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Pepperdine University School of Law

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Sunday, August 19, 2012

Fleischer: Romney's Tax Claim Is Bulls***

Following up on Friday's post, Romney Says He Paid 13% in Taxes for the Last 10 Years:  A Taxing Blog: Romney Paid 13% in 2009? I Call BS, by Victor Fleischer (Colorado):

What’s interesting is that Romney’s claim could be literally true but misleading — which means that Romney is full of bullshit, but not a dirty liar.  ... Romney’s claim may be literally true only because our method of tax accounting doesn’t calculate economic gains until those gains are realized through a sale or some other disposition.  Romney may have paid tax at a rate higher than 13% on his 2009 return, but the dollar amount was likely to be embarrassingly small as a percentage of his economic income and wealth.  That’s why he doesn’t want to release his tax returns.  Normal people don’t think like tax lawyers — they would see a tiny amount of tax paid and recognize the injustice.

Even though Romney’s economic income was probably high in 2009 -- the Dow went up about 15% that year -- savvy investors know they can cherry-pick losses to offset realized gains.  The capital loss carry-forward on Romney’s 2010 return suggests that he did just that.

According to Harry Frankfurt, bullshitters, unlike liars, do not deliberately make false claims about what is true. In fact, bullshit need not be untrue at all. Rather, bullshitters convey a favorable impression of themselves while remaining casually indifferent about whether what they say is true.  They quietly change the rules governing their end of the conversation so that claims about truth and falsity are irrelevant.

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Comments

Vic Fleischer morphs into Matt Taibbi? Never thought I'd see the day . . . .

Posted by: Jake | Aug 19, 2012 2:40:42 PM

Ok, so combine this with the fact that his running mate proposes to eliminate the capital gain tax entirely, you got more compost for the fire. This whole thing is just so incredible to me. I have been preparing returns and practicing as a tax attorney for over 30 years and I do not see how eliminating capital gains taxes would do anything for the economy. All it would do is reduce the taxes of people who have capital gains. Not sure many middle and lower class people have capital gains tax exposure. And my clients who do have them would not create anything new or help the economy in any way if they pocketed the tax savings. Come on, let's be real here.

Posted by: Steven J Fromm | Aug 19, 2012 3:25:24 PM

Vic Fleischer is nothing more than your run of the mill academic progressive, and everything he writes has a partisan bias to it. Apparently Professor Caron likes him though, because he has linked his paper on Taxing Founders' stock on at least 4 separate occasions.

Posted by: Todd | Aug 19, 2012 4:23:25 PM

Who really cares what Romney paid or did not pay in taxes. Congress writes the rules of the game, and we try to follow.

Anyone who says they don't understand how eliminating capital gains tax would do anything for the economy should really spends some time studying economics 101!!! I suggests reading some writing of Milton Friedman.

Posted by: Jeff W | Aug 20, 2012 4:58:32 AM

The only thing that matters about Romney's tax returns is whether his taxes were calculated in accordance with the tax code. If Romney's tax were not we surely would have heard about it from leaks from Obama's IRS appointees. The author of this article is a BS artist.

Posted by: fjdietz | Aug 20, 2012 11:01:28 AM

If taxing capital gains at the current or even (TRA of 1986) 28% level, plus state income taxes in California, really deterred people from creating new businesses, then we wouldn't have heard of Hewlett Packard, Intel, Apple, Google and many, many other successful start-ups that are now huge wealth and job generators. Very few entrepreneurs worry about capital gains taxes. At first, the only generate losses, anyway. It's people who are already wealthy who worry about paying capital gains taxes on their unearned income.

Posted by: Mitchell S. Fishman | Aug 20, 2012 12:52:26 PM

Fishman: It's people who are already wealthy who worry about paying capital gains taxes on their unearned income.

I hope you're wrong. Everyone who has ambition should think about how that might affect themselves one day. It used to be that a large number of everyday people hoped to eventually join the rich. The numbers who play the lottery support that it might still be true, although through a different route. It's possible that many more could be better off if they weren't constantly being beaten down by being told that they have no chance without government. Wouldn't it make more sense to help people to become rich than to bash the rich?

The Hill Poll: Voters say wealth is now an impossible dream

The survey, conducted as the heated political presidential campaign increases acrimony over the interests of the haves and the have-nots, found that fewer than 2-in-5 likely voters (37 percent) think they can ever become rich.

Posted by: Woody | Aug 20, 2012 3:52:36 PM

One other point -- people who are concerned about our economy, even those who aren't wealthy, should worry about the effects of raising taxes on investment income, if that reduces incentives to invest in American businesses. Jobs, you know.

Posted by: Woody | Aug 20, 2012 5:09:19 PM

Vic contends that Romney's calculation of his effective tax rate for a taxable year is misleading because he likely computed the rate without taking into account the unrealized appreciation of his assets. That is an unfair criticism and itself quite misleading. The doctrine of realization has been a principal element of the federal income tax system since its inception. Any statements of an individual's average or effective tax rate typically refers to the individual's adjusted gross income or a comparable figure. I have never seen any instance when unrealized appreciation was taken into account. Since Romney's statement was to provide an effective rate that people could compare with their own or others, it would have been inaccurate to reflect unrealized appreciation when no one else calculates their rate that way. Moreover, if Vic believes that unrealized appreciation should be taken into account to provide a more accurate picture of the average rate of tax, the same rule should apply if the value of Romney's assets had declined in value that year. If that had occurred and Romney had computed his effective tax rate by taking the unrealized depreciation of his assets into account (and thereby showed a higher tax rate), I think it safe to predict that Vic would have challenged that approach and called it BS

Posted by: Douglas Kahn | Aug 20, 2012 7:40:10 PM

Romney was speaking in terms normal people use, i.e., paying 13% in taxes means paying a 14% rate on income. Fleischer wants Romney to speak in strange language so that Fleischer's party and its candidate gets a tiny victory by making the other party's challenger look bad.

I can't believe the professor wastes his time on these shenanigans. 70% of people don't like his party and its little made-up "facts" (and 70% don't like the GOP's copious versions of the same inanity). It'd be nice if we all grow up and talk about entitlement sustainability, federal budgets, regulation, foreign adventures or something meaningful?

Posted by: Yo Gabba Gabba | Aug 21, 2012 3:19:31 PM

er, that should be "paying a 13% rate on income". How inane!

Posted by: Yo Gabba Gabba | Aug 21, 2012 3:20:21 PM