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Sunday, August 26, 2012

NY Times: Tax Credits Shed Light on Romney

New York Times:  Tax Credits Shed Light on Romney, by James B. Stewart:

The presumptive Republican presidential nominee’s refusal to disclose more than his most recent two years of tax returns has spawned wide-ranging and sometimes far-fetched speculation from water coolers to talk shows. But a few tax experts are zeroing in on an esoteric corner of the tax code and pointing to some intriguing clues buried in the returns Mr. Romney has already revealed.

Mr. Romney has insisted that his returns from 2010, and preliminary returns for 2011 (until he provides a final version) are enough for voters to evaluate his fitness for office. But even though he has not released his returns from earlier years, the 2010 return sheds some light on those years.

That’s because Mr. Romney paid income tax to foreign countries, and as result claimed in 2010 a $129,697 foreign tax credit, which he used to offset taxes he owed in the United States. American taxpayers who claim the foreign tax credit are required to report their total foreign taxes paid and tax credits used for the previous 10 years. So that return contains foreign tax data going back to 2000.

The good news for Mr. Romney is the forms suggest that he paid at least some federal income tax every year, as he has said he did. He used the foreign tax credit every year to offset his taxes in the United States, and American taxpayers can’t use a tax credit if they owe no federal income tax. This casts even more doubt on the claim by the Senate majority leader, Harry Reid, attributed to an unnamed Bain Capital source, that Mr. Romney paid no income taxes during that time.

But the data does suggest that Mr. Romney was able to reduce his taxable income in 2009 to a very low level, and thus might have paid relatively little tax — even if it did, as Mr. Romney claims, amount to at least 13 percent of his taxable income. ...

Mr. Romney’s return shows how wealthy Americans with foreign earnings can sharply reduce their tax liability in the United States. In 2010 Mr. Romney reported $2.73 million of gross foreign income. On that amount, he paid foreign taxes of $67,173, or just 2.5 percent of his gross foreign income.

After all his deductions (including the kind of noncash charges that are central to all tax shelters, like depreciation) that multimillion-dollar sum declines to just $392,000 in taxable income. This amount appears on his federal tax return, but at his 13.9 percent effective rate, the federal tax on that income — $54,627 — was more than offset by a $129,697 tax credit for foreign taxes he paid in 2010 and earlier years.

Dan Shaviro (NYU), Has Romney Pid All the U.S. Federal Income Taxes That He Legally Owes?:

As usual, I feel half-apologetic about the degree of speculation that I am engaging in here.  But it's Romney's unprecedented tax return secrecy, and the inferences reasonably derived from it, that makes such speculation necessary.

http://taxprof.typepad.com/taxprof_blog/2012/08/ny-times--3.html

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Comments

So Harry Reid was wrong? Now there is a big surprise.

Posted by: anymouse | Aug 26, 2012 1:35:09 PM