Should Millionaires Pay More Taxes?

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.

Supreme Court Ruling Will Affect Taxes

How will the healthcare ruling by the Supreme Court affect taxes?

The individual mandate is not the only thing about the Affordable Care Act. There are tax changes to consider. Because of the three day hearing about the ACA, here at TaxVox, I believe it is time to ponder some of the revenue provisions.

Provisions in the law allow for tax cuts as well as increases. Unless the whole thing is thrown out, these tax changes would likely remain.

If it can be considered a tax at all, the only one would be the mandate penalty for not purchasing insurance. The Supreme Court will have to decide if this is a penalty or a tax.

Included in the ACA are some very important tax cuts; credits for helping small businesses that purchase insurance for their workers. You may not realize that they are there, as over $1 million has been paid by the NFIB to challenge the ACA.

The NFIB will more than likely think that those subsidies should be thrown out if the Supreme Court rejects any of the key parts of the reform.

There are some tax increases in the new law, including an excise tax for high value health plans that are sponsored by the employer. That would begin in 2018 and make it harder to take itemized deductions on their medical costs.

There are a couple of other tax increases of note. The first tax increase of the bill is a .9% increase for higher income workers in the medicare wage tax. This is for supporting the health system for seniors. The second increase, sometimes referred to as a Medicare surtax, is a 3.8% high income tax on households that enjoy income from investments and non-wage sources.

These new taxes, according to a Tax Policy Center study, would increase taxes on those households earning between $500,000 – $1,000,000 by about $4,600 and those earning $1 million+ by $41,000. Those making $250,000+ ($125,000 single) will also be affected.

It would not be wise, then, to forget these tax changes. We may not have seen the end of the tax code modifications.

Taxes, And A Look At Obama’s And Romney’s Budgets

Budgets are wonderful, and I love them. I love all of the charts, the graphs, the tables and appendixes. Budgets are so fantastic because they make us take a hard, serious look at numbers. We are forced to make priorities, and we are challenged to make tradeoffs on what we can do without, and what we truly need. The budget is the proof in the pudding, and it is what forces the government to be brutally honest with itself, and the American people. With people preparing their 2012 taxes, a short look at some of the differences between President Obama’s budget proposals, and those of Mitt Romney are in order.

Comparing the fiscal plans between Obama and Romney is almost like comparing apples to oranges. The reason is that while Obama is on the hot seat and needs to make his numbers add up, Romney is just running a campaign in the primaries. He can make budget promises without having his feet held to the fire over them, whereas Obama is not afforded that luxury.

However you slice it, though, taxes under both the Romney and Obama plans are lower than they would be if we simply allowed the tax cuts put in place by George Bush to expire and tax rates returned to the rates of the Clinton era.  If that happened, tax rates would be almost 20.4% of the GDP. This, despite the reverence that Democrats have for Bill Clinton‘s former economic policies, and the panic that Republicans are in over Obama’s tax ideas. I suppose that is why I just love budgets. They help everybody keep an eye on everybody else.