This year's presidential race will be about America's fairness deficit. President Barack Obama featured it in his State of the Union speech. "The defining issue of our time," said Obama, is whether America will be a nation for everyone who works hard or only for "a shrinking number of people who do really well." Add "like Mitt Romney" here.
The fact that America has become rigged for the rich is a problem that has finally penetrated the American psyche. Two-thirds of the public now thinks there are "very strong" or "strong" conflicts between the rich and poor, according to a recent Pew Research Center survey. Americans are starting to realize that their middle-class security has been sabotaged by the 1 percent who play by a different set of rules.
If Mitt Romney wins the Republican nomination, his biggest challenge will be to overcome a resume that seems to personify this unfair spoils system. With his 2010 tax return showing he and his wife paid an effective tax rate of just 13.9 percent on $21.6 million in adjusted gross income, Romney has to fight the mounting examples of how his wealth has given him a special deal in life.
At Monday night's NBC/Tampa Bay Times Republican debate, Romney claimed he "did not inherit" what he has, but that he built his wealth "the old-fashioned way, by earning it." But Romney was a child of privilege who graduated from Harvard with a law degree and MBA. His father, George Romney, was a wealthy auto industry executive and governor of Michigan.
No matter how hard Romney tries to portray himself as understanding the economic troubles of everyday Americans (remember the "pink slip" gaffe in New Hampshire, or when he claimed to be "unemployed"?) he has no idea what it is like to live without a comfortable safety net.
Romney's father had his own conception of fairness within a capitalist system. A 1967 New York Times article mentions that when the elder Romney felt that his salary and bonus as head of American Motors Corp. totaled "unseemly heights" or if AMC needed to hold down costs, he would return a portion to the company. An American Motors accountant estimated that George Romney had given back $268,000 due him — worth nearly $2 million today.
Compare that to Mitt Romney's activity at Bain Capital, the private equity firm he founded that helped him reach an estimated quarter-billion net worth. Bain's prime directive was to make the most money it could regardless of how the companies it bought, or their employees, were affected.
Dade International (later Dade Behring), a medical company Bain bought, is a prime example. As the New York Times reported, under Bain's management, Dade quadrupled what it owed creditors and vendors and cut 1,700 workers in the United States. Dade eventually filed for bankruptcy, but not until after Bain took hundreds of millions of dollars out of the company for itself and other investors.
Romney says he won't apologize for being successful. But where his father saw a duty to moderate corporate greed, Romney upped the ante on it.
And where is the son's gratitude to American taxpayers for subsidizing his ventures? Leveraged buyout firms like Bain wouldn't exist without a huge tax loophole that allows them to deduct the interest on corporate debt. Deals are funded by using the assets of the acquired companies to secure the purchase loans. The resulting tax savings is used to carry that debt. Nice deal, huh?
But that's not the only way Romney's fortune benefited from highly favorable tax rules. In 2010, Romney made $7 million from Bain profits, a firm he left in 1999. It came to him as "carried interest," or as a share of the profits, which is how private equity partners and hedge fund managers receive compensation to avoid paying their fair share of taxes. Carried interest is taxed at a 15 percent rate, just like Romney's capital gains and dividend income.
Romney's response to this shockingly low tax rate is to say he paid every dollar he owes. He claims his critics are practicing the "politics of envy." But demanding fair rules isn't envy. Romney's career is a blueprint of how America built its current fairness deficit — one rapacious 1 percenter at a time.