Romney pays a federal income tax rate of only 14 percent on his income of more than $20 million per year because of two features of the tax code. First, capital gains on investments, the bulk of his income, are taxed at only 15 percent, well below the top marginal rate of 35 percent for ordinary income. Second, the income he still collects from Bain Capital, as part of his retirement deal there, is eligible for the carried-interest loophole, which allows fund managers to have their compensation for investing other people's money taxed as capital gains, not earned income.
...
But lo and behold, what did I see tucked inside the business section of Sunday’s New York Times but an earnest effort to justify the loophole penned by Harvard economist Greg Mankiw. Mankiw is a veteran of George W. Bush’s administration. He is also one of the lead economic advisers to...Mitt Romney. And writing in the Times, he did an impressive job of muddying the water around a question that truly is as as clear-cut as they come: why should investment managers have the compensation for their labor taxed at a far lower rate than all other professionals? You’ll have to read it to believe it, but Mankiw’s trick is to bring in the more sympathetic example of a carpenter who teams up with an investor on a real estate project that turns a profit. Under current law, the carpenter’s share of the profits are taxed as capital gains, just as the investor’s are, even though in the carpenter’s case what he was putting into the project was his sweat equity, not an investment stake. If the carried interest loophole were closed, notes Mankiw, the carpenter would be taxed at a far higher rate than the investor he teamed up with. Well, yes—but that's only because we tax capital gains at a much lower rate than ordinary income. If Mankiw is so bothered by the carpenter’s fate after the closing of the carried interest loophole, then he should be pushing for the equalization of the tax rate for investments and earned income.
...
*Update at 11 a.m.: Well, it looks like Mankiw’s defense of carried interest is even more eye-opening than I realized: Matt O'Brien, a former TNR intern now at the Atlantic, notes that Mankiw came out for closing the loophole back in 2007, when he used a rather different analogy in writing on his blog:

http://www.tnr.com/blog/the-stump/101381/team-romney-rallies-around-carried-interest