Analysis: Romney paid 14.1% effective tax rate in 2011
Republican presidential nominee Mitt Romney paid only 14.1% in federal income taxes despite reporting nearly $13.7 million in earnings last year, according to Romney’s 2011 tax returns released on Friday.
Brad Malt, the trustee of Romney’s blind trust since 2003, announced that Romney received $13,696,951, most of which came from investments, and paid $1,935,708 or 14.1% in federal income tax in 2011.
According to the Pew Economic Policy Group, federal income tax rates range from 15% for individuals earning $40,000 a year, to 20% for individuals earning $78,000 a year, and up to 35% for the top income bracket.
Seeking to mitigate criticisms of Romney’s low tax rate, Malt pointed out that Romney donated about 30% of his income to charity. Malt also noted that while Romney donated more than $4 million to charity, only half of that amount – about $2.25 million – was deducted.
“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,” Malt emphasized.
Read more: Romney insists he paid at least 13% in taxes
However, instead of disclosing his tax returns for the 2007-2012 period as requested by the Obama campaign, Romney released a notarized letter from PricewaterhouseCoopers attesting that he had paid federal and state income taxes every year during the 20-year period between 1990 – 2009.
“There were no years during the period in which [Romney] did not owe both federal and state income taxes,” according to PricewaterhouseCoopers.
(Romney has refused to disclose any of his tax returns prior to 2010. Most presidential candidates disclose at least 7 to 10 years of tax returns. His father, George Romney, released 12 years of tax returns when he ran for President in 1968.)
This letter was a direct rebuttal to accusations made by Sen. Harry Reid (D-Nev.) that Romney did not paid taxes for 10 years.
Reid’s attack prompted Romney to declare in August that he had paid at least 13% in taxes during the past 10 years. PricewaterhouseCoopers confirmed that Romney’s effective tax rate fell only as low as 13.66% between 1990 – 2009.
Notably, the PricewaterhouseCoopers letter pointed out that Romney’s average yearly federal income tax rate during that 20-year period was about 20.20%.
Had Romney released his tax returns for the entire 1990 – 2009 period, it’s likely that his records would have revealed that Romney’s effective federal income tax rates were significantly reduced after the Bush tax cuts of 2001 and 2003 went into effect.
In many ways, the Bush tax cuts have disproportionately benefited individuals like Romney who derive their incomes from wealth – such as from investments – rather than individuals who earn wages from working.
Here are 4 provisions that may have helped reduce Romney’s federal income tax rates over the past decade:
1. A 4.6% tax cut for the top income bracket, which at the time was defined as any individual earning more than $373,650 a year. Indeed, the Bush tax cuts gave a multi-millionaire like Romney a 4.6% tax break compared to 3% tax reduction for individuals earning between $34,000 to $82,400.
In 2011, Romney reported $450,740 of business income earned from his speaker ($190,350) and director’s fees ($260,390). For example, assuming that all of the $450,740 was taxable, the 4.6% Bush tax cut would save Romney about $20,700.
2. “Repealed limits on the use of itemized deductions and the personal exemption for upper-income taxpayers,” according to the Pew Economic Policy Group report, “Decision Time: The Fiscal Effects of Extending the 2001 and 2003 Tax Cuts.”
Not all of Romney’s $13.7 million reported income in 2011 was taxable. Romney wrote off $4.7 million in deductions – which accounted for more than a third of his reported income – thereby reducing his total income subjected to federal tax down to $9 million. Had Romney deducted his entire charitable contribution amount, his total taxable income would be pushed down to just $7.25 million.
3. Cut capital gains tax from 20% to 15% for individuals in the top income tax brackets. Capital gains are earnings that result from the buying or selling of properties, stocks or bonds.
Romney reported $6.8 million in capital gains income, which made up roughly half of his $13.7 million total income. That 5% tax cut would save Romney an estimated $340,000 in federal taxes.
4. Slashed taxes on dividend incomes, or payments to corporate shareholders. Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, qualified dividends are taxed at the capital gains rate (topping out at 15%) instead of being taxed at regular income tax rates (ranging from 15% to 39%).
Given that a significant portion of Romney’s earnings came from qualified dividends, it’s easy to deduce that Romney has reaped considerable benefits from this provision. Assuming that Romney’s dividends would be taxed at the highest rates, the Bush tax cuts would have given Romney a 20% to 24% tax break on his dividends. In 2011, Romney received $2.2 million in qualified dividends; he probably saved between $440,000 to $530,000 with a 15% tax rate compared to the pre-2003 rate of 35% to 39%.
“Today’s release of Mitt Romney’s 2011 tax returns confirms what we already knew – that people like Mitt Romney pay a lower tax rate than many middle class families because of a set of complex loopholes and tax shelters only available to those at the top,” said Stephanie Cutter, Deputy Campaign Manager for Obama for America. “Yet, Mitt Romney still wants to give multi-millionaires an additional $250,000 tax cut at the expense of middle class taxpayers who will see their taxes go up.”
Given these tax generous benefits, it’s not a surprise that Romney would be in favor of permanently extending the Bush tax cuts for everyone, including very wealthy individuals.
President Barack Obama, on the other hand, have repeatedly called on Congress to extend the Bush-era tax cuts for middle-income Americans, which has been defined as individuals earning less than $200,000 a year or couples earning less than $250,000 a year. Senate Democrats passed the middle-class tax cut extension in July but the Senate bill was blocked by House Republicans, who support Romney’s position that the Bush tax cuts should be extended to millionaires as well.
It’s also worth noting that a key component of Romney’s tax platform is the elimination of the Alternative Minimum Tax or AMT.
Had the AMT been eliminated in 2011, Romney would have saved $674,512. This would have brought down his total 2011 federal taxes to $1.26 million, cutting his effective tax rate to 9.2%.
At the same time Romney has been championing tax cuts that disproportionately benefit the wealthy, he has been pushing certain “tax reforms” that would shift the tax burden to middle and lower-income Americans.
Romney has proposed changing the tax code make it “flatter” and “simpler” by eliminating many of the tax deductions and credits that benefit middle-class workers and families while lowering the marginal tax rates for the top income bracket. He has insisted that such tax reforms should be achieved in a revenue-neutral way so that his proposed tax cuts won’t add to the federal deficit.
A recent analysis by the independent, non-partisan Tax Policy Center found that Romney’s plan would actually result in higher taxes for individuals and families earning less than $200,000 and $250,000 a year, respectively. At the same time, Romney’s tax plan would reduce the amount of taxes paid by high-income households, particularly those reporting earnings exceeding $1 million a year.
In other words, for Romney’s tax plan to work mathematically, he would have to raise taxes on middle and low-income Americans in order to give more tax breaks for millionaires like him.
All the while, these tax cuts for the wealthy are adding trillions to the federal deficit.
- WhatTheFolly.com: Highlights of Mitt Romney’s 2011 tax return
- MittRomney.com: Mitt and Ann Romney’s 2011 tax return form 1040* (PDF) – only key excerpts provided due to large file size
- MittRomney.com: Letter from PricewaterhouseCoopers LLP on Sept. 17, 2012 (PDF)
- MittRomney.com: Public disclosure
- MittRomney.com: Note From Trustee Brad Malt
- MittRomney.com: Taxes
- BarackObama.com: Romney Pays Lower Rate than Middle Class, Hides Wealth and Income
- WhatTheFolly.com: Commentary: Mitt Romney writes off 47% of Americans
- WhatTheFolly.com: Romney insists he paid at least 13% in taxes
- WhatTheFolly.com: Romney’s tax controversy shines spotlight on tax code that favors wealth over wages
- WhatTheFolly.com: How the 2001 and 2003 Bush tax cuts benefit the wealthy
- WhatTheFolly.com: Analysis: Romney’s tax plan would shift tax burden to middle and lower-income Americans
- WhatTheFolly.com: CBO report shows extending Bush tax cuts will raise deficit
- WhatTheFolly.com: House GOP rejects Senate tax cut extension bill
- WhatTheFolly.com: Senate Democrats pass middle-class tax cut
- Pew Economic Policy Group: “Decision Time: The Fiscal Effects of Extending the 2001 and 2003 Tax Cuts.” (PDF)
- PolitiFact.com: It’s typical for presidential candidates to release 10 or 11 years of returns, Clinton says