profit. (Yes, Reagan did raise taxes, even on capital.)
An analysis by the Wall Street Journal of 77 Bain deals in that time period showed that the firm “produced about $2.5 billion in gains for its investors,” on about $1.1 billion invested. Clearly, even with capital-gains rates almost double those today, fund managers such as Romney didn’t lack investors.
Others can debate whether the private-equity crucible created more jobs than it destroyed. One thing is certain, though: Investors signing up for a chance to earn, say, a gross $10 million profit on a deal weren’t deterred by the prospect that taxes meant they would only keep a net $7.2 million.