Remember Mitt Romney? The former presidential candidate known for paying a low effective tax rate thanks to the carried interest loophole? The guy who stashed money in the Cayman Islands, one of the most notorious tax havens, and then held a fundraiser in a yacht flying the Cayman Islands flag? The guy who seemed to actually believe the myth that vast numbers of the non-rich were not paying taxes and just living off the largesse of the noble rich such as himself? Apparently, America’s tax code is so unfair that now even he sees the problem. In short, Romney now says we should tax the rich.
His 900-word New York Times op-ed identifies some sensible federal tax reform ideas that would create a fairer, more sustainable tax system. Not a progressive manifesto, Romney provides a moderate call to address problems in the tax system that any dispassionate observer can see are problems. But given the source, elected officials of both parties should take notice … and take his advice.
The most important Romney target: the fact that unrealized capital gains aren’t taxed when passed on at death.
When a wealthy person holds onto their appreciated assets until the end of their life and then passes them onto their heirs, the tax rules simply forget about any unrealized gains on those assets forever. This is the so-called stepped-up basis rule, which subsidizes the transfer of dynastic wealth across generations for America’s richest families.
This makes it easy for the wealthiest families to transmit huge fortunes from generation to generation, tax-free. In a country where tax policy has mostly gone in the wrong direction, repealing it would be as big a step forward for tax fairness as the U.S. has seen in generations. That Mitt Romney is advocating it is a stunning holiday surprise.
Admitting that he “long opposed” increasing the cap on the amount of wages subject to payroll taxes, Romney now suggests doing just that.
He’s right. In 2025, wages over $176,100 are FICA-tax exempt. While this is indexed annually for inflation, the snowballing concentration of income at the top means that fully 17 percent of wages are now exempt from the 12.6 percent FICA tax, up from 10 percent when the current structure was implemented in 1983. His idea is a good starting point and legislation introduced by Sen. Sheldon Whitehouse would be a smart additional step. It would add a second tier of FICA tax on earnings exceeding $400,000 (while leaving wages between $176,100 and $400,000 exempt). This would substantially reduce the regressivity of the payroll tax. Senators should take Romney’s advice a beat further and advance Sen. Whitehouse’s legislation immediately.
Another big-ticket item for Romney is tax breaks for real estate.
His primary concern is that even if real estate investors sell their holdings they usually use so-called “like-kind exchanges” which aren’t subject to capital gains tax. This and other tax breaks for real estate, as he writes, operate to “insulate multibillionaires.”
Like-kind exchanges were originally intended as an administrative convenience in situations where farmers traded land or livestock without any money changing hands. Today, the definition of like-kind is extremely generous, “allowing a retiring farmer from the Midwest to swap farmland for a Florida apartment building tax-free,” according to the Congressional Research Service. The New York Times has reported that Jared Kushner, who is heavily invested in real estate, avoided paying income taxes for several years, partly by using like-kind exchanges.
Lastly, Romney hits a softball, but an important one: we shouldn’t rely on tariffs any more than we already do.
This is because tariffs “burden lower- and middle-income families,” an assertion borne out by a 2024 ITEP study that found Trump’s proposed tariffs would hike taxes on the poorest 20 percent of Americans four times more, as a share of income, than on the richest 1 percent. ITEP’s analysis showed that tariffs are the exact reverse of our progressive personal income tax: the less rich you are, the more of your income you pay, and no one pays more, as a share of income, than the very poorest Americans.
Of Course, Policymakers Should Do Much More Than Romney Suggests
The stepped-up basis rule and like-kind exchanges are both ways that wealthy people avoid paying taxes entirely on their capital gains. Even when capital gains are taxed, they are taxed at lower rates than the income that most of us earn from work and live on. The special, lower rates for capital gains should be eliminated entirely.
While Romney does not propose this, he does, to his credit, propose repealing the loophole that facilitates one of the worst abuses of these lower rates, one that he benefited enormously from: the “carried interest” loophole. Private equity fund managers (such as Romney, several years ago) earn money for managing other people’s money but characterize their earnings as a type of capital gains (called carried interest) in order to benefit from the lower tax rates.
There are many, many ways in which Congress can reform our tax system to be more progressive and more adequate to meet the nation’s needs. The fact that even Mitt Romney is now championing some of them shows that no one who is paying attention and being honest can pretend anymore that the Trump-GOP campaign to further cut taxes to benefit the wealthy and corporations is working.
