Say it ain’t so, Mitt:

Romney Rethinks Key Income-Tax Break

The tax break that Romney is reconsidering is one that has helped to make him as rich as he is—it is the carried interest break.

Carried interest is the “share of profits that partners in private equity firms, hedge funds and real estate developments receive as most of their compensation.” It is currently taxed at the 15 percent capital gains rate instead of the higher rate for ordinary income.

Here is how the Wall Street Journal explains carried interest:

Congress has held since the 1970s that carried interest deserves to be taxed at a lower rate because it is at-risk capital that only materializes if a fund invests wisely, and because when you tax something—such as risk taking—you get less of it. Mr. Romney didn't write this "loophole." He is merely following the law that Senate Democrats like Chuck Schumer have spent years protecting.

Raising the tax rate for such income will bring in almost zilch additional income to the U. S. Treasury. But it will do two things: it will prevent rich people from investing their money and it will keep many people from becoming wealthy. I don’t know about you, but I want people to have a chance to do both. (Raising this rate could actually reduce tax revenue over the long haul because it would stifle investing.)

Predictably, Romney’s rethinking of carried interest comes on the heels of the brouhaha about his tax returns. Romney acts as if it is embarrassing to be rich and is therefore susceptible to taunts from the likes of Senator Carl Levin:

“The public wants loopholes-closers, and the Romney tax returns are a poster child of these loopholes,” said Carl Levin, chairman of the Senate Armed Services Committee. The senator plans to introduce a measure to increase revenue and favors limiting the tax break, his spokesman Gordon Trowbridge said in an e-mail.

A good case can be made for ending loopholes by adopting a flat tax. But what Romney is really the poster child for something else:

[W]hat the world really learned from the tax returns the GOP candidate released yesterday is that he is a walking argument for pro-growth tax reform….

Mr. Romney should put his own returns in the trophy case as evidence of the need for a major tax reform: Lower, flatter rates and a broader base will generate more jobs and economic growth. It might be reasonable, for instance, to treat carried interest as regular income in the context of lowering the corporate rate to something that is remotely competitive world-wide.

The problem isn't that Mr. Romney is paying too little, but that Mr. Obama wants everyone but his voters and green business cronies to pay too much.

 Romney could also use the discussion of his tax returns, the Journal urges, to point out that the U.S. doesn’t have nearly enough rich people to pay for the Obama agenda (or for the government we now have, for that matter). According to IRS data, there are only 8,273 taxpayers other than Romney who had an income greater than $10 million in 2009. To hear President Obama talk, you’d think that these slightly more than 8,000 taxpayers could foot the bill for running the country. Of course, ultimately, we’ll all face higher taxes if we continue on this course.

And—face it—this dust up over the Romney tax returns is purely political anyway:   

We don't recall the combined effective 13.1% rate of John and Teresa Heinz Kerry leading to a national debate about the tax-free treatment of municipal bonds in 2004, but then Mr. Obama doesn't have much else but Mr. Romney's taxes to run on. Anyhow, if Mr. Romney thought he could change the subject and avoid an argument about government and income inequality, last night the President told him he couldn't.