Paul L. Caron

Friday, September 21, 2012

Mitt Romney Releases 2011 Tax Return





Tax Rate

Char. Gifts














Mitt Romney today released his 2011 tax return (FAQ).  Curiously, the 2011 estimated return released in connection with Romney's extension reported $20,901,075 AGI, over $7 million more than the $13,696,951 AGI reported on his 2011 return as filed. $1.75 million of that amount represents a foregone charitable deduction:

  • The Romneys donated $4,020,772 to charity in 2011, amounting to nearly 30% of their income.
  • The Romneys claimed a deduction for $2.25 million of those charitable contributions.
  • The Romneys’ generous charitable donations in 2011 would have significantly reduced their tax obligation for the year. The Romneys thus limited their deduction of charitable contributions to conform to the Governor's statement in August, based upon the January estimate of income, that he paid at least 13% in income taxes in each of the last 10 years.

The campaign also released a statement from PriceWaterhouseCoopers on the Romneys’ tax filings over 20 years, from 1990 – 2009:

  • In each year during the entire 20-year period, the Romneys owed both state and federal income taxes.
  • Over the entire 20-year period, the average annual effective federal tax rate was 20.20%.
  • Over the entire 20-year period, the lowest annual effective federal personal tax rate was 13.66%.
  • Over the entire 20-year period, the Romneys gave to charity an average of 13.45% of their adjusted gross income.
  • Over the entire 20-year period, the total federal and state taxes owed plus the total charitable donations deducted represented 38.49% of total AGI.

The Romney campaign also released this letter from former IRS Commissioner (and current Skadden partner) Fred Goldberg:

These returns reflect the complexity of our tax laws and the types of investment activity that I would anticipate for persons in their circumstances. There is no indication or suggestion of any tax-motivated or aggressive tax planning activities. In my judgment, they have fully satisfied their responsibilities as taxpayers. They have done so by relying on a highly reputable return preparer and other advisors, who have in turn relied primarily on information provided by third parties to them and to the IRS. The end result of that process has been returns that include a multitude of schedules, IRS forms and accompanying statements that provide appropriate transparency and the proper payment of taxes that Governor and Mrs. Romney owe under current law.

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A Solomonian approach by Mr.Romeny could be as follows: The foregone charitable contribution deductions from 2011 overstated his U.S. tax liability by, say 15%-20% of the foregone $1,75 million deduction amount or say $260,000-$350,00 in his tax. The overpaid Federal income tax, stated publicly (and probably disclosed in his 2011 tax return filed in 2012 as well--which I have not seen)resulted in about a $260-350k or so voluntary contribution to the federal government (in 2012 when he physically signed his 2011 return and voluntarily overpaid his taxes by this amount. If elected president, he will be subject to federal income tax at the ordinary rates on at least his President's salary, along with his other income from his "blind trust", most of which will be taxed at, presumably, the 15% capital gains rate rate. He could possibly claim a 2012 charitable contribution deduction for this $260-350k voluntary contribution to the federal government (made in 2012 when the tax was overpaid) and thereby reduce his 2012 Federal income tax by some fraction (20% or so) of that amount, thus obviating the bad publicity from going back and filing an amended return for 2011 to secure that $260-350k refund. The tax benfit would only be that on the tax from the foregone tax deduction in 2011's return, rather than on that tax deduction itself, and would result in perhaps an $50-70k or so reduction in 2012 tax bill, but some small consolation from his decision to make his earlier 13+% tax rate preduction statement for 2011 hold up. Now whether the 2011 tax return with its statement of voluntarily foregone tax benefit from not claiming the otherwise tax deductible amount would constitute a "receipt" for the 2012 deduction is quite another matter.

Posted by: NotsoFastEddie | Sep 28, 2012 11:00:32 AM

Fair enough, DAvid. So the beef is that he gave too much to charity? Or that he actually decided to honor his committment to pay a minimum level of income taxes? He did "get his own taxes right". There is nothing wrong with his return.

Posted by: Julie | Sep 26, 2012 6:20:33 AM

SMarko and Julie

Nice Try.

The Romney campaign has admitted that they did not take charitable contributions they were entitled to in order to raise his effective tax rate above 13%.

Posted by: DAvid R. | Sep 25, 2012 11:51:39 AM

Did anyone stop to think that, perhaps, Mr. Romney was not able to claim those charitable deductions because they were made to organizations that do not qualify as U.S. charities? Perhaps he gave to poor widows and orphans in Kenya? Maybe he sent money to feed MidEast troops for a year? Perhaps he gave a cool million to reduce our Federal deficit? The idea that someone would make a charitable donation that he can't deduct seems to be unthinkable to some...but it does happen.

Posted by: Julie | Sep 24, 2012 2:09:57 PM

Maybe the Romney's didn't have a contemporaneous written acknowledgment for some of charitable contributions at the time they filed their tax return.

Posted by: SMarko | Sep 24, 2012 1:47:03 PM

So much wrong information especially about types of tax and rates. Readers please note:
1. payroll taxes have nothing to do with income taxes. The comparisons are not valid among people.
2. Generally single persons with $35,000 of adjusted gross income (before deductions and personal exemptions) pay no income tax, and if with children get child tax credits, which triggers an actual refund check from the US govt even though the paid $0 income tax.
2. Payroll taxes for social security are 4.2%( up to about $108,000 in total compensation) for individuals in 2011, 2012 and 1.45% ( no limit) for medicare. The employer pays 6.2% plus 1.45%= 7.65% total employer + 5.65% employee or total= 13.3%. Self employed individuals pay 13.3% since they are both the employee and the employer.
3. Payroll taxes pay for social security and medicare Part A. When you retire then you pay for Part B and Part D (medicine, if selected)
4. Income taxes pay for the rest of the federal budget: defense, medicaid, the GSA, welfare, food stamps, grants to states, the depts= Treasury, Defense,immigration, education, etc. etc.

Posted by: al | Sep 24, 2012 10:59:34 AM

I broke down and waded through the tax return. I thought there was a contribution limitation, which accounted for some of the contributions not being claimed. That wasn't the case. So, this isn't a "complete and accurate" return, after all. But, it does make good business sense to forego some contribution deductions and pay a higher rate to make the misinformed, unwashed masses happy for their votes.

Posted by: Woody | Sep 24, 2012 10:43:10 AM

Whether Romney wins or loses on November 6, he can amend his 2011 return on November 7 to claim those "unused" charitable deductions and obtain a refund, with interest. Given past performance, I expect that if he loses, he will file the amended return.

Posted by: Publius Novus | Sep 24, 2012 8:09:11 AM

As Romney most assuredly did with respect to his foreign accounts, can the American people apply for amnesty to correct a potentially devastating election of Mr. Make-Stuff-up if he actually finds a way to win? Heaven help us!!!

Someone needs to be fired for preparing Romney's 2011 estimated return and being off by almost $7,000,000!!!

Posted by: S.L. Goldman | Sep 24, 2012 7:10:04 AM

Shocking analysis and admission.

CNN's Candy Crowley: I Take Advantage of the Tax Code Just Like Romney

“There’s nothing that suggests that there’s something illegal has gone on. I grant you we haven’t seen all of them for the past twenty years, but are you not in effect blaming the player when what you ought to do is blame the game?

“It is the IRS system, and he took advantage of it which I do, which I assume both of you do.”

Posted by: Woody | Sep 23, 2012 12:42:37 PM

Did I say applied to 2013? (The comment hasn't posted yet.) Of course, I meant 2012.

Posted by: Woody | Sep 23, 2012 11:52:02 AM

I might be missing something (I'm sure someone will let me know if I did), but I don't see where Romney overpaid his taxes. He paid the right amount and had the excess applied to 2013 rather than refunded, which is smart because any refund applied is treated as being paid in evenly throughout the entire year. It's also a hedge against penalties and interest if the IRS makes any changes, in which case the Service would simply reduce the applied refund. I don't see any inconsistencies in that versus paying the correct amount.

Posted by: Woody | Sep 23, 2012 11:49:01 AM

rdm states "The 14% tax rate paid by Romney is not only less than the 15% in payroll taxes paid by the working poor, it is much less burdensome. A hardworking person making $30,000, paid $4,500 in payroll taxes."

I pay approximately 15% FICA because I am SELF-EMPLOYED. The hardworking poor - presumably employees - pay only half of the 15%. Query - is rdm merely ignorant and is posting baby-steps errors on a tax web site? Or is he being deliberately deceptive simply to score a point?

Posted by: air65cav | Sep 22, 2012 5:28:15 PM


I have no problem with Mr. Romney's statement that he thinks a person who deliberately pays more in taxes than he owes is not qualified to be President.

I just don't understand why he then went ahead and paid more than he owed. Has he ever been consistent on any position?

None of this matters as a policy issue, but it does matter as a campaign issue. If Mr. Romney cannot get his own taxes right how can anyone expect him to get the country's taxes right? I sympathize with all who posted and tried to defend Mr. Romney, it's just so hard to do isn't it.

Posted by: David R. | Sep 22, 2012 4:15:58 PM

It's very hard to understand why Romney is paying such a stiff price in the eyes of the liberal media for being an astute businessman who takes legal steps to save money by reducing his tax liability.

Once upon a time, business acumen and thrift were admired in America. Not so, per the current Administration. Even worse, the current Administration refuses to engage in any dialogue concerning tax policy, except perhaps to inflame the Occupy Wall Street simpletons.

Posted by: Jake | Sep 22, 2012 12:31:12 PM

David R, Romney makes sense in his statement. Someone who admits to being a good steward of his own finances has credibility to be a good steward of the nation's finances.

Posted by: Woody | Sep 22, 2012 12:28:03 PM

B Lefarge, taxpayers can only amend returns filed within the last three years. Romney already released the previous two years. Do thik that he finagled changing all of the other ten years on his 2009 return?

Posted by: Woody | Sep 22, 2012 12:25:11 PM

It's a win-win situation. Either he wins the election, or he files an amended return and gets a refund for the unclaimed church contributions. He obviously hasn't promised to release any amended returns, post-defeat.

Romney in a broadcast interview, earlier this year: ""€I don'€™t pay more [taxes] than are legally due, and frankly if I had paid more than are legally due I don't think I'€™d be qualified to become president."

Posted by: Bob | Sep 22, 2012 9:37:39 AM

Here is the answer, by Mr. Romney himself to all those who defend his tax practices.

"I don't pay more than are legally due and frankly if I had paid more than are legally due I don't think I'd be qualified to become president. "

Yes, Mitt Romney said that earlier this year, he really did, as Casey Stengel said, you can look it up.

Oh, and anybody want to bet that after the election he doesn't amend his tax return to get the full benefit of his charitable deduction? Anybody, $10,000 maybe?

Posted by: David R. | Sep 22, 2012 5:23:11 AM

Lots of sour grapes from libs here. The 14.1% is on AGI, folks. His marginal tax rate for 2011 was 20% on taxable income of $9.7M ($13.7M - $4M). Dividends and capital gains provided most of his income. He's 65 years old and doesn't have a job, so what do you expect his rate to be?

Dividends have already been taxed (the corporation pays 35% before paying any dividend) so that's 35+20 = 55% on his dividend income. Capital gains rates are lower for lots of reasons, primarily inflation and risk. Only long term gains get the lower rate, so - yes - the capital gains rate is lower to make up for the (unfair) taxation of phantom gains from inflation. The tax law re: capital gains is not perfect, but simpler than trying to compute the phantom gain on each transaction.

Ultimately, capital gains rates are low because the government collects more money that way. So unless our tax system is a form of punishment (for success?), doesn't it make sense to collect more tax?

You folks (reading a tax blog) are supposed to know something about taxes. Using 14.1% as his tax rate is misleading. It's 20% on his taxable income. Giving money to charity is a valid tax deduction. If you don't like that, change the law.

Rdm's remark: "squeeze every last tax dollar out of the American treasury" is wrong on every imaginable level. Romney GAVE his money to CHARITY! To call this "squeezing" money from the "American Treasury" is totally nonsensical.

Rdm probably sees government as a charity (takes those beggars off the street so he doesn't have to deal with them). Government isn't charity, folks. It does some important things, but charity is much different. First of all, it's voluntary. Taxes aren't.

As an accountant I learned - quite directly - that I was NOT being charitable when I proposed using other people's money to help - for instance, Katrina victims. "Give your own money," I was told. Bingo - the lights went off for me. Charity is something you do - yourself, not with other people's money. And NOT through government (Other People's Money taken by Force!).

So I sent my own money to the Red Cross. And took the allowable deduction. Rdm - try it - it feels a lot better than writing a check to the Treasury.

BTW: I believe the American Red Cross is a ... Corporation. Hmm. Things we do together - voluntarily.

Posted by: MySherona | Sep 22, 2012 5:00:47 AM

When we're the returns covered by the PWC letter actually filed? Which ones were amended returns?

Posted by: B Lefarge | Sep 22, 2012 4:57:59 AM

There are several reasons to be suspicious of Mitt Romney's 2011 tax return. First, he forgoes a charitable deduction to artificially increase his tax rate. That is to say that he can, after the election, reclaim the charitable deduction in amended returns and lower his tax rate much lower than 14.1 percent. Second, if I am reading this correctly, this PwC letter appears to cover adjusted gross income and not total income. So a lot of things could occur, like losses, say, from 2008, to reduce the AGI. In other words, AGI can be artificially manipulated and pay a lower tax rate on the amount. Third, I am suspicious of averaging of return rates. For several years the rate could be like 13 percent and other years it could be 27 percent, and it could average out to 20 percent, but what if the 13 percent years were the highest amounts paid and the 27 percent the lower amounts paid? By Romney's stance, it means that he paid 20 percent in the last 20 years, but the actual taxes paid could be much lower. Fourth, I would like him to release his 2008 and 2009 returns because I think that would confirm my suspicion that Romney participated in the foreign amnesty that the IRS offered for offshore bank accounts, like Switzerland and the Cayman Islands. Not doing so increases my belief that Romney used tactics used by the wealthy to lower or minimize their tax returns by simply never reporting the income in the first place.

Posted by: Anonymouse | Sep 21, 2012 11:27:09 PM

Nevada Republican to Harry Reid: Make our day, release your 2011 tax return

Citing an anonymous source, Mr. Reid has repeatedly claimed in recent weeks that Mr. Romney "didn't pay taxes for 10 years."

"...Mr. Buell blasted out the email calling for Mr. Reid to come clean and release hits tax records "so that all Nevadans can see that he is paying his fair share." He added, "In addition, Mr. Reid should explain to all of us how he became a millionaire on a bureaucrat's salary.

Posted by: Woody | Sep 21, 2012 6:53:38 PM

Unclaimed charitable deductions cannot be carried forward. Theoretically, the Romneys could revise their return and claim an additional refund for the next three years. I don't think they intend to do so.

Mr. Romney is an advocate of lowering tax rates for everyone and eliminating or reducing deductions for high income taxpayers. Under the regime he proposes he would actually owe what he paid.

Posted by: Leora Amdur | Sep 21, 2012 6:45:31 PM

Romney pays more tax than he needs to. Left Outraged!

Posted by: DonM | Sep 21, 2012 6:35:17 PM

What would be the total tax rate paid on his total generated earnings including corporate and other taxes like payrol taxes? For example had he been the sole investor in a corporation he would be the sole individual responsible for generating all the taxes the corporation generates. I'm thinking his tax rate would easily be above 50% on total earnings he actually was responsible for generating.

Posted by: Brian Macker | Sep 21, 2012 6:17:26 PM

The 14% tax rate paid by Romney is not only less than the 15% in payroll taxes paid by the working poor, it is much less burdensome. A hardworking person making $30,000, paid $4,500 in payroll taxes. That hurts much more than Romney's paying $1,950,000 on his investment income (which he did not have to slave 9 to 5 to earn) of $13,700,000. He can at least afford to pay for decent housing, adequate food, necessary medical care, good education for his family, and many luxuries despite his tax burden ---- which is not the case for the guy making a subsistence living but paying a higher tax rate than him.

Go back to one of your many luxury vacation homes, perfect your tan and golf game, be fawned over by your adoring family, meet with your accountant to squeeze every last tax dollar out of the American treasury, but butt out of trying to further screw the struggling middle and lower classes.

You are not one of us, Mitt, so just go away.

Posted by: Bobbynorwich | Sep 21, 2012 6:00:59 PM

Yes. It's somehow a problem that he gave it to charity instead if the government ... Lefties are just in - flicking - believable ...

Posted by: Rdm | Sep 21, 2012 5:06:11 PM

"Unused charitable deductions can be carried forward when they reach the statutory limit. Anybody know if voluntary unused deductions can be carried forward? Anybody ever know if such a situation?"

Your problem comes from your uninformed way of phrasing the question. You state that unused charitable deductions can be carried forward. Wrong. Unusable charitable contributions can be carried forward, but only if they are unusuable because they exceed the statutory limits. Charitable deductions, like most other deductions, can only be deducted in the year paid. To repeat, a carryover arises only because the amount deducted exceeds the limit, not because the amount incurred exceeds the limit.

Posted by: Willis | Sep 21, 2012 4:34:00 PM

looks like the passive losses on the dressage horses have been removed from the return. they should've been able to deduct the losses this year, but its nowhere to be found. seems odd.

Posted by: jpe | Sep 21, 2012 4:12:07 PM

" It turns out even Mr. Romney is embarrassed about how low his effective tax rate is."

How so? That sounds like your interpretation of the reason. So it only counts if it is mandated by the government?

Posted by: buzz | Sep 21, 2012 3:49:43 PM

Romney clearly didn't claim an office in the spare bedroom of his house, make up some business mileage, and claim deductions for business meals at Chick-fil-A. He left a lot of money on the table.

Posted by: Woody | Sep 21, 2012 3:35:31 PM

Warren "Rich People Should Pay More" Buffett, whom President Obama cited as an example of integrity and personal responsibility, is still arguing about his company's tax bill from 10 years ago. Maybe in his next speech, Obama will praise Mitt Romney for doing what Buffett says but won't do. And maybe the sun will rise in the west tomorrow morning.

Posted by: The Den Mother | Sep 21, 2012 3:20:48 PM

It is difficult to make a serious comment on Mr. Romney's taxes when we learn he voluntarily claimed far less in deductions than he could have in order to get his effective tax rate up from 9% to 14%. It turns out even Mr. Romney is embarrassed about how low his effective tax rate is.

Unused charitable deductions can be carried forward when they reach the statutory limit. Anybody know if voluntary unused deductions can be carried forward? Anybody ever know if such a situation?

Posted by: David R. | Sep 21, 2012 2:15:53 PM

In whole, how much did the preparation of Romney's Tax Return cost by year? Phrased another way:
(a) How much does it cost a taxpayer to "rely on a highly reputable return preparer"? If the tax code were less complex wouldn't this cost be available for more productive uses?

(b) How much does it cost a taxpayer to "rely on other [tax] advisors"? If the tax code were less complex wouldn't this cost be available for more productive uses?

(c) How much does it cost a taxpayer to obtain "information provided by third parties"? If the tax code were less complex wouldn't this cost be available for more productive uses?

Posted by: RM3 Frisker FTN | Sep 21, 2012 1:20:19 PM