We are being bombarded with stories about the Mitt Romney
tax returns. The left thinks he is hiding something and wants him to disclose
10 years of returns (recently amended to 5 years) so they can dig into them and
find ways to make his wealth an issue in this election. While it appears all is
fair game in politics I think the American people would prefer to hear about
who is going to fix the economy and get jobs back on track.
That said all the debate about tax returns made me start
thinking and now I have some questions. Mitt Romney paid over 13% in taxes in
his 2010 return and claims that is the case for all years. His 2011 return will
be out in September and we will see what that year yielded. Barrack Obama paid
20% in his latest tax filing according to public records. All this got me
thinking.
I made less money than both of them in 2011 and I
paid about 44% in taxes. Is there a problem here? How can they both pay
so little on large sums of income and I, a poor working stiff have to pay more
than double what they did?
So I did some analysis. In Romney’s case most of his income
came from capital gains, which is taxed at a lower rate (at least for now) than
regular income. In 2010 that rate was 15% on long term gains. He had a gross
income of $21.6M and deductions of over $4.5M and like Obama had some miscellaneous
items, leaving him with a tax due of $3.09M. Since he paid in over $4.6M he got
a refund of $1.6M. With the legal use of tax shelters, deductions and careful
investment management he managed to get his gross rate to just over 21%. I get
that and while I don’t think it is fair I can see how under current tax law it
is possible.
Obama made a salary of $394K and then had approximately
$444K income from his and Michelle’s books etc. Their return shows gross income
of $844K with taxable being $789K the difference being self- employment retirement
deduction. How did he do that? He is not self- employed? Then he has deductions
of over $278K and few miscellaneous items leaving him with a tax due of $162K
and since he paid in $186K he got a $24K refund. So in effect his gross tax
rate was 19.1%.
The press is reporting different numbers because some are
using net taxable income over tax due while others are using gross income over
tax due. I think the best measure is gross income versus tax due (which is what
I used above). Please note that Romney paid a higher percentage than Obama and
of course a lot more money. Neither violated any tax laws and used every
available deduction they could. Romney had a very complex stream of income and
since he is self-employed more deductions. Romney is a very wealthy man and
there is no shame in that. Actually, he gave over $2.9M away in 2010 which is
just over 13% of his gross income. The Obama’s gave away $172K which is about
20% of their gross income.
Based on this analysis and the details outlined above I just
can’t see why there is such an outcry about tax returns. We will see Romney’s
2011 statement very soon and I am sure it will once again be similar to 2010 as
most of his income comes from investments. His expenses (deductions) maybe
higher in 2011 because he started his campaign and they are not cheap to run.
If we have any concerns about the tax returns it should be
that simple folks like us who don’t have high powered CPA’s and attorneys don’t
have the deductions these folks have a pay a much higher tax rate than they do.
I am a perfect example. If our leaders can make use of the tax code and pay
this little why can’t we?
We can’t because we don’t have the means to hire the experts
to guide us and thus we don’t get the deductions. This is why I am in favor of a
flat tax as we will level the playing field and even simple hard
working stiffs like me will get a fair shake on their taxes. This is what the
media should be focused on. This is the kind of change we need to get America
back on her feet. Who cares whether Barrack paid 19 or 22% or whether Romney
paid less or more? We should care about what we are being asked to pay and
why 43% of Americans pay no taxes at all!
So let’s knock off the tax return rhetoric and get after the
big issues.
See my new series: Fixing America – A Road Map to Restoring the
American Dream. A ten part plan to Fix America – continuing right here
on RastaRants.