From George Romney To Mitt, A Shrinking Tax Rate

  • Mitt Romney holds a poster of his father, given to him at a campaign rally in Spartanburg, S.C., in January.
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    Mitt Romney holds a poster of his father, given to him at a campaign rally in Spartanburg, S.C., in January.
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  • George Romney holds infant Willard "Mitt" Romney, the youngest of his four children, in this 1947 family photo.
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    George Romney holds infant Willard "Mitt" Romney, the youngest of his four children, in this 1947 family photo.
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  • Mitt with his father in their Detroit home in 1957, when George Romney was CEO of American Motors Corp.
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    Mitt with his father in their Detroit home in 1957, when George Romney was CEO of American Motors Corp.
    Romney family via Romney for President Inc./AP
  • A young Mitt sits behind the wheel of his father's Rambler.
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    A young Mitt sits behind the wheel of his father's Rambler.
    Courtesy of Romney family/AP
  • Flanked by his wife, Lenore, and son Mitt, George Romney announces his run for governor of Michigan at a news conference in 1962.
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    Flanked by his wife, Lenore, and son Mitt, George Romney announces his run for governor of Michigan at a news conference in 1962.
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  • A 14-year-old Mitt hugs his father after George Romney announces his candidacy for governor on Feb. 10, 1962.
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    A 14-year-old Mitt hugs his father after George Romney announces his candidacy for governor on Feb. 10, 1962.
    Romney family via Romney for President Inc./AP
  • George Romney with his two sons, Mitt (left) and Scott, in an undated photo from their home in Bloomfield Hills, Mich.
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    George Romney with his two sons, Mitt (left) and Scott, in an undated photo from their home in Bloomfield Hills, Mich.
    Romney family via Romney for President Inc./AP
  • George Romney, then the governor of Michigan, walks with family members to the World's Fair in New York in May 1964. Mitt is at far left.
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    George Romney, then the governor of Michigan, walks with family members to the World's Fair in New York in May 1964. Mitt is at far left.
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  • George and Mitt Romney look out over the grounds of the World's Fair in 1964. The World's Fair included exhibits from several automobile companies.
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    George and Mitt Romney look out over the grounds of the World's Fair in 1964. The World's Fair included exhibits from several automobile companies.
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  • The Romney family in their Bloomfield Hills, Mich., home, on Jan. 1, 1968. Mitt is standing in back.
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    The Romney family in their Bloomfield Hills, Mich., home, on Jan. 1, 1968. Mitt is standing in back.
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  • George and Lenore Romney with Mitt and his then-fiancée, Ann Davies, outside their Washington hotel on Jan. 19, 1969, a day before Richard Nixon's inauguration.
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    George and Lenore Romney with Mitt and his then-fiancée, Ann Davies, outside their Washington hotel on Jan. 19, 1969, a day before Richard Nixon's inauguration.
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  • Mitt Romney and his wife, Ann, look up at a portrait of his late father at the Capitol rotunda in Lansing, Mich., in 2008.
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    Mitt Romney and his wife, Ann, look up at a portrait of his late father at the Capitol rotunda in Lansing, Mich., in 2008.
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Mitt Romney gave a major economic speech Friday, in which he stressed his plan to lower personal income taxes.

Romney's own taxes became an issue last month, when he acknowledged paying a lower tax rate than many middle-class families.

Friday's speech came in Detroit, where Romney's father made his fortune as an auto executive, before going on to serve as Michigan's governor. In 1967, during his own run for the White House, George Romney released more than a decade's worth of tax returns.

And in the lead-up to the South Carolina primary, pressure built on Mitt Romney to live up to his father's example.

"[George Romney] released them for not one year, but for 12 years. And when he did that he said this: 'One year could be a fluke, perhaps done for show.' When you release yours, will you follow your father's example?" asked CNN debate moderator John King.

Romney's reply: "Maybe."

Ultimately, Mitt Romney released just one year's return, 2010, as well as an estimate for 2011. His effective tax rate was just below 15 percent.

A Charitable Family

Both George and Mitt Romney gave significant sums to charity, a large share of it to the Mormon church. Charitable donations are tax deductible, which helped bring down the tax burdens of both father and son.

George Romney

1955-1966

Total charitable contributions: $675,813, representing 22 percent of his adjusted gross income over that time

Mitt Romney

2010 and 2011 (estimated)

Total charitable contributions: $7,004,546, representing 16.5 percent of his adjusted gross income over that time

George Romney's returns tell a different story. His tax rate most years was two to three times that of his son. It topped 44 percent in 1963. That's the year the elder Romney was sworn in as Michigan's governor.

Big Shift In The Top Marginal Tax Rate

One big change between George Romney's time and our own is the top marginal tax rate. If you think tax rates are high today, think again — they were a lot higher in the 1950s and '60s.

The top marginal tax rate in 1955, the first year of George Romney's public returns, was 91 percent. Tax relief came along under Lyndon Johnson, but the top tax rate remained a whopping 70 percent.

"Definitely the 1960s were a different time than today," says Joseph Thorndike, director of the Tax History Project at Tax Analysts. "People were more comfortable with higher rates than we are today."

That comfort level would soon change, though, and for the next 20 years, the top income tax rate moved in one direction: down.

"It comes down to 50 percent in the 1970s," says Thorndike. "And then it drops down even further in sort of the mid '80s under Ronald Reagan to 28 percent."

A Preference For Capital Gains

But there were a lot of trade-offs to achieve this lower rate under Reagan. While taxes on ordinary income went down, taxes on investment income, like capital gains, went up. For the first time in modern history, money made for working and investing was treated equally. But it didn't last.

"Essentially since the beginning of the income tax there's been a preference for capital-gains income," explains Thorndike. "That's partly because economists thought it was a good idea. It's partly because politicians thought it was a good idea."

Bill Clinton restored the tax advantage for investment income, and George W. Bush made it bigger. Today, qualified dividends and capital gains are taxed at just 15 percent, less than half the top tax rate for ordinary income.

Changing Tax Rates, 1913 to 2012

wages and cap gains

That's a big windfall for those like Mitt Romney, who make most of their money from investments. In 2010, nearly three-quarters of Romney's $21 million income was taxed at the lower capital-gains rate — a tax rate he defended at last month's CNN debate in South Carolina.

"I'm not going to apologize for being successful," said Romney.

George Romney also benefited from the tax discount on capital gains, especially in years like 1960, when his investment income neared $500,000. The elder Romney earned most of his fortune as head of American Motors Corp.

His son Mitt followed a different course.

"I could have stayed in Detroit like him and gotten pulled up in the car company," Romney said during the CNN debate. "I went off on my own."

The younger Romney made his money buying and selling companies for a private equity firm, Bain Capital. And that's another generational change. Finance, not industry, now dominates the U.S. economy, accounting for as much as 40 percent of all corporate profits.

"If you look at where smart young graduates from top schools want to go to work, a lot of it is in and around the financial sector," says economist Simon Johnson of MIT, who documents the change in his book 13 Bankers. "You hear some but not a lot of people saying they want to go work in manufacturing. But finance is still a huge draw for talent."

And those who do go into finance, like Mitt Romney, not only can make more money than their forebears in manufacturing, but they're able to keep more thanks to the design of the American tax code.

A Look At George Romney's Taxes

George Romney released 12 years of tax returns in his 1967 run for president. He benefited from a lower capital-gains-tax rate but paid a far higher rate than his son overall. Romney's tax data first appeared in a 1967 article in Look magazine.

Year Salary & bonus Divdends, interest &
taxable capital gains
Average tax rate
1955 $125,000.04 $3,541.21 35.20%
1956 $125,000.04 $7,031.70 32.28%
1957 $87,500.01 $3,607.18 25.88%
1958 $168,750.02 $4,280.00 36.51%
1959 $200,000.00 $60,451.82 41.85%
1960 $173,125.00 $487,202.68 35.83%
1961 $155,083.40 $116,493.66 45.78%
1962 $75,803.02 $117,117.36 37.54%
1963 $27,499.92 $507,566.55 44.11%
1964 $27,499.92 $211,958.18 29.81%
1965 $30,000.00 $74,803.56 25.80%
1966 $30,000.00 $41,130.52 16.54%
Totals $1,225,261.37 $1,635,184.42 36.99%

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