Tax returns released by Bruce Rauner reveal that Republican gubernatorial nominee took advantage of a fee waiver loophole to avoid paying the federal rate for the nation's wealthiest.
The Chicago Tribune analyzed three years of 1040 forms and discovered that Rauner, a Winnetka venture capitalist worth some $500 million, received a significant discount on income taxes despite earning enough to place him in the former top-tier federal tax bracket of 35 percent.
According to the paper, the Ilinois candidate -- who founded the Chicago-based private equity firm GTCR -- made use of an accounting strategy popular among investment businesses to slash taxes for certain partners. The millions Rauner netted as a chairman at GTCR were submitted to the IRS as "capital gains taxed at a preferential 15 percent" including money from fee waivers frequently employed by firms as a way to reduce managers' tax tabs. As a result, Rauner saved a ton on his portion of investment fees paid to the company and was able to dodge Social Security and Medicare payments.
From 2010-2012, Rauner owed a collective $20.7 million in taxes while reporting income of $108 million over that time period -- that put him roughly in the same tax bracket as Democratic Gov. Pat Quinn, whose rate during those several years averaged at 18.8 percent, the Trib reported. Rauner, meanwhile, clocked in at above 19 percent.
The fee waiver method is permitted under tax laws -- so Rauner and company did nothing illegal -- but is now being examined by the IRS, which began probing its widespread use within the private equity sector after ex-GOP presidential candidate Mitt Romney was similarly found to have benefitted from such loopholes.
Rauner has sought an extension on the release of his 2013 return.
"My income is based upon a whole lot of things. It's capital gains through carried interest. It's through management fees I get across all the funds," Rauner told the Trib, saying he hadn't earned a typical salary in three decades.
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"I've been a very large owner in every GTCR fund over 32 years," he continued. "I also have other personal investments, some of which generate ordinary income of various types, some of which generate capital gains, some of which generate interest income. Breaking apart all that detail is hard to do."
It may be no coincidence that Rauner decided to disclose the documents during a holiday week when a lot of people aren't paying as much attention to the news. These tax-reducing revelations certainly don't help his campaign to "shake up Springfield" as a so-called champion of fiscally conservative average Illinoisans who don't benefit from fee waivers when filing taxes. While he's reaching out to potential voters in new (humble) ways, Rauner might have to work even harder to evade the rich-guy stigma that derailed Romney in 2012.
