Alec MacGillis: Team Romney Rallies Around Carried Interest: It has been apparent for a while now that Mitt Romney’s candidacy is less than ideal for the one percent, or the one-tenth or one-hundredth of the one percent. It is one thing to have a candidate who is committed to promoting unjust tax policies that will help you and your fellow millionaires; it is another thing to have a candidate who benefits from those unjust policies, thus making himself a poster child for reform. Romney pays a federal income tax rate of only 14 percent on his income of more than $20 million per year because of two features of the tax code… capital gains on investments… the carried-interest loophole, which allows fund managers to have their compensation for investing other people's money taxed as capital gains, not earned income.
The carried-interest loophole… has been hanging on for dear life for a while now, protected by Wall Street friends like Eric Cantor…. But fewer and fewer people are willing to defend it. Pete Peterson, who benefited hugely from the loophole while running Blackstone, has come out for closing it, and I was stunned, in the days after Romney’s tax rate became an issue, to see even Stephen Moore, the Wall Street Journal’s ardent supply-sider, admit on TV that it was time for the loophole to go.
But lo and behold, what did I see tucked inside the business section of Sunday’s New York Times but an earnest effort to justify the loophole penned by Harvard economist Greg Mankiw… one of the lead economic advisers to... Mitt Romney…. [H]e did an impressive job of muddying the water around a question that truly is as as clear-cut as they come: why should investment managers have the compensation for their labor taxed at a far lower rate than all other professionals?… Mankiw’s trick is to bring in the more sympathetic example of a carpenter who teams up with an investor on a real estate project that turns a profit…. [I]t looks like Team Romney will not let his personal stake in the matter keep it from arguing vociferously for maintaining the carried-interest loophole….
Well, it looks like Mankiw’s defense of carried interest is even more eye-opening than I realized: Matt O'Brien, a former TNR intern now at the Atlantic, notes that Mankiw came out for closing the loophole back in 2007, when he used a rather different analogy in writing on his blog:
Deferred compensation, even risky compensation, is still compensation, and it should be taxed as such. Paul Krugman hit the nail on the head with this question: ‘why does Henry Kravis pay a lower tax rate on his management fees than I pay on my book royalties?’ The analogy is a good one. In both cases, a person (investment manager, author) is putting in effort today for a risky return at some point in the future. The tax treatment should be the same in the two cases.
What to make of this? O’Brien, tweeting @ObsoleteDogma, suggests: “Whole point of the NYT piece was obfuscation. I’m not sure Mankiw has changed his mind. He’s just not saying now.” Or who knows: maybe, like Rick Santorum, Mankiw is just getting ready to “take one for the team.”