An income tax is a tax levied on the income of individuals or businesses (corporations or other legal entities). Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax, or profit tax. Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income (the difference between gross receipts, expenses, and additional write-offs). Various systems define income differently, and often allow notional reductions of income (such as a reduction based on number of children supported).

Principles of taxes[link]

The "tax net" refers to the types of payment that are taxed, which included personal earnings (wages), capital gains, and business income. The rates for different types of income may vary and some may not be taxed at all. Capital gains may be taxed when realized (e.g. when shares are sold) or when incurred (e.g. when shares appreciate in value). Business income may only be taxed if it is significant or based on the manner in which it is paid. Some types of income, such as interest on bank savings, may be considered as personal earnings (similar to wages) or as a realized property gain (similar to selling shares). In some tax systems, personal earnings may be strictly defined where labor, skill, or investment is required (e.g. wages); in others, they may be defined broadly to include windfalls (e.g. gambling wins).

Tax rates may be progressive, regressive, or proportional. A progressive tax applies progressively higher tax rates as earnings reach higher levels. For example, the first $10,000 in earnings may be taxed at 7%, the next $10,000 at 10%, and any more income at 30%. Alternatively, a flat tax takes all earnings at the same rate. A regressive income tax may apply to income up to a certain amount, such as taxing only the first $90,000 earned. A tax system may use different taxation methods for different types of income.

Personal income tax is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government by taxpayers who did not pay enough during the tax year; and tax refunds from the government to those who overpaid. Income tax systems often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages. Other tax systems may isolate the loss, such that business losses can only be deducted against business tax by carrying forward the loss to later tax years.

The idea of a progressive tax has garnered support from macro economists and political scientists of many different ideologies - ranging from Adam Smith to Karl Marx, although there are differences of opinion about the optimal level of progressivity. Some economists^[1] trace the origin of modern progressive taxation to Adam Smith, who wrote in The Wealth of Nations:

The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.^[2]

Income taxes are used in most countries around the world, but are not without criticism. Frank Chodorov wrote "... you come up with the fact that it gives the government a prior lien on all the property produced by its subjects." The government "unashamedly proclaims the doctrine of collectivized wealth. ... That which it does not take is a concession."^[3] Some have argued that the economic effects of an income tax system penalize work, discourage saving and investing, and hinder the competitiveness of business and economic growth.^[4][5] Income taxes are also not border-adjustable; meaning the tax component embedded into products via taxes imposed on companies cannot be removed when exported to a foreign country (see Effect of taxes and subsidies on price). Alternate tax systems such as a national sales tax or value added tax remove the tax component when goods are exported and apply the tax component on imports.^[6]

History[link]

The concept of taxing income is a modern innovation and presupposes several things: a money economy, reasonably accurate accounts, a common understanding of receipts, expenses and profits, and an orderly society with reliable records. For most of the history of civilization, these preconditions did not exist, and taxes were based on other factors. Taxes on wealth, social position, and ownership of the means of production (typically land and slaves) were all common. Practices such as tithing, or an offering of firstfruits, existed from ancient times, and can be regarded as a precursor of the income tax, but they lacked precision and certainly were not based on a concept of net increase.

China[link]

In the year 10 CE, Emperor Wang Mang of the Xin Dynasty instituted an unprecedented tax—the income tax—at the rate of 10 percent of profits, for professionals and skilled labor. (Previously, all taxes were either head tax or property tax.) He was overthrown 13 years later in 23 CE and earlier laissez-faire policies were restored during the Later Han.

United Kingdom[link]

One of the first recorded taxes on income was the Saladin tithe introduced by Henry II in 1188 to raise money for the Third Crusade.^[7] The tithe demanded that each layperson in England be taxed a tenth of their personal income and moveable property.^[8] However, the inception date of the modern income tax is typically accepted as 1799.^[9]

Income tax was announced in Britain by William Pitt the Younger in his budget of December 1798 and introduced in 1799, to pay for weapons and equipment in preparation for the Napoleonic wars. Pitt's new graduated income tax began at a levy of 2d in the pound (0.8333%) on annual incomes over £60 and increased up to a maximum of 2s in the pound (10%) on incomes of over £200 (£170,542 in 2007). Pitt hoped that the new income tax would raise £10 million (£8,527,100,000 in 2007), but actual receipts for 1799 totaled just over £6 million.^[10]

The tax was repealed in 1816 and opponents of the tax, who thought it should only be used to finance wars, wanted all records of the tax destroyed along with its repeal. Records were publicly burned by the Chancellor of the Exchequer but copies were retained in the basement of the tax court.^[11]

United States[link]

In order to help pay for its war effort in the American Civil War, the US federal government imposed its first personal income tax, on August 5, 1861, as part of the Revenue Act of 1861 (3% of all incomes over US $800) ($20,693 in 2011 dollars).^{[12][verification needed]} This tax was repealed and replaced by another income tax in 1862.^{[13][verification needed]}

In 1894, Democrats in Congress passed the Wilson-Gorman tariff, which imposed the first peacetime income tax. The rate was 2% on income over $4000 ($107,446.15 in 2011 dollars), which meant fewer than 10% of households would pay any. The purpose of the income tax was to make up for revenue that would be lost by tariff reductions.^[14] Also, the Panic of 1893 is said^{[by whom?]} to have something to do with the passage of Wilson-Gorman.

In 1895 the United States Supreme Court, in its ruling in Pollock v. Farmers' Loan & Trust Co., held a tax based on receipts from the use of property to be unconstitutional. The Court held that taxes on rents from real estate, on interest income from personal property and other income from personal property (which includes dividend income) were treated as direct taxes on property, and therefore had to be apportioned. Since apportionment of income taxes is impractical, this had the effect of prohibiting a federal tax on income from property. However, the Court affirmed that the Constitution did not deny Congress the power to impose a tax on real and personal property, and it affirmed that such would be a direct tax.^[15] Due to the political difficulties of taxing individual wages without taxing income from property, a federal income tax was impractical from the time of the Pollock decision until the time of ratification of the 16th Amendment in 1913.

In 1913, the Sixteenth Amendment to the United States Constitution made the income tax a permanent fixture in the U.S. tax system. The United States Supreme Court in its ruling Stanton v. Baltic Mining Co. stated that the amendment conferred no new power of taxation but simply prevented the courts from taking the power of income taxation possessed by Congress from the beginning out of the category of indirect taxation to which it inherently belongs. In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920. With the advent of World War II, employment increased, as did tax collections—to $7.3 billion. The withholding tax on wages was introduced in 1943 and was instrumental in increasing the number of taxpayers to 60 million and tax collections to $43 billion by 1945.^[3]

Types[link]

Personal[link]

A personal or individual income tax is levied on the total income of the individual (with some deductions permitted). It is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; and tax refunds from the government for those who have overpaid. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages.

Corporate[link]

Corporate tax refers to a direct tax levied on the profits made by companies or associations and often includes capital gains of a company. Earnings are generally considered gross revenue minus expenses. Corporate expenses related to capital expenditures are usually deducted in full (for example, trucks are fully deductible in the Canadian tax system, while a corporate sports car is only partly deductible) over their useful lives by using percentage rates based on the class of asset they belong to.

Accounting principles and tax rules about recognition of expenses and revenue will vary at times, giving rise to book-tax differences. If the book-tax difference is carried over more than a year, it is referred to as a deferred tax. Future assets and liabilities created by a deferred tax are reported on the balance sheet.

See also: Excess profits tax, Windfall profits tax

Payroll[link]

A payroll tax generally refers to two kinds of taxes: employee and employer payroll taxes. Employee payroll taxes are taxes which employers are required to withhold from employees' pay, also known as withholding, pay-as-you-earn (PAYE) or pay-as-you-go (PAYG) tax. These withholdings contribute to the payment of an employee's personal income tax obligation; if the payments exceed this obligation, the employee may be eligible for a tax refund or carryforward to future periods.

Employer payroll taxes are paid from the employer's own funds, either as a fixed charge per employee or as a percentage of each employee's pay. Payroll taxes often cover government social insurance programs, such as social security, health care, unemployment, and disability. These payments do not count toward the income taxes of employees and employers, but are normally deductible by the employer as a business expense.

Inheritance[link]

The inheritance tax, estate tax and death duty are the names given to various taxes which arise on the death of an individual. In international tax law, there is a distinction between an estate tax and an inheritance tax: the former taxes the personal representatives of the deceased, while the latter taxes the beneficiaries of the estate. However, this distinction is not universally recognized. For example, the "inheritance tax" in the UK is a tax on personal representatives, and is therefore, strictly speaking, an excise tax.

Capital gains tax[link]

A capital gains tax is the tax levied on profits from the sale of capital assets. In many cases, the amount of a capital gain is treated as income and subject to the marginal rate of income tax.

In an inflationary environment, capital gains may be, to some extent, illusory. If prices in general have doubled over five years, then selling an asset for twice the price it was purchased at five years earlier represents no gain at all. Partly to compensate for such changes in the value of money over time, some jurisdictions, such as the United States, give a favorable capital gains tax rate based on the length of holding. European jurisdictions have a similar rate reduction to nil on certain property transactions that qualify for the participation exemption. In Canada, 20–50% of the gain is taxable income. In India, Short Term Capital Gains Tax (arising before one year) is 10% [15 % from F.Y 2008-09 as per Finance Act 2008] flat rate of the gains and Long Term Capital Gains Tax is nil for stocks and mutual fund units held one year or more, provided the sale of shares involved payment of the Securities Transaction Tax, and 20% for any other assets held three years or more.

Around the world[link]

Income taxes are used in most countries around the world. The tax systems vary greatly and can be progressive, proportional, or regressive, depending on the type of tax. Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. Tax laws in most countries are extremely complex, and tax burden falls differently on different groups in each country and sub-national unit. Of course, services provided by governments in return for taxation also vary, making comparisons all the more difficult.

Transparency / Public Disclosure[link]

Public disclosure of personal income tax filings occurs in Finland and Norway.^[16]

See also[link]

• Income tax in Australia
• Income tax in Canada
• Income tax in India
• Income tax in the Netherlands
• Income tax in Singapore
• Income tax in Tanzania
• Income tax in the United States
• Lifetime income tax
• Local income tax
• Negative income tax
• Papal income tax
• Wealth tax

Notes[link]

External links[link]

Find more about Income tax on Wikipedia's sister projects:
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	Learning resources from Wikiversity
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	Quotations from Wikiquote
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	Textbooks from Wikibooks

• Tax Policy Analysis, OECD Tax Database
• History of the Income Tax in the United States — Infoplease.com

This article does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (February 2008)

In economics, personal income refers to an individual's total earnings from wages, investment enterprises, and other ventures.

See also[link]

• Economic reports

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Mitt Romney
70th Governor of Massachusetts
In office January 2, 2003 – January 4, 2007
Lieutenant	Kerry Healey
Preceded by	Jane Swift (Acting)
Succeeded by	Deval Patrick
Personal details
Born	Willard Mitt Romney (1947-03-12) March 12, 1947 (age 65) Detroit, Michigan, U.S.
Political party	Republican
Spouse(s)	Ann Romney (m. 1969) «start: (1969)»"Marriage: Ann Romney to Mitt Romney" Location: (linkback:http://en-wiki.pop.wn.com/index.php/Mitt_Romney)
Children	Taggart (b. 1970) Matthew (b. 1971) Joshua (b. 1975) Benjamin (b. 1978) Craig (b. 1981)
Residence	Belmont, Massachusetts Wolfeboro, New Hampshire San Diego, California
Alma mater	Brigham Young University (BA) Harvard University (MBA, JD)
Religion	The Church of Jesus Christ of Latter-day Saints (Mormon)
Positions	Co-founder, Bain Capital (1984–1999) CEO, Bain & Company (1991–1992) CEO, 2002 Winter Olympics Organizing Committee (1999–2002)
Signature
Website	MittRomney.com

	This article is part of a series about Mitt Romney	Mitt Romney
2012 Presidential campaign 2008 Presidential campaign Governor of Massachusetts, 2003–2007 1994 U.S. Senate election Political positions · Electoral history Public image

Willard Mitt Romney (born March 12, 1947) is an American businessman and the presumptive nominee of the Republican Party for President of the United States in the 2012 election. He was the 70th Governor of Massachusetts (2003–07).

The son of Lenore and George W. Romney (Governor of Michigan, 1963–69), he was raised in Bloomfield Hills, Michigan. In 1966, after one year at Stanford University, he left the United States to spend thirty months in France as a Mormon missionary. In 1969, he married Ann Davies, and the couple had five children together. In 1971, he earned a Bachelor of Arts degree in English from Brigham Young University and, in 1975, a joint Juris Doctor and Master of Business Administration from Harvard University as a Baker Scholar. He entered the management consulting industry, which in 1977, led to a position at Bain & Company. Later serving as Chief Executive Officer, he helped bring the company out of financial crisis. In 1984, he co-founded the spin-off Bain Capital, a private equity investment firm that became highly profitable and one of the largest such firms in the nation. His net worth is estimated at $190–250 million, wealth that has helped fund his political campaigns. Active in The Church of Jesus Christ of Latter-day Saints, he served as Ward Bishop and later Stake President in his area near Boston. He ran as the Republican candidate in the 1994 U.S. Senate election in Massachusetts, losing to long-time incumbent Ted Kennedy. In 1999, he was hired as President and CEO of the Salt Lake Organizing Committee for the 2002 Winter Olympics and Paralympics; and he helped turn the fiscally troubled games into a success.

He was elected Governor of Massachusetts in 2002 but did not seek re-election in 2006. During his term he presided over a series of spending cuts and increases in fees that eliminated a projected $1.5 billion deficit. He also signed into law the Massachusetts health care reform legislation, the first of its kind in the nation, which provided near-universal health insurance access via state-level subsidies and individual mandates.

Romney ran for the Republican nomination in the 2008 U.S. presidential election, winning several primaries and caucuses but losing the nomination to John McCain. In the following years, he gave speeches and raised campaign funds on behalf of his fellow Republicans. In June 2011, he announced that he would seek the 2012 Republican presidential nomination; as of May 2012, he has won enough caucuses and primaries to become the party's presumptive nominee.

Early life and education[link]

Heritage and youth[link]

Willard Mitt Romney^[1] was born at Harper Hospital in Detroit, Michigan,^[2] the youngest child of George W. Romney, a self-made man who by 1948 had become an automobile executive, and Lenore Romney (née LaFount), an aspiring actress turned homemaker.^[3][4][5] His mother was a native of Logan, Utah, and his father was born in a Mormon colony in Chihuahua, Mexico, to American parents.^[6][7] He is of primarily English descent, and also has more distant Scottish and German ancestry.^[8][9][10] He is a fifth-generation member of The Church of Jesus Christ of Latter-day Saints (LDS Church).^[11][12] A great-great-grandfather, Miles Romney, converted to the faith in its first decade, and another great-great-grandfather, Parley P. Pratt, was an early leader in the church during the same time.^[13]

He was preceded in birth by three siblings: Margo Lynn, Jane LaFount, and G. Scott. Mitt followed after a gap of nearly six years. He was named after family friend, hotel magnate J. Willard Marriott, and his father's cousin Milton "Mitt" Romney, a former quarterback for the Chicago Bears.^{[14][nb 1]} In 1953, the family moved from Detroit to the affluent suburb of Bloomfield Hills.^[16] In 1954, his father became the chairmen and CEO of American Motors, a company he helped avoid bankruptcy, and return to profitability.^[16] By the time Mitt was twelve, his father had become a nationally known figure in print and on television,^[17] and Mitt idolized him.^[18]

Mitt Romney began attending Cranbrook School in the seventh grade.

He attended public elementary schools^[15] until the seventh grade, when he began commuting to Cranbrook School in Bloomfield Hills, a traditional private boys' preparatory school where he was one of only a few Mormons and where many students came from backgrounds even more privileged than he.^[19][20] He was not particularly athletic and at first did not excel academically.^[18] During his sophomore year he participated in the 1962 campaign in which his father was elected Governor of Michigan.^{[nb 2]} When his parents moved to the state capitol as part of George Romney taking office, Mitt took up residence at Cranbrook's Stevens Hall.^[19] George Romney was re-elected twice; Mitt worked for him as an intern in the governor's office, and was present at the 1964 Republican National Convention when his moderate father battled conservative party nominee Barry Goldwater over issues of civil rights and ideological extremism.^[18][22] During these years, Romney had a steady set of chores and summer jobs, including working as a security guard at a Chrysler plant.^[23]

At Cranbrook he was a manager for the ice hockey team and a member of the pep squad,^[19] and during his final year joined the cross country running team.^[15] He belonged to eleven school organizations and school clubs, and started the Blue Key Club boosters group.^[19] During his final year at Cranbook, Romney improved academically, but was still not a star pupil.^[18][20] He won an award for those "whose contributions to school life are often not fully recognized through already existing channels".^[20] Romney was involved in many pranks.^{[nb 3]}

In March of his senior year, he began dating Ann Davies, two years his younger, whom he had first met in elementary school; she attended the private Kingswood School, the sister school to Cranbrook.^[27][20] The two informally agreed to marriage around the time of his June 1965 graduation.^[18]

University, France mission, marriage and children: 1965–1975[link]

Romney attended Stanford University for a year,^{[18][nb 4]} where he worked as a night security guard in order to pay for trips home to see Ann.^[28] Although the campus was becoming radicalized with the beginnings of 1960s social and political movements, he kept a well-groomed appearance and participated in pre-Big Game actions designed to protect the Stanford Axe.^[18] In May 1966, he was part of a counter-protest against a group staging a sit-in in the university administration building in opposition to draft status tests.^[18][29]

In July 1966, he left for a thirty-month stay in France as a Mormon missionary,^[18][31] a traditional rite of passage that his father and many other relatives had volunteered for.^{[nb 5]} He arrived in Le Havre with ideas about how to change and promote the French Mission, while facing physical and economic deprivation in their cramped quarters.^[33][13] Rules against drinking, smoking, and dating were strictly enforced.^[13] Most individual Mormon missionaries do not gain many converts,^[35] and Romney was no exception:^[33] he later estimated ten to twenty for his entire mission.^[36] The nominally Catholic but secular, wine-loving French people were especially resistant to a religion that prohibits alcohol.^[18][13][30] He became demoralized, and later recalled it as the only time when "most of what I was trying to do was rejected."^[33] In Nantes, he suffered a bruised jaw while defending two female missionaries who were being bothered by a group of local rugby players.^[13] He continued to work hard; having grown up in Michigan rather than the more insular Utah world, Romney was better able to interact with the French than other missionaries.^[37][13] He was promoted to zone leader in Bordeaux in early 1968, then in the spring of that year became assistant to the mission president in Paris, the highest position for a missionary.^[33][13][38] In the Mission Home in Paris he enjoyed palace-like accommodations.^[38] Romney's support for the U.S. role in the Vietnam War was only reinforced when the French greeted him with hostility over the matter and he debated them in return.^[13][33] He witnessed the May 1968 general strike and student uprisings and was upset by the breakdown in social order.^[39]

In June 1968, an automobile he was driving in southern France was hit by another vehicle, seriously injuring him and killing one of his passengers, the wife of the mission president.^{[nb 6]} Romney, who was not at fault in the accident,^{[nb 6]} became co-acting president of a mission demoralized and disorganized by the May civil disturbances and by the car accident.^[37] He rallied and motivated the others and they met an ambitious goal of 200 baptisms for the year, the most for the mission in a decade.^[37] By the end of his stint in December 1968, he was overseeing the work of 175 fellow members.^[33][40] Romney developed a lifelong affection for France and its people, and speaks French.^[42] The experience in the country instilled in him a belief that life is fragile and that he needed seriousness of purpose.^[18][37][13] It also represented a crucible, after having been an indifferent Mormon growing up: "On a mission, your faith in Jesus Christ either evaporates or it becomes much deeper ... For me it became much deeper."^[33]

While he was away, Ann Davies had converted to the Mormon faith, guided by George Romney, and had begun attending Brigham Young University (BYU).^[18] Mitt was nervous that she had been wooed by others while he was away, and she had indeed started dating popular campus figure Kim S. Cameron and had sent Romney in France a "Dear John letter", greatly upsetting him; he wrote to her to in an attempt to win her back.^[43][15] At their first meeting following Romney's return they reconnected, and decided to get married immediately but agreed to wait three months to appease their parents.^[44] At Ann's request, Romney began attending Brigham Young too, in February 1969.^{[43][nb 4]} The couple were married on March 21, 1969, in a civil ceremony at Ann's family's home in Bloomfield Hills that was presided over by a church elder.^[46][47][48] The following day, the couple flew to Utah for a wedding ceremony at the Salt Lake Temple.^[46][47]

While Mitt attended Harvard, his father George W. Romney (pictured here with Richard M. Nixon) served as United States Secretary of Housing and Urban Development.

Romney had missed much of the tumultuous American anti-Vietnam War movement while away, and was surprised to learn that his father had turned against the effort during his unsuccessful 1968 presidential campaign.^[33] Regarding the military draft, Romney had initially received a student deferment, then, like most Mormon missionaries, a ministerial deferment while in France, and then a student deferment.^[33][49] When those ran out, his high number in the December 1969 draft lottery (300) ensured he would not be selected.^[33][49][50]

At culturally conservative BYU, he remained isolated from much of the upheaval of the era, and did not join in protests against the war, or the LDS Church's policy at the time of denying full membership to blacks.^[24][33][43] He became president of, and an innovative fundraiser for, the all-male Cougar Club booster organization and showed a new-found discipline in his studies.^[33][43] In his senior year, he took leave to work as driver and advance man for his mother Lenore Romney's eventually unsuccessful 1970 campaign for U.S. Senator from Michigan.^[24][46] He earned a Bachelor of Arts in English with highest honors in 1971,^[43] and gave commencement addresses to both the College of Humanities and to the whole of BYU.^{[nb 7]}

The Romneys' first son, Taggart, was born in 1970^[46] while they were undergraduates at Brigham Young^[52] and living in a basement apartment.^[33][43] Ann subsequently gave birth to Matt (1971), Josh (1975), Ben (1978), and Craig (1981).^[46] Her work as a homemaker would enable her husband to pursue his career.^[53]

Romney still wanted to pursue a business path, but his father, by now serving in President Richard Nixon's cabinet as U.S. Secretary of Housing and Urban Development, advised him that a law degree would be valuable to his career.^[54][55] Thus he became one of only fifteen students to enroll at the recently created joint Juris Doctor/Master of Business Administration four-year program coordinated between Harvard Law School and Harvard Business School.^[56] Fellow students considered him guilelessly optimistic, noting his solid work ethic and buttoned-down demeanor and appearance.^[56][57] He readily adapted to the business school's pragmatic, data-driven case study method of teaching, participated in class well, and led a study group whom he pushed to get all A's.^[55] He had a different social experience from most of his classmates, since he lived in a Belmont, Massachusetts, house with Ann and two children.^[46][55] He was non-ideological and did not involve himself in the political or social issues of the day.^[46][55] He graduated in 1975 cum laude from the law school, in the top third of that class, and was named a Baker Scholar for graduating in the top five percent of his business school class.^[51][56]

Business career[link]

Management consulting[link]

Romney was recruited by several firms and chose to remain in Massachusetts to work for Boston Consulting Group (BCG), reasoning that working as a management consultant to a variety of companies would better prepare him for a future position as a chief executive.^{[54][58][nb 8]} He was part of a 1970s wave of top graduates who chose to go into consulting rather than join a major company directly.^[60] His legal and business education proved useful in his job^[54] while he applied BCG principles such as the growth-share matrix.^[61] He was viewed as having a bright future there.^[54][62]

In 1977, he was hired away by Bain & Company, a management consulting firm in Boston that had been formed a few years earlier by Bill Bain and other former BCG employees.^[61][54][63] Bain would later say of the thirty-year-old Romney, "He had the appearance of confidence of a guy who was maybe ten years older."^[64] With Bain & Company, Romney learned what writers and business analysts have dubbed the "Bain way",^[54][63][65] which consisted of immersing the firm in each client's business,^[54][64] and not just issuing recommendations but staying with the company until changes were put into place.^[61][63][66] Romney became a vice president of the firm in 1978,^[15] and worked with clients such as the Monsanto Company, Outboard Marine Corporation, Burlington Industries, and Corning Incorporated.^[58] Within a few years, he was one of Bain & Company's best consultants and was sought after by clients over more senior partners.^[54][67]

Private equity[link]

Romney was restless for a company of his own to run, and in 1983, Bill Bain offered him the chance to head a new venture that would buy into companies, have them benefit from Bain techniques, and then reap higher rewards than consulting fees.^[54][61] He initially refrained from accepting the offer, and Bain re-arranged the terms in a complicated partnership structure so that there was no financial or professional risk to Romney.^[54][64][68] Thus, in 1984, Romney left Bain & Company to co-found the spin-off private equity investment firm, Bain Capital.^[66] In the face of skepticism from potential investors, Bain and Romney spent a year raising the $37 million in funds needed to start the new operation, which had fewer than ten employees.^[58][64][69] As general partner of the new firm, Romney spent little money on costs such as office appearance, and saw weak spots in so many potential deals that by 1986, few had been done.^[54] At first, Bain Capital focused on venture capital opportunities.^[54] Their first big success was a 1986 investment to help start Staples Inc., after founder Thomas G. Stemberg convinced Romney of the market size for office supplies and Romney convinced others; Bain Capital eventually reaped a nearly sevenfold return on its investment, and Romney sat on the Staples board of directors for over a decade.^[54][69][70]

Romney soon switched Bain Capital's focus from startups to the relatively new business of leveraged buyouts: buying existing firms with money mostly borrowed against their assets, partnering with existing management to apply the "Bain way" to their operations (rather than the hostile takeovers practiced in other leverage buyout scenarios), and selling them off in a few years.^[54][64] Existing CEOs were offered large equity stakes in the process, owing to Bain Capital's belief in the emerging agency theory that CEOs should be bound to maximizing shareholder value rather than other goals.^[70] Bain Capital lost most of its money in many of its early leveraged buyouts, but then started finding deals that made large returns.^[54] The firm invested in or acquired Accuride, Brookstone, Domino's Pizza, Sealy Corporation, Sports Authority, and Artisan Entertainment, as well as lesser-known companies in the industrial and medical sectors.^[54][64][71] He ran Bain Capital for fourteen years, during which time the firm's average annual internal rate of return on realized investments was 113 percent.^[58] Much of this profit was earned from a relatively small number of deals; Bain Capital's overall success–to–failure ratio was about even.^{[nb 9]}

Less an entrepreneur than an executive running an investment operation,^[67][72] Romney was skilled at presenting and selling the deals the company made.^[68] The firm initially gave a cut of its profits to Bain & Company, but Romney persuaded Bain to give that up.^[68] Within Bain Capital, Romney spread profits from deals widely within the firm to keep people motivated, often keeping less than ten percent for himself.^[73] Viewed as a fair manager, he received considerable loyalty from the firm's members.^[70] Romney's wary instincts were still in force at times, and he was generally data-driven and averse to risk.^[54][70] He wanted to drop a Bain Capital hedge fund that initially lost money, but other partners prevailed and it eventually gained billions.^[54] He also personally opted out of the Artisan Entertainment deal, not wanting to profit from a studio that produced R-rated films.^[54] Romney was on the board of directors of Damon Corporation, a medical testing company later found guilty of defrauding the government; Bain Capital tripled its investment before selling off the company, and the fraud was discovered by the new owners (Romney was never implicated).^[54] In some cases, Romney had little involvement with a company once acquired.^[69]

Bain Capital's leveraged buyouts sometimes led to layoffs, either soon after acquisition or later after the firm had left.^[61][68][69] How jobs added compared to those lost due to these investments and buyouts is unknown, due to a lack of records and Bain Capital's penchant for privacy on behalf of itself and its investors.^[74][75][76] In any case, maximizing the value of acquired companies and the return to Bain's investors, not job creation, was the firm's fundamental goal, as it was for most private equity operations.^[69][77] Bain Capital's acquisition of Ampad exemplified a deal where it profited handsomely from early payments and management fees, even though the subject company itself ended up going into bankruptcy.^[54][70][77] Dade Behring was another case where Bain Capital received an eightfold return on its investment, but the company itself was saddled with debt and laid off over a thousand employees before Bain Capital exited (the company subsequently went into bankruptcy, with more layoffs, before recovering and prospering).^[74] Bain was among the private equity firms that took the most fees in such cases.^[64][70]

In 1990, Romney was asked to return to Bain & Company, which was facing financial collapse.^[66] He was announced as its new CEO in January 1991^[78][79] but drew only a symbolic salary of one dollar.^[66] He managed an effort to restructure the firm's employee stock-ownership plan, real-estate deals and bank loans, while rallying the firm's thousand employees, imposing a new governing structure that included Bain and the other founding partners giving up control, and increasing fiscal transparency.^[54][58][66] Within about a year, he had led Bain & Company through a turnaround and returned the firm to profitability without further layoffs or partner defections.^[58] He turned Bain & Company over to new leadership and returned to Bain Capital in December 1992.^[54][79][80]

Romney took a leave of absence from Bain Capital in February 1999 to serve as the President and CEO of the 2002 Salt Lake City Olympic Games Organizing Committee.^[54][81] By that time, Bain Capital was on its way to being one of the top private equity firms in the nation,^[68] having increased its number of partners from 5 to 18, with 115 employees overall, and $4 billion under its management.^[64][69] Bain Capital's approach of applying consulting expertise to the companies it invested in became widely copied within the private equity industry.^[25][69] Economist Steven Kaplan would later say, "[Romney] came up with a model that was very successful and very innovative and that now everybody uses."^[70]

Personal wealth[link]

In August 2001, Romney announced that he would not return to Bain Capital.^[81] He transferred his ownership to other partners and negotiated an agreement that allowed him to receive a passive profit share as a retired partner in some Bain Capital entities, including buyout and investment funds.^[73][82] Because the private equity business continued to thrive, this deal brought him millions of dollars in annual income.^[73] As a result of his business career, by 2007, Romney and his wife had a net worth of between $190 and $250 million, most of it held in blind trusts since 2003.^[82] In 2012, it was estimated that he had amassed twice the net worth of the last eight presidents combined,^[83] and would rank among the four richest in American history if elected.^[83][84]

An additional blind trust existed in the name of the Romneys' children and grandchildren that was valued at between $70 and $100 million as of 2007.^[85] The couple's net worth remained in the same range as of 2011, and was still held in blind trusts.^[86] In 2010, Romney and his wife received $21.7 million in income, almost all of it from investments, of which about $3 million went to federal income taxes (a rate of 13.9 percent, based upon the beneficial rate accorded investment income by the U.S. tax code) and almost $3 million to charity, including $1.5 million to the LDS Church.^[87] Romney has always tithed to the church, including stock from Bain Capital holdings.^[13][88][89] In 2010, the Romney family's Tyler Charitable Foundation gave out about $650,000, with some of it going to organizations that fight specific diseases such as cystic fibrosis and multiple sclerosis.^[90]

Local LDS Church leadership[link]

During his years in business, Romney also served in the local lay clergy (consisting of all Mormon men over the age of 12).^[13] Around 1977, he became a counselor to the president of the Boston Stake.^[91] He later served as bishop of the ward (leader of the congregation) at Belmont, Massachusetts, from 1981 to 1986, acting as the ecclesiastical and administrative head of his congregation.^[92][93] As such, in addition to home teaching, he also formulated Sunday services and classes using LDS scriptures to guide the congregation.^[94] He forged bonds with other religious institutions in the area when the Belmont meetinghouse was destroyed by a fire of suspicious origins in 1984; the congregation rotated its meetings to other houses of worship while it was rebuilt.^[88][93]

From 1986 to 1994, he presided over the Boston Stake, which included more than a dozen wards in eastern Massachusetts with about 4,000 church members altogether.^[67][94][95] He organized a team to handle financial and management issues, sought to counter anti-Mormon sentiments, and tried to solve social problems among poor Southeast Asian converts.^[88][93] An unpaid position, his local church leadership often took 30 or more hours a week of his time,^[94] and he became known for his tireless energy in the role.^[67] He generally refrained from overnight business travel owing to his church responsibilities.^[94]

He took a hands-on role in general matters, helping in maintenance efforts in- and outside homes, visiting the sick, and counseling troubled or burdened church members.^[92][93][94] A number of local church members later credited him with turning their lives around or helping them through difficult times.^[88][93][94] Some others were rankled by his leadership style and desired a more consensus-based approach.^[93] Romney tried to balance the conservative dogma insisted upon by the church leadership in Utah with the desire of some Massachusetts members to have a more flexible application of doctrine.^[67] He agreed with some modest requests from the liberal women's group Exponent II for changes in the way the church dealt with women, but clashed with women whom he felt were departing too much from doctrine.^[67] In particular, he counseled women not to have abortions except in the rare cases allowed by LDS doctrine, and also in accordance with doctrine, encouraged prospective mothers who were not in successful marriages to give up children for adoption.^[67] Romney later said that the years spent as an LDS minister gave him direct exposure to people struggling in economically difficult circumstances, and empathy for those going through problematic family situations.^[96]

1994 U.S. senatorial campaign[link]

By 1993, Romney had been thinking about entering politics, partly based upon Ann's urging and partly to follow in his father's footsteps.^[46] He decided to challenge incumbent Democratic U.S. Senator Ted Kennedy, who was seeking re-election for the sixth time. Kennedy was potentially vulnerable that year – in part because of the unpopularity of the Democratic Congress as a whole, and in part because this was Kennedy's first election since the William Kennedy Smith trial in Florida, in which Kennedy had suffered some negative public relations regarding his character.^[97][98][99] Romney changed his affiliation from Independent to Republican in October 1993 and formally announced his candidacy in February 1994.^[46] He took a leave of absence from Bain Capital in November 1993, and stepped down from his church leadership role during 1994, due to the campaign.^[100][94]

Radio personality Janet Jeghelian took an early lead in polls among candidates for the Republican nomination for the Senate seat, but Romney proved the most effective fundraiser.^[101][102] He won 68 percent of the vote at the May 1994 Massachusetts Republican Party convention; businessman John Lakian finished a distant second and Jeghelian was eliminated.^[103] Romney defeated Lakian in the September 1994 primary with over 80 percent of the vote.^[15][104]

In the general election, Kennedy faced the first serious re-election challenger of his career in the young, telegenic, and well-funded Romney.^[97] Romney ran as a fresh face, as a businessperson who stated he had created ten thousand jobs, and as a Washington outsider with a solid family image and moderate stances on social issues.^[97][105] When Kennedy tried to tie Romney's policies to those of Ronald Reagan and George H. W. Bush, Romney responded, "Look, I was an independent during the time of Reagan-Bush. I'm not trying to take us back to Reagan-Bush."^[106] Romney stated: "Ultimately, this is a campaign about change."^[107] After two decades out of public view, his father George re-emerged during the campaign.^[108][109]

Romney's campaign was effective in portraying Kennedy as soft on crime, but had trouble establishing its own positions in a consistent manner.^[110] By mid-September 1994, polls showed the race to be approximately even.^{[97][111][112]} Kennedy responded with a series of attack ads, which focused on Romney's seemingly shifting political views on issues such as abortion and on the treatment of workers at the Ampad plant owned by Romney's Bain Capital.^{[97][113][114]} The latter was effective in blunting Romney's momentum.^[70] Kennedy and Romney held a widely watched late October debate without a clear winner, but by then, Kennedy had pulled ahead in polls and stayed ahead afterward.^[115] Romney spent $3 million of his own money in the race and more than $7 million overall.^{[116][nb 10]} In the November general election, despite a disastrous showing for Democrats overall, Kennedy won the election with 58 percent of the vote to Romney's 41 percent,^[54] the smallest margin in Kennedy's eight re-election campaigns for the Senate.^[119]

2002 Winter Olympics[link]

Romney, president and CEO of the Salt Lake Organizing Committee for the 2002 Winter Olympics, speaking before a curling match

Romney returned to Bain Capital the day after the election, but the loss had a lasting effect; he told his brother, "I never want to run for something again unless I can win."^[46][120] When his father died in 1995, Mitt donated his inheritance to BYU's George W. Romney Institute of Public Management and joined the board and was vice-chair of the Points of Light Foundation (which had incorporated his father's National Volunteer Center).^[45][81] His mother died in 1998. Romney felt restless as the decade neared a close; the goal of simply making more money was losing its appeal to him.^[46][120] He no longer had a church leadership position, although he still taught Sunday School.^[92] During the long and controversial approval and construction process for the $30 million Mormon temple in Belmont, he feared that as a political figure who had opposed Kennedy, he would become a focal point for opposition to the structure.^[93] He thus kept to a limited, behind-the-scenes role in attempts to ease tensions between the church and local residents, but locals nonetheless sometimes referred to it as "Mitt's Temple".^[88][92][93]

Ann Romney was diagnosed with multiple sclerosis in 1998; Mitt described watching her fail a series of neurological tests as the worst day of his life.^[46] After two years of severe difficulties with the disease, she found while living in Park City, Utah (where the couple had built a vacation home) a mixture of mainstream, alternative, and equestrian therapies that gave her a lifestyle mostly without limitations.^[53] When the offer came for him to take over the troubled 2002 Winter Olympics and Paralympics, to be held in Salt Lake City in Utah, she urged him to take it, and eager for a new challenge, he did.^[120][121] On February 11, 1999, Romney was hired as the president and CEO of the Salt Lake Organizing Committee for the Olympic and Paralympic Winter Games of 2002.^[122]

Before Romney came on, the event was running $379 million short of its revenue benchmarks.^[122] Plans were being made to scale back the Games to compensate for the fiscal crisis, and there were fears the Games might be moved away entirely.^[123] The Games had also been damaged by allegations of bribery involving top officials, including prior Salt Lake Olympic Committee president and CEO Frank Joklik. Joklik and committee vice president Dave Johnson were forced to resign.^[124] Romney was chosen by Utah figures looking for someone with expertise in business and law and with connections to the state and the LDS Church.^[125] The appointment faced some initial criticism from non-Mormons, and fears from Mormons, that it represented cronyism or gave the Games too Mormon an image.^[30]

Romney ran the planning for the Games like a business.^[126] He revamped the organization's leadership and policies, reduced budgets, and boosted fundraising, alleviated the concerns corporate sponsors and recruited many new ones.^[120][125] He appealed to Utah's citizenry with a message of optimism that helped restore confidence in the effort.^[120][126] He worked to ensure the safety of the Games following the September 11, 2001 terrorist attacks by coordinating a $300 million security budget.^[121] Overall, he oversaw a $1.32 billion budget, 700 employees, and 26,000 volunteers.^[122] The federal government provided between approximately $400 million^{[125][127][128]} and $600 million^[126][129] of that budget, much of it a result of Romney's having aggressively lobbied Congress and federal agencies.^{[129][130][131]} It would prove to be a record level of federal funding for the staging of a U.S. Olympics, a fact Romney would cite as a selling point during his campaign for the Massachusetts governorship.^[128][130] An additional federal $1.1 billion was spent on indirect support in the form of highway and transit projects.^[132]

Romney emerged as the public face of the Olympic effort, appearing in photographs, news stories and Olympics pins.^[120] Robert H. Garff, the chair of the organizing committee, later said that "It was obvious that he had an agenda larger than just the Olympics,"^[120] and that Romney wanted to use the Olympics to propel himself into the national spotlight and a political career.^[125][133] Garff believed the initial budget shortfall was not as bad as Romney portrayed, given there were still three years to reorganize.^[125] Utah Senator Bob Bennett said that much of the needed federal money was already in place and an analysis by The Boston Globe stated that the committee already had nearly $1 billion in committed revenues.^[125] Olympics critic Steve Pace, who led Utahns for Responsible Public Spending, thought Romney exaggerated the initial fiscal state in order to lay the groundwork for a well-publicized rescue.^[133] Kenneth Bullock, another board member of the organizing committee and also head of the Utah League of Cities and Towns, often clashed with Romney at the time, and later said that Romney deserved some credit for the turnaround but not as much as he claimed:^[120] Bullock said: "He tried very hard to build an image of himself as a savior, the great white hope. He was very good at characterizing and castigating people and putting himself on a pedestal."^[125]