Fact Check: Is Romney's tax rate really lower than yours?

[Will E Worm]

Fact Check: Is Romney's tax rate really lower than yours?

President Obama's campaign, with a good dose of help from the media, is pushing a claim that millionaire Mitt Romney is taxed at a "lower rate" than someone making $50,000 a year.

The claim, though, is open to debate. It only holds up in a particular scenario in which both income and all payroll taxes are counted.

The president's campaign presumably is referring to Romney's release last week of his 2011 tax returns, which showed he paid an effective tax rate of 14.1 percent.

revelation, as might be expected, fueled a wave of campaign stump speeches and videos. The latest was an Obama Web video blasting Romney's "strange take on tax fairness." It included clips of people accusing Romney of paying a lower rate than "average" Americans. An accompanying campaign email said: "Mitt Romney admitted he thinks it's fair that his $20 million income was taxed at a lower rate than someone making $50,000."

IRS data, though, shows that Romney's effective income tax rate -- that's what he pays as a percentage of his income once deductions and other benefits are factored in -- is actually far higher than what most Americans pay.

And it's certainly higher than what someone making $50,000 pays.

IRS data from 2010 shows someone making between $50,000 and $75,000 on average pays an effective rate of 7.8 percent. Even someone making between $100,000 and $200,000 pays a 12.1 percent rate -- also lower than Romney's.

Article

 

[mikexmoran]

I'm a bit tired this afternoon, so I didn't read the posting.

Isn't Romney's income capital gains and that is why it is relatively low? He is using dollars that he already paid taxes on (presumably) and investing them and paying tax on the capital gain. At least that is how I understood it. Now, I suspect like everyone else that there are full use of the tax laws in play as well.

That is why when they compare the % of tax between Romney and Obama it is apples and oranges.


Now, if you don't like the tax law, change it.

 

[lurkingdirk]

Yes, his tax rate is really lower than mine.

What now?

 

[StanScratch]

I wonder what the actual site of Factcheck.com has to say about his actual tax rate, rather than FoxNews?

 

[mikexmoran]

Yes, his tax rate is really lower than mine.

What now?

Exactly

 

[Rey C.]

Isn't Romney's income capital gains and that is why it is relatively low?

For the most part, yes.

He is using dollars that he already paid taxes on (presumably) and investing them and paying tax on the capital gain.

The capital used to buy assets could be, in part, money that was taxed previously. But private equity and hedge funds typically operate off of very high leverage (borrowed funds). In some cases they use the assets of the company being purchased as collateral and have none of their own money involved. But the tax code makes no distinction between borrowed funds and funds from the purchaser when taxing capital gains. It's basically just a question of profit or loss from sale price minus purchase price.

At least that is how I understood it. Now, I suspect like everyone else that there are full use of the tax laws in play as well.

Surely, there is. I have no issue with people using the tax laws, or any other laws, to their full advantage.

Now, if you don't like the tax law, change it.

I would, but they took away my dictator hat. But when I assemble my troops south of the U.S. border and begin marching north in 2020, we will make this right - that's assuming we don't get hung up at various strip bars in Texas and Arizona.

The specific tax code item that really rubs me the wrong way is the carried interest provision. Romney also benefited from this when he was involved with Bain Capital. Very basically, this provision allows money managers to categorize their salaries, which would otherwise be regular or ordinary income, as capital gains. And even though Romney has "retired" from Bain, here's why he is still able to benefit from the carried interest provision:

In what would be the final deal of his private equity career, he negotiated a retirement agreement with his former partners that has paid him a share of Bain's profits ever since ...

... since Mr. Romney's payouts from Bain have come partly from the firm's share of profits on its customers' investments, that income probably qualifies for the 15 percent tax rate reserved for capital gains, rather than the 35 percent that wealthy taxpayers pay on ordinary income.

Real estate property managers and others who manage assets (even those with deals based on a share of the profits) can't use this provision. This was a backroom deal negotiated by the very wealthy for the very wealthy. And this is why Mr. Romney pays a lower tax rate than me and a lot of other people in this country, who happen to make a substantially lower income than he does. Yeah, the tax code needs to be drastically changed.

 

[Will E Worm]

Exactly

No :nono:

 

[mikexmoran]

No :nono:

Actually it is. Assuming he is right. That is because he is paying taxes on his salary. My assumption is that Romney already paid income tax on his money. Now, he takes that money and invests it. The gain on that investment is at a lower rate (since it is financed with previously taxed dollars) than if it was initially earned income.

So, in that case, the cap gains tax is lower than initial income tax.


As I said - you may or may not agree with the tax law. I'm just stating my assumption. Comparing the two candidates income is apples and oranges since they are two types of income.

 

[Will E Worm]

Actually it is. Assuming he is right. That is because he is paying taxes on his salary. My assumption is that Romney already paid income tax on his money. Now, he takes that money and invests it. The gain on that investment is at a lower rate (since it is financed with previously taxed dollars) than if it was initially earned income.

He invests the money he worked for. He also puts money in other accounts. All his money and he is free to do so.

Nothing wrong with it.

 

[mikexmoran]

He invests the money he worked for. He also puts money in other accounts. All his money and he is free to do so.

Nothing wrong with it.

Didn't say there was.