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Friday, August 17, 2012

Romney Says He Paid 13% in Taxes for the Last 10 Years

Washington Post:  Romney Says He Paid 13% in Taxes for the Last 10 Years. That Doesn’t Tell Us Much, by Ezra Klein:

“I did go back and look at my taxes, and over the last 10 years, I’ve never paid less than 13%,” Romney said today.

To which the obvious answer is: Well, then, why won’t you prove it?

I find it a bit difficult to believe that Romney has paid more than 13% every year. What we know about Romney’s taxes is that he paid 13.9% in 2010. But Romney’s taxes primarily accrue to income from investments. And the market — along with the global economy — collapsed in 2009. Romney should have had big losses to deduct.

I asked Ed Kleinbard, a professor of tax policy at USC, whether I was missing something. “It is extremely improbable that he paid 13% in 2009, just as it’s extremely improbable that he paid zero for 10 years straight,” he replied.

Kleinbard pointed out something I hadn’t thought of. “He didn’t specify 13% of what. That is, if you look at taxable income, well of course he paid 13% tax on his taxable income, but that’s an absurd base on which to measure an effective tax rate — it’s completely circular.  The better base is adjusted gross income, because that gets closer to economic income.”

Daniel Shaviro, a professor of tax policy at NYU, made the same point. “The key question here is 13.9 % of what. We know he paid zero tax at the capital gains rate in 2009, since he had loss carryovers for 2010.  So he may have had ridiculously low adjusted gross income (AGI), relative to his economic income for the year.”

Confused? Don’t be. “Adjusted gross income” (AGI) is pretty close to what you think about when you think about income. “Taxable income” is what you’re left with after accounting for deductions like the home mortgage interest deduction.

Here’s how this looks for a guy like Romney. In 2010, Romney’s adjusted gross income was $21,646,507. That’s the number we’re talking about when we say he paid a 13.9 percent tax rate. But, due to various credits and exemptions, his taxable income was $17,127,367. If he’d been using that figure as the denominator, his 2010 tax rate would have been closer to 18 percent.

So one thing he could be doing when he says he paid more than 13 percent every year for the past 10 years is referring to the rate he paid on his taxable income as opposed to his AGI. That would make it easy for him to say that he paid more than 13 percent, but he wouldn’t have paid more than 13 percent by the normal standards of accounting.

Is there any proof he’s doing this? Of course not. But there’s no proof he’s not doing it, either. That’s why people want Romney to actually release the returns: Then we can find out what’s really going on in them. Just having Romney tell us what’s in the returns doesn’t do us any good.

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Comments

Romeny has basically just confirmed everything Warren Buffett has been saying for years about the rich paying a lower tax rate than the middle class because of payroll taxes on wags and low capital gains rates on capital and dividends, not to mention all of the other advantages the rich enjoy.

http://www.youtube.com/watch?v=Cu5B-2LoC4s

Except that Warren Buffett wants to change things and give the middle class a fair deal, whereas Romney wants to widen the gap even further and give the rich even more advantages.

How can we have social mobility when the middle class have fewer resources and pay a higher tax rate on their meager incomes?

The answer is, we don't, and the Republicans like it that way.

Let the Romneys pay more, and doctors and lawyers and engineers pay less.

Posted by: Anon | Aug 17, 2012 3:53:43 AM

"That is, if you look at taxable income, well of course he paid 13% tax on his taxable income, but that’s an absurd base on which to measure an effective tax rate — it’s completely circular."

Mr. Shaviro, what exactly is circular about that calculation?

"Is there any proof he’s doing this? Of course not. But there’s no proof he’s not doing it, either."

Woody, I'll let you take care of this one.

Posted by: the real anon | Aug 17, 2012 5:48:50 AM

What difference does it make if Romney paid any taxes or not? It's not like paying taxes is required. -- Fun Video: Harry Reid "Taxation Is Voluntary"

Posted by: Woody | Aug 17, 2012 7:10:09 AM

It's understandable why Romney might not want to disclose the sources of his income. The solution would then be to release vetted versions of the returns that disclose the income but not the sources. Sadly, this wouldn't satisfy the critics, who would then speculate on whether some of the income came from the Russian Mafia or from Chinese slave-labor operations.

Posted by: guy helvering | Aug 17, 2012 8:33:23 AM

The problem is what does he mean he paid less than 13% in taxes. What definition are we looking at...effective tax rate which is defined in various ways. The problem is the media, the tax world and Washington have no one definition of effective tax rate. I think we should settle on what the CBO uses...For example, in CBO tables comparing historical tax rates, "Effective tax rates are calculated by dividing taxes by comprehensive household income," where comprehensive household income "equals pretax cash income plus income from other sources. Pretax cash income is the sum of wages, salaries, self-employment income, rents, taxable and nontaxable interest, dividends, realized capital gains, cash transfer payments, and retirement benefits plus taxes paid by businesses (corporate income taxes and the employer's share of Social Security, Medicare, and federal unemployment insurance payroll taxes) and employee contributions to 401(k) retirement plans. Other sources of income include all in-kind benefits (Medicare, Medicaid, employer-paid health insurance premiums, food stamps, school lunches and breakfasts, housing assistance, and energy assistance). Households with negative income are excluded from the lowest income category but are included in totals." This CBO definition includes in income many items, such as employer share of Social Security tax, not considered income for most purposes. In a different context, CBO uses the term to include total Federal corporate income taxes imputed to individuals based on the assumed level of corporate shareholdings for a class of individuals.

Or we can go with the normal definition of effective tax rate....total income taxes paid on your 1040 divided by all taxable and tax exempt income to come up with effective tax rate.

Until we define the term we are talking apples and oranges.

Posted by: Sid | Aug 17, 2012 8:43:09 AM

Romney's comments are a classic "Rovism." Not only do we not know the answer to the question of what makes up the "100" in the fraction of "13/100", but we don't even know whether the taxes which consist of the "13" figure include only federal income taxes, include both federal AND state income taxes, or include federal income taxes, state income taxes and OTHER types of taxes. Rove, whether you love him or hate him, is a master at this kind of obfuscation. The mainstream media rarely ask the right follow up questions in these situations.

Posted by: Don de Drain | Aug 17, 2012 9:42:55 AM

Apologies to Mr. Shaviro, it's Mr. Kleinbard that claims it's circular.

Posted by: the real anon | Aug 17, 2012 10:12:13 AM

13% of what? Certainly not 13% of his economic income. Without seeing his returns, we have no way of knowing what his true effective rate of tax is.

Posted by: Theodore Seto | Aug 17, 2012 10:17:47 AM

2009 is the only tax year which is a complete black hole. That's the year of the FBAR amnesty for previously undisclosed foreign bank accounts. Governor Romney publicly released tax returns from 2010 forward. He also at least allowed the McCain people to look at 23 year's worth of his records in 2008.

I don't particularly doubt Governor Romney's word about paying around 13% embedded taxes year after year--we all know its hard for high earners to completely step away from taxes. If Governor Romney actually had a loss year and avoided taxes that way, it would be in his interest to show that, as it would support the "risk-taking entrepreneur" narrative, so I don't think that's what happened.

A president who is trying to hide the fact that he had secret foreign bank accounts, is vulnerable to blackmail. That troubles me.

Posted by: Jim Harper | Aug 17, 2012 11:02:50 AM

Romney campaign manager Matt Rhoades: "It is clear that President Obama wants nothing more than to talk about Governor Romney's tax returns instead of the issues that matter to voters, like putting Americans back to work, fixing the economy and reining in spending."

Posted by: Woody | Aug 17, 2012 2:47:56 PM

I want to see Ezra Klein's tax returns for 10 years. What is Klein hiding. Romney should only show the required returns as there likely is personal information contained in his tax returns. Things like the details of his charitable giving which of course is nobody's business and perhaps gifts to family members which is also nobody's business.

Posted by: fjdieta | Aug 18, 2012 6:54:25 AM

If privacy does not matter than I want to see 10 years of Ezra Klein's tax returns. Romney should only disclose the required 2 years. Likely there are all sorts of personal information contained in the returns that are nobody's business. Information like what organizations he made charitable contributions to, and any gifts he may have given friends and family members, etc. etc. If there had been some problems in Romney's tax returns is there any doubt that Obama's IRS appointees would have already made an issue of them?

Posted by: fjdietz | Aug 18, 2012 7:00:29 AM