Sunday, January 22, 2012

South Carolina Prefers Ethically Challenged Gingrich Over Monied Romney

It's rather surprising how quickly voters in South Carolina have shifted preferences from Mitt Romney to Newt Gingrich. They're all too quick to ignore all of Gingrich's flaws - particularly the fact that his fellow Republicans essentially booted him from power as Speaker of the House over an ethical flap that resulted in a $300,000 fine. Since he left Congress, Gingrich has been a lobbyist and while he claims to be a historian, his fact-challenged rants and revisionist history over his own follies and foibles has actually won over South Carolina voters who once again found someone to vote for other than Mitt Romney.

Romney hasn't helped himself by several poor performances at the last two debates. Particularly, he hasn't answered key questions about his finances in a way that would silence the opposition. He's belatedly decided to release his tax returns, and also noted that his effective tax rate (the rate that he actually pays, rather than the rate that his tax would be computed under the statutory rate) is roughly around 15%. That's primarily because of his reliance on capital gains rather than wages.

There's absolutely nothing wrong with this from a legal standpoint; Romney worked for a venture capital firm, and his compensation was all legitimate (though one can question whether his position and company created or destroyed jobs through decisions made by Romney and his coworkers). But by obfuscating on his tax returns and how much money he made, he created a problem for himself that was exploited by the likes of Gingrich and others.

Romney could have thwarted this kind of attack by going on the offensive. He should have defused the situation by claiming that not only will he release the tax returns, but that there's absolutely nothing wrong with making money. Making money is what our nation does quite well most of the time and the job of a venture capitalist is to decide how to spend large sums of money on companies that may or may not pan out. Gingrich and the other candidates who were questioning Romney's taxes are showing anti-capitalistic tendencies by claiming that he didn't pay enough in taxes even as they all rail against high taxes.

The compensation for those decisions is quite often not in dollars, but in stock in the companies in which the venture capital firm invests in. Thus, the venture firm and its employees often get compensated in stock - capital gains, rather than wages.

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