"Mitt Romney and the New Gilded Age" by Robert Reich

Mitt Romney and the New Gilded Age

by Robert Reich

http://robertreich.org/post/26229451132

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The biggest players in this system have, like Romney, made their profits placing big bets with other people’s money. If the bets go well, the players make out like bandits. If they go badly, the burden lands on average workers and taxpayers. The 750 peo-
ple at GS Technologies who lost their jobs thanks to a bad deal engineered by Romney’s Bain were a small foreshadowing of the 15 million who lost jobs after the cumulative dealmaking 
of the entire financial sector pushed the whole economy off a cliff. And relative to the cost to taxpayers of bailing out Wall Street, Solyndra is a rounding error.

Connect the dots of casino capitalism, and you get Mitt Romney. The fortunes raked in by financial dealmakers depend on special goodies baked into the tax code such as “carried interest,” which allows Romney and other partners in private-equity firms (as well as in many venture-capital and hedge funds) to treat their incomes as capital gains taxed at a maximum of
15 percent. This is how Romney managed to pay an average of 14 percent on more than $42 million of combined income in 2010 and 2011. But the carried-interest loophole makes no economic sense. Conservatives try to justify the tax code’s generous preference for capital gains as a reward to risk-takers—but Romney and other private-equity partners risk little, if any, of their personal wealth. They mostly bet with other investors’ money, including the pension savings of average working people.

Another goodie allows private-equity partners to sock away almost any amount of their earnings into a tax-deferred IRA, while the rest of us are limited to a few thousand dollars a year. The partners can merely low-ball the value of whatever portion of their investment partnership they put away—even valuing it at zero—because the tax code considers a partnership interest to have value only in the future. This explains how Romney’s IRA is worth as much as $101 million. The tax code further subsidizes private equity and much of the rest of the financial sector by making interest on debt tax-deductible, while taxing profits and dividends. This creates huge incentives for financiers to find ways of substituting debt for equity and is a major reason America’s biggest banks have leveraged America to the hilt. It’s also why Romney’s Bain and other private-equity partnerships have done the same to the companies they buy.

These maneuvers shift all the economic risk to debtors, who sometimes can’t repay what they owe. That’s rarely a problem for the financiers who engineer the deals; they’re sufficiently diversified to withstand some losses, or they’ve already taken their profits and moved on. But piles of debt play havoc with the lives of real people in the real economy when the companies they work for can’t meet their payments, or the banks they rely on stop lending money, or the contractors they depend on go broke—often with the result that they can’t meet their own debt payments and lose their homes, cars and savings.

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