When you look at the one tax return he released it is obvious why, why he released only one. We learned that he pays a lower tax rate than middle class families. We learned that he chose Swiss bank accounts and Cayman Island tax shelters over American institutions. And we can only imagine what new secrets would be revealed if he showed the American people a dozen years of tax returns, like his father did. – from a speech by Harry Reid at the Democratic National Convention
Once upon a time, it was believed that long term investment was a good thing. The idea was that it led to long term stability and less volatility in the economy. Because this was thought to be a good thing, tax laws were passed that encouraged such behavior. Rather than being taxed as ordinary income, money invested for the long term is given a special status. When such investments are sold the profits from the sale, called “long term capital gains,” are taxed at a lower rate than investments held only for a short term.
Through the history of the income tax, the rate and the length that the investment must be held to qualify has changed. Currently, the length of holding must be one year or longer, and the tax rate is set at 15%. The idea is to encourage investors to invest for the long term, not to just buy a stock or property one day and sell it the next. Thus, an investor who bought, say 100 shares of “Company A” one day at $10 a share and sold it the next for $20 a share, for a profit of $1000, would pay 35% of that profit, or $350 in tax (assuming they were in the 35% tax bracket), while another investor who also bought at $10/share but sold a year later at $20/share, also earning a $1000 profit would only pay 15%, or $150 in taxes. Their long term investment in the company would be rewarded by a tax bill $200 less than the more impulsive investor.
This has been the paradigm in America for as long as there has been taxation of income. No longer; enter the 2012 presidential election cycle.
One of the points Barack Obama and his campaign keep hammering home day in and day out, aided by their willing accomplices in the media, is this idea that “evil rich guys” pay less in taxes than do “ordinary Americans.” When they do so, they invariably point to the marginal tax rate paid by the individual, not the total amount of taxes they pay. And square in the crosshairs of the attack is Mitt Romney; evil rich guy number one.
“You work hard, stretch every penny, but chances are you pay a higher tax rate than him: Mitt Romney made $20 million dollars in 2010, but paid only 14 percent in taxes—probably less than you.” – So goes an Obama campaign ad that purports to show that, if Romney isn’t a tax cheat per se, he is a “beneficiary” of tax loopholes that enable him to pay less than you, who aren’t in as fortunate a position as he.
I guess in an age where 47% of Americans actually pay no federal income tax, it isn’t too surprising that many don’t understand how taxes are actually paid. Long term capital gains, short term capital gains, ordinary income – these are esoterica, unfortunately for many Americans. And the reasons behind the different rates? Well don’t bore me with that mumbo jumbo; it’s time for my favorite TV show!
Most of Romney’s income comes from long term capital gains and income, and thus is taxed at a 15% rate. In 2010 he made over $21 million dollars and paid nearly $3 million in taxes. In addition, he gave around 14% of his income to charity.
I don’t know about you, but I didn’t pay anywhere close to $3 million in taxes last year. So I guess that in actuality Mitt Romney paid more in income taxes than I did. But how about as a percentage of income? Surely, since I am in the 25% tax bracket, I must have paid more of my income as a percentage of income than Mitt.
Without going into great detail, after all, my taxes are my own business, not really. In 2010 I paid about $7,000 tax on income of around $108,000. That works out to a tax rate of approximately 6.5%.
How did I do that? Am I a tax cheat? Do I have some sort of high-powered tax lawyers looking for loopholes for me? No, like millions of Americans, I do my taxes myself, using Turbo Tax. My returns are pretty simple; I have a job that pays a salary. In addition, in 2010 I had a second job in the Air Force Reserve from which I have since retired, and finally, a small annuity that will run out in 2018. I had the usual standard deductions for myself, my wife, and two children as well as two child tax credits. I also tithe 10% to my church, have other charitable contributions, and a house mortgage. No hocus pocus, no fancy tax breaks, just the same deductions available to millions of other tax payers.
So by any measure that you care to name, percentage or total dollar amount, Mitt Romney paid more in income tax in 2010 than I did. I would suspect the same to be true in 2011, 2012, and years prior as well.
Well, you ask, what about payroll taxes? Well, what about them. Yes, I am certain that as a percentage of income, you, I, and most Americans paid more in payroll taxes than did Mitt. So what? You have to have payroll income in the first place in order to pay a payroll tax. With his income deriving from capital gains and dividends, Mitt had no payroll income, and so paid no payroll tax. What is so unfair about that? Should Mitt be taxed on income he never received?
While Governor of Massachusetts, Mitt earned a salary, and therefore would have paid payroll taxes on that. Except that while governor Mitt refused salary and served in the position for free. Should he have paid taxes on the money he could have received but chose not to? How would that be fair?
Likewise, when he worked to save the 2002 Winter Olympics, he would have received a salary, and likewise he refused it, serving once again for zero pay. Should he have paid payroll taxes on that money he never received?
I would expect that, unless there is some rule that says he can’t, that he will, if elected, serve as President at zero pay as well. If he does, he will, as far as I know, be the first President to do so. Is this a bad thing?
There are those who believe that the current tax rate on long term capital gains is too low. President Obama numbers himself among them. He and others like him would like to see the rate go back up to 28% where it was before the Bush tax cuts lowered it. There is no doubt that doing so would mean that Mitt Romney and others would pay a higher percentage of their income in taxes. But then again, so would everyone else.
I don’t understand why Obama is excoriating Mitt for doing exactly what not only is prudent from his perspective, but what the Congress, in creating long term capital gains rates had in mind in the first place. This wasn’t some sort of loophole to benefit the rich; it was intended, as mentioned before, to create stability in the economy. It also provides a benefit for those who are retired, who can live off the long term cap gains and pay less in taxes, keeping more for themselves. This means that they need less in savings than they otherwise would to achieve the same standard of living in retirement, as they don’t have to give as much of it away to the federal government.
So what exactly is behind this effort to paint Mitt as some sort of rich guy who doesn’t pay his fair share at best, or a tax cheat at worse?
Politics, of course; class warfare at its best, or worse depending on how you look at it. And it’s certainly disingenuous. Does anyone seriously think that Nancy Pelosi, Harry Reid, or Barack Obama himself have no long term capital gains investments? Or Charles Rangel perhaps? You remember old Charlie, they guy with the rental property in the Caribbean that he somehow forgot about at tax time? Along with two plots of land closer to home in New Jersey that he neglected to pay property taxes on, and apparently, various other sundry tax “faux pas”. But then again, expecting the chairman of the House Ways and Means Committee, the folks who actually write the tax laws, to actually pay their taxes probably is unrealistic.
However, this article is about Mitt Romney, not Charles Rangel or other rich millionaires in the Congress that can’t seem to get their taxes right, or who excoriate others for not paying “enough” when they themselves are taking advantage of the same tax law to reduce their payments as much as possible. Somehow it is Republican Mitt Romney, who paid every nickel owed, who is the “bad guy” for not “paying enough,” and not Democrats who supposedly “pay more,” but cheat on their taxes. Somehow it is Republican Mitt Romney who is evil, for having some of his investments off shore, and not Democrats who also have holdings in the Caribbean and other places overseas.
It is Mitt Romney who gave 14% of the $21 million he made to charity who is the bad guy for only “giving” 14% of his earnings to the U.S. government to spend. But Joe Biden, our Vice President only paid 22% of his earnings to Uncle Sam in 2010. Good Old Joe, who reported an adjusted gross income of $379,178 is in the 35% tax bracket. So how did Joe “get away” with only paying 22%. Didn’t he pay his “fair share?”
Joe only gave $5,350 to charity in 2010, or 1.5% of his income. Now, what a person gives to charity is his or her own business. However, the combined total of Mitt’s tax and charitable giving totals 28%; Joe Biden’s only 23.5%. As President Obama quoted President Clinton at the DNC recently, “you do the math.”
Perhaps Joe considers his taxes to be equivalent to charitable giving. Certainly many on the left seem to think so. Charitable giving amongst conservatives is much higher than amongst liberals.
Favorable tax rates for long term investment have served our nation well. They have helped to funnel money into long term investment that otherwise might not have gone there. This has led to increased investment in new infrastructure, new startup businesses, things that might require the passage of significant time to come to fruition rather than things that might turn a profit quickly. This is good for the economy and good for the country. Excoriating Mitt Romney for making long term investments and for making smart decisions regarding his money is disingenuous.
After all, don’t we want someone in the White House who is a smart investor? Who is good with investments? And who will be a good steward of the nation’s wealth, rather than a spendthrift who pays more than necessary and spends like a drunken sailor simply because he has a lot of money at his disposal and he can?
Biden, a man who supposedly cares, gave 1.5% of his income to charity. Romney, a man who supposedly is a stingy scrooge who has no idea of the trials and tribulations of the common man, gave 14%. Which is the most “compassionate?”
Harry Reid titillates us by stating in a breathless speech at the DNC, “we can only imagine what new secrets would be revealed if he showed the American people a dozen years of tax returns.” Yes Harry, we can only imagine. Just as we can only imagine what might be buried in your tax returns. But then again, you won’t release any. If we were to look at Mitt’s returns for the past 10 years, my suspicion is we would see pretty much the same thing we saw on his 2010 return. I don’t understand this fascination we seem to have with tax returns anyway. I don’t want people pawing through mine, why should we demand to paw through theirs? I don’t particularly care about Obama’s or Biden’s returns either.
It’s the same with medical exams. I don’t really care what medications you are taking or what the inside of your colon looks like. These things are not constitutional qualifications for being president. What interests me most is what you say you are going to do, what your plan is, who you surround yourself with, and what you have done in the past. I care a lot about your ideology. I don't really care about your tax return; that is between you, the IRS, and God.
So Mitt paid 14% in federal taxes last year. So what? He violated no laws. We have people who did who are currently serving in Congress!
Once upon a time, we believed in long term investment in America. What do we believe in now?