He’s right of course. If we saw Mitt Romney’s returns for the past ten years, the Democratic Party would scrutinize every little detail to find something to complain about. But it is not Mitt Romney who would suffer from the release. It is the entire Congress, with Republicans probably taking a bigger hit than Democrats.
Romney released his tax return for 2010. His accountants haven’t finished with his 2011return yet, but that will be released when it’s ready. They’ve only had seven months to prepare it, and we’re four months past the due date, but what’s a little tax filing delay among friends.
In 2010, Mitt and Ann Romney had an investment income of $21,171,000 and an earned income of $529,000. On the earned income, they paid 1.45% Medicare tax ($7,670.50) and paid 6.2% Social Security tax on the first $106,800 ($6,621.60). They paid 13.9% income tax rate on their entire $21,700,000 ($3,016,300). So, in total, the Romneys paid $3,030,592.10 in taxes, a total tax rate of 13.97%.
In 2010, I earned $12,972.70. I paid $804.31 in Social Security tax (6.2%) and $188.10 in Medicare tax (1.45%). I paid $980 in income taxes (7.6%). My tax total was $1,972.41, for a total tax rate of 15.2%.
I paid 1.23% more of my meager income in taxes than Mitt Romney paid on his income.
With 50 pages of itemized deductions, tax breaks (plus $4.8 million in deferred capital losses from 2009) and the IRS only knows what else, the Romneys didn’t pay 15% on their investment income or come close to 36% on the $529,000 earned income. And it is probably even worse for 2008 and 2009. If Romney deferred millions in capital losses to 2010, then he had sufficient losses to spare. The deferment means he paid no income taxes in 2009 because he lost so much of his investments’ values and deferred the extra losses to take in 2010.
His losses were in no way the same as the losses sustained by retirees who supplement their Social Security with their 401K dividend payments. The stock market collapse wiped out 401K accounts and left those retirees with no supplemental income. Romney’s losses may look huge on paper, but with investments in the Cayman Islands and Switzerland, and sheltered investments the Romneys suffered no loss of lifestyle. They didn’t have to sell their share in Rafalca or sell off a couple of cars or give up a house or two or start shopping in Target instead of the boutiques with the $1,000 blouses. If you have ever followed the Forbes 400, you know that even the great losses from the collapse of the financial services industry the folks on that billionaires’ club list suffered no appreciable loss of their asset wealth.
What would have happened if the Romneys hadn’t had all those deductions and tax breaks? What if they had been limited to the same dependent exemptions and standard deductions as most of us? And my favorite “what if” – what if there were no earnings limit on contributions to Social Security?
First, we get to put back that $4.8 million in losses that he deferred from 2009. That increases his income to $25,971,000. At the full capital gains rate of 15%, the Romneys would have paid $3,895,650 in taxes for that share of their income. We’ll deduct the dependent exemptions and standard deduction from the earned part of the income, which is taxed at a higher rate. So, $529,000 less two exemptions at $3,650 each, less the standard deduction of $11,600 leaves a taxable income of $510,000, which at 36% would be $183,636 in income taxes. Then, a full FICA and Medicare of 7.65% would be $40,468.50 in payroll taxes. Their total tax bill would have been $4,119,754.50, $1,089,162.40 more than they actually paid. Their effective tax rate would have been 15.8%….just 0.6% more than mine.
Now, wouldn’t that have been fairer?
In 1976, California Governor Jerry Brown ran for the Democratic nomination for President. At that time, he proposed a flat tax rate of 10%, which his bean counters said would balance the Federal budget, restore solvency to the Social Security system and be completely fair to everyone. In 1996, Forbes Magazine publisher Steve Forbes ran for the Republican Presidential nomination. His flat tax proposal was set at 17%, but was more complex than Brown’s original plan. Even Brown revised his neat flat tax plan when he ran again in 1992, when he raised the rate to 13% and proposed a VAT tax. The idea of cleaning out our tax code and making it fairer has been around for over 30 years, and instead of it all getting simpler, it just gets more complicated.
Forty years ago, I was working as a legal secretary. One of my minor, housekeep-y jobs was updating the tax book. It was a front and back cover with studs to hold the loose-leaf pages, and about the size of a standard book. The pages were the weight of tracing paper. Four times a year, we would receive a package of revisions to the tax code and I would have to put them in the right place in the book. I never really checked the total number of pages, but the book was about the depth of Harry Potter and the Order of the Phoenix, which is 820 normal weight pages. According to CCH, the guys who actually publish the whole tax code, the regulations and the explanations of the regulations, the Standard Federal Tax Reporter in 1972 was 19,500 pages.
What is it today? 73,608 pages. The tax code has expanded 3.75 times its size 40 years ago, and most of the expansion is not in new taxes, but in new ways not to pay taxes. That means everything from the Child Care credit to the residential energy credit, but most of those credits and tax breaks are never seen by us poor mortal wage earners. They are for the Romneys and the General Electrics of our country. They allow someone to earn over $25 million and pay a smaller share of that in taxes than someone earning $12,000 and allow companies like General Electric to pay no taxes at all.
And that is why the Republican Party should all be backing Mitt Romney’s choice not to show us his tax returns….not because we will pick his personal income and expenses apart, not because he will look too, too 1%, but because in each of his State of the Union Addresses, President Obama has asked Congress to simplify and make fair that behemoth of a tax code of ours. Simplify it, get rid of the special perks and the pandering-to-voter tax credits, do what all those Republican contenders were getting theatrical about – if you earn it, pay taxes on it. Companies should, of course, be able to take their revenue, deduct their real expenses and pay a fair tax on their profit. And for all those small business owners who blend their businesses and personal incomes onto the personal tax forms, we could set the same tax rate for companies and individuals. We should stop the nonsense of pretending to separate Social Security and Medicare taxes from the regular taxes and just lump them in together the way we do on the spending side.
Mitt Romney’s accountants have filed an extension of filing for his 2011 taxes. Don’t expect them to be finished with the small tome they are preparing before the election. Romney is rich enough that it doesn’t matter to him if he pays eight or nine months of interest on his taxes just to keep us from seeing them. I, on the other hand, made a trip to the IRS office this morning. After a few days of frustration with their website and toll-free phone system, I needed to see a person to find out why my little $150 refund hadn’t arrived yet. I found out that if you file electronically, they don’t notify you if they reject your return. I made two small errors on my return and now instead of a refund, I owe another $428 in taxes plus penalties and interest for not filing on time. Even with the cut in the FICA (Social Security) taxe rate, my total effective rate this year is 14.2%. That’s still a 0.23% higher rate than Romney paid for 2010.
All I want, all most Americans want, is a fair and simple tax system.