Taxes are often an hot issue during an election. The 2012 presidential election is not any different than other election seasons. But no candidate has come under fire for his tax return more than Mitt Romney. Up until recently, he was pretty coy on the subject. He did promise to release his tax returns if he became the Republican nominee, and though he hasn’t secured the Republican nomination, he has released his tax returns for 2010, along with his estimates for 2011.
If you want to put your accounting 101 classes to good use, feel free to go through the 500 pages of documents yourself. However, his returns can be broken down into simple terms: Governor Romney has an annual income of approximately $21 million and is taxed at a rate of 13.9 percent. To put that into perspective, Newt Gingrich is taxed at 31 percent. Obama pays somewhere in the middle, about 25 percent.
So how does Mitt Romney get such a tax break every year? It turns out Romney is able to save so much green through his savvy business practices and his unique advantage over other politicians. Romney does not take in a traditional income. Therefore, he pays less in income taxes. Romney makes most of his billions through dividends, interest and investments. Because his money comes from capital gains, he is taxed at a lower rate.
People are understandably confused by the fact that millionaires are taxed at different rates depending on how they make their money. President Obama tackled this issue head on during his State of the Union address. He discussed a tax proposal called the “Buffet Rule”: If you make more than $1 million dollars a year, you pay a 30 percent tax rate.
The proposed tax rule is rightfully named for billionaire Warren Buffet, who has pointed out that he pays a lower tax rate than his secretary. Like Mitt Romney, Buffet benefits from the capital gains tax. However, Buffet doesn’t see his unique monetary status as a result of savvy investing, but more fodder for those with the appropriate accounting courses to tackle complex tax structures. In fact, in the New York Times Buffet published an op-ed aptly titled “Stop Coddling the Super Rich.” In the piece Buffet tackled the issue of taxing the rich head on. He makes the statement that anyone who makes more than 1 million dollars in income should be taxed at a higher rate.
Clearly Warrant Buffet and Mitt Romney have different takes on how the rich should be taxed. Warren Buffet clearly believes that those who rake in significantly more money than the rest independent of whether it’s from income or investments should pay accordingly. However, Mitt Romney is perfectly happy with his tax rate—and wouldn’t raise it if he became president.
Jessica Reedy is a journalist with a degree from the University of Oregon.
- Popularity Of Millionaire Tax (2011tax.org)
- The Relationship Between Capital Gains And Economic Growth (2012taxes.org)
Should Millionaires Pay More Taxes? by Steve