As the imbroglio grows over his mystery IRS returns, GOP frontrunner Mitt Romney is confronting not one but three tax scandals. It's bad enough that Romney pays only about 15 percent of his income to Uncle Sam each year, a rate well below most middle class families. Worse still, the notorious "carried interest" exemption for private equity managers Romney wants to preserve taxes him not at the ordinary income rate of 35 percent but at the capital gains rate now half of what it was only 15 years ago. And as it turns out, most of Mitt's millions each year come from his controversial former employer, Bain Capital.
To be sure, Romney hasn't helped his cause by claiming to be part of "the 80 to 90 percent of us" who are middle class, joking "I'm also unemployed" and brushing off $374,000 in speaking fees as "not very much." (That alone puts him in the top one percent of earners nationally.) And no doubt, Mitt added insult to injury three weeks ago when he brushed off requests to let Americans see his tax returns:

"I don't put out which tooth paste I use either. It's not that I have something to hide."

Nothing illegal to hide, that is. But the story of his windfall courtesy of America's winner-take-all tax code is another matter.
In October, Citizens for Tax Justice previewed Romney's admission on Tuesday, estimating that he paid only 14 percent of his total income in taxes. (It's no wonder Mitt opposes the "Buffett Rule.") As Time reported:

Just how much Romney pays in taxes is, for the moment, a private matter. But his income is public knowledge. In August, Romney disclosed that in 2010 he and his wife made between $1.1 million and $2.8 million in royalties, salary, speaking fees and interest, most of which was likely taxed at a marginal rate of 35%, after accounting for deductions. The Romneys made an additional $5.5 million to $37.3 million from dividends and capital gains, which is generally taxed at a much lower rate of 15%.

In December, the New York Times shed light on that "$5.5 million to $37.3 million from dividends and capital gains" that represents most of Romney's income. Though Mitt left Bain Capital in 1999, 13 years later his windfall continues uninterrupted:

In what would be the final deal of his private equity career, he negotiated a retirement agreement with his former partners that has paid him a share of Bain's profits ever since, bringing the Romney family millions of dollars in income each year and bolstering the fortune that has helped finance Mr. Romney's political aspirations...
In the process, Bain continued to buy and restructure companies, potentially leaving Mr. Romney exposed to further criticism that he has grown wealthier over the last decade partly as a result of layoffs. Moreover, much of his income from the arrangement has probably qualified for a lower tax rate than ordinary income under a tax provision favorable to hedge fund and private equity managers, which has become a point of contention in the battle over economic inequality.

And that creates what Steve Benen aptly called "Romney's 'carried interest' problem."

In case anyone needs a refresher, there's a tax loophole on "carried interest" -- sometimes called "the carry" -- that taxes private equity and venture capital income at a lower, 15% rate, as compared to 35% on ordinary income. Hedge-fund managers and the Wall Street have fought tooth and nail to protect this loophole -- even after the Obama White House tried to eliminate it -- and so far, they've been successful.

As Pat Garofalo lamented in The Atlantic, "The real scandal in private equity? It's the taxes."
More accurately, it's part of the scandal. With U.S. income inequality at its highest level in 80 years and the total federal tax burden at its lowest in 60, the last thing America needs to do is further reduce the capital gains tax. As a decade of data shows, the Treasury-draining Bush capital gains and dividend tax windfall for the wealthy not only failed to produce employment gains from America's so-called "job creators." As the Washington Post detailed, "capital gains tax rates benefiting wealthy feed [the] growing gap between rich and poor." Nevertheless, most Republicans are calling for a new capital gains tax rate: zero.
As the Post explained, for the very richest Americans the successive capital gains tax cuts from Presidents Clinton (from 28 to 20 percent) and Bush (from 20 to 15 percent) have been "better than any Christmas gift":

While it's true that many middle-class Americans own stocks or bonds, they tend to stash them in tax-sheltered retirement accounts, where the capital gains rate does not apply. By contrast, the richest Americans reap huge benefits. Over the past 20 years, more than 80 percent of the capital gains income realized in the United States has gone to 5 percent of the people; about half of all the capital gains have gone to the wealthiest 0.1 percent.

This convenient chart tells the tale:

It's no wonder that between 2001 and 2007- a period during which poverty was rising and average household income had fallen - the 400 richest taxpayers saw their incomes double to an average of $345 million even as their effective tax rate was virtually halved. As the Washington Post noted, "The 400 richest taxpayers in 2008 counted 60 percent of their income in the form of capital gains and 8 percent from salary and wages. The rest of the country reported 5 percent in capital gains and 72 percent in salary."
In Mitt Romney's defense, unlike most of the GOP presidential candidates he has refused to call for the complete elimination of the capital gains tax. (For obvious reasons, Romney has only called for ending capital gains taxes below $200,000.) The political optics would be too horrible even for President Romney. Ironically, if Newt Gingrich were to become America's 45th President, Mitt Romney's tax bill would plummet to nearly zero.
That's not to say that Romney's miniscule tax bill wouldn't shrink further if he became the occupant of the Oval Office. (It would, as Greg Sargent detailed, by half.) After all, as he announced during the South Carolina debate Monday that in 2013, Romney would like the top income tax rate to be 25 percent, and not the currently scheduled 39.6 percent. The $250 million Mitt has also proposed eliminating the estate tax. Compared to the current 35 percent rate on estates larger than $10 million, Mitt's tax plan would give his heirs roughly $84 million courtesy of the U.S. Treasury and all other American taxpayers. Happily for Romney's five sons and 17 grandchildren, that payday dwarfs the $45 million of his own money Mitt burned through during his failed 2008 run for the White House.
Of course, there's nothing illegal about any of that. But in our American democracy, where Mitt Romney's money still comes from, how little tax he pays on it - and why - is simply scandalous.