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Romney’s returns and tax reform

Mitt Romney’s income tax return, showing an effective tax rate of 13.9 percent, doesn’t exactly bolster Republican arguments that taxes are sky high. But it may not boost Democratic bids to raise income tax rates, either.

Romney, like many high-income Americans, didn’t earn a dime in wages. Most of his income came from investments, which are taxed at a lower rate than ordinary income – 15 percent vs. a top income tax bracket of 35 percent. He also benefitted from carryover losses, carried interest payments, offshore investments and provisions of the tax code that are of little or no help to most ordinary taxpayers.

By all appearances, raising the marginal tax rate would have no effect on Romney. Increasing the capital gains rate would. In the 1986 tax reform hammered out by Democratic Sen. Bill Bradley and the Reagan administration, capital gains were treated the same as ordinary income. A lower rate was adopted during the Clinton administration, and it was reduced further under President George W. Bush. Don’t look for any bipartisan deal to raise the rate – GOP presidential candidate Newt Gingrich wants to eliminate taxes on capital gains altogether.

In California, raising the top income tax rate is a cornerstone of Gov. Jerry Brown’s tax plan. But here, too, capital gains are a big driver of state revenue. Again, it’s because investments account for a much bigger share of income than wages and salaries for people in the top brackets. That’s why state revenue officials are watching Facebook so closely right now. They’re waiting for one big status update: Will the company go public, creating a lot of new millionaires, who will owe capital gains taxes.

– Jim Sweeney

37 Responses to “Romney’s returns and tax reform”

  1. Get Real says:

    Mockingbird! Wrong Bill Clinton is filthy Rich; hillary’s family is worth over $300 million. Do the Math!

  2. Commonsense says:

    Again, this article doesn’t contradict my facts or position. First, the article is mainly about what we were discussing in that it purports to say stats regarding wealth (which it sort of fails to define) show that there is a certain percentage within the U.S. population that has stayed stagnate over the last 3-4 years, i.e that the number/percentage of wealthy in the country has stagnated at a certain percentage instead of increasing like previous years (it’s called a long term recession, and despite news to contrary we’re still in it in terms of slowed growth).
    It doesn’t state that the the people within that that percentage have all been the same people. Further evidence that is incorrect can be seen in today’s headlines regarding the new employees at Facebook who all just earned themselves an extra million with the public offering (of which they will be paying the federal and state governments about 45%).
    Please wikipedia ????? It’s been pretty well established that since anyone can edit/add/delete information, it’s reliablity isn’t sufficient in a court of law….plus there is the lack of facts from the IRS/State franchise tax board and other public records documents to support that claim.

  3. Lets be Reasonable says:

    @CS – “How is it that you know that accumulation of wealth is limited to a very same few. I don’t know that, and I’m not aware of any stats which purport to prove that.”
    And as for change at the top, there were 16 new people added to the Forbes 400 in 2010, along with 18 returnees. People do die, after all…

  4. Commonsense says:

    The 45% is the actual rate/amount paid on anyone who earned wages/income (not gains on investments) of any amount over $379,000. As I clearly, pointed out, any gain on investment was taxed at a rate of 15%. I can think of many hollywood actos/professional sports players who are taxed at the highest rate because they “earn” million dollar salaries for their craft. So, there are many out there who do earn those kind of salaries. And, yes they often invest much of what they earn and then either gain or lose via that investment.
    We’ve had this discussion so many times now, and I’ve quoted the actual rates/laws/facts that support my position.
    The post you are responding to was specifically to address the issue of paying a fair share of taxes. How is it that you know that accumulation of wealth is limited to a very same few. I don’t know that, and I’m not aware of any stats which purport to prove that. Wealth changes hands often in this country and everyone has an opportunity to improve, hence the massive amount of immigrants who treck here annually. My life experience tells me that many people experience many different income levels during thier life. As for the issue of inheritance, it’s taxed both federally and by state, so your comment that one can leave their fortune to their children without it being taxed isn’t accurate. While you may dispute the amount it’s taxed at, it’s taxed. Money is taxed at every point (when earned, when invested and when inherited) per the Federal and State tax codes (and yes that’s always been my position). I also believe that income derived from investment is and should be treated differently then income derived from wages/work in regards to taxes, for the reasons I’ve stated previously. Obviously we disagree on that point. But the fact is that my example holds, top wage earners pay a large percentage of taxes. So, the I don’t agree with the generalized statement, the rich don’t pay a fair share of taxes (especially when you compare what the low/middle pays). I don’t have a problem with deleting many of the loopholes in the federal and state tax codes, but investment needs to be rewarded and should be treated differently then straight wages (there is also much greater risk involved and that risk is rewarded via investment loss deductions also). Is 15% to low, maybe, but increasing it to the same tax levels as regular income is too high in my opinion.
    BTW, our the federal govn’t released a report recently that indicated that the majority of “poor” in this country own at least one car, numerious cell phones, own at least two tv’s and subscribe to some sort of cable service. While I’m not sure of the worth of such a report longterm, I believe it tends to also support my position that we aren’t as “out of balance” as the media and some suggest and that we have a spending/priority issue, not a revenue issue.
    On a personal note, Romney had a good education and other advantages provided to him by his family, so what? Why is that being held against him?

  5. Lets be Reasonable says:

    @CS – and back to your argument that investment income is double taxed. You claim that someone who invests money, 1st got that money by earning it, where it gets taxed. Then, when they get income from an investment, it gets taxed again – this time at 15%. Now, we can argue whether they are more likely to get that money by earning or inheritance, but let’s ignore that for the time being and say they actually earned it through wages and are taxed accordingly. Now they turn around and invest that money and make a capital gain. The amount that gets taxed is only the increase. The original amount is not taxed again, only the net gain. So there is never double taxation. Capital Gains are NEW income that gets taxed at only 15%. And 3/4 of ALL capital gains goes to the top 1%. Newt wants to eliminate capital gains tax altogether, while both Newt and Mitt want to eliminate the estate tax. Estate taxes are currently only paid by the very wealthiest, so they would be the only ones to benefit. Why is the Republican party so intent on shifting more income and wealth to the top 1%? And why do the blue-collar, un-college educated folks who make up the bulk of the Republican party think this is reasonable? That is something that I’ve been completely unable to comprehend.

  6. Lets be Reasonable says:

    @CS – “A person in California who earned one million dollars last year paid 45% of that one million in Federal and California State income taxes (35% federal rate and 9.3% Ca rate)”
    This is only the case for wage income above the cutoff for the highest marginal rate. It is not their actual tax paid. Below that, they are charged the same rates as someone earning less. And virtually no one earning one million is doing it through wages, so most likely, they are paying at most 15% to the Fed. Plus, they are likely not paying payroll taxes either like most wage earners.

  7. Lets be Reasonable says:

    @CS – “The Clinton’s self worth has continued to increase over the last 3 years.”
    Once you’ve reached the level where you can derive most of your income from investments, it is pretty hard not to have it increase when you only have to pay 15% on it. And then you get to pass it on to your kids pretty much tax-free, so they get to continue the amassing of wealth. Romney claims that he earned his own money, but he did get the advantage of good education – he started out at a public school in an affluent neighborhood, then went to private schools and finally got MBA and JD degrees from Harvard. He was given help up the ladder. It’s not a Republican / Democratic thing, it is a Rich / Not Rich thing. The poor have little access to decent education, health care and nutrition, and thus their access to the ladder is minimal. And while the middle class is better off, public education is going downhill, and many do not have health insurance, and the cost of college is becoming increasingly out of reach. @CS, you constantly argue that ‘they had to earn the money before they are able to invest’ but that is really not the point. The point is wealth is becoming more and more accumulated in to the hands of the few, and one of the biggest causes of that is the ability to avoid taxes and then to pass your wealth on to your kids intact. We have not had this kind of inequality in the US since before the Great Depression, and yet we have had no problem with innovation and growth, so don’t give me the argument about job creators. There is NO reason why income derived from money should be treated any differently than income derived from wages. ALL income should be treated the same. We as a nation should decide what the minimum amount that a working family needs, and then anything above that should be taxed at a progressive rate, with the top marginal rate kept at a reasonable level.

  8. Anderson says:

    I see Kool-Aid is still being poured into birdbaths around Sonoma County.

    Only an uninformed, myopic person could believe that Kerry, Clinton and Pelosi represent working people’s interest. These politicians represent their own interests, and made millions doing it.

    Clueless does not begin to describe some of these posts.

  9. Commonsense says:

    Ok, you say that top earners don’t pay a fair share of the tax burden. So lets take a real look here. A person in California who earned one million dollars last year paid 45% of that one million in Federal and California State income taxes (35% federal rate and 9.3% Ca rate), that doesn’t include the 1% tax for those making a million or more dollars in CA for Mental Health Services (Mental Health Services Tax). Those earning a million also paid all the other taxes (property, sales, gas etc.). Those with overseas accounts/investments also paid Federal taxes on that money. If any money was invested and they made a gain off that investment, then they paid a Federal capital gains tax. So, at a minimum they paid 45% on income earned (that would apply to anyone earning over $379,000 both federally and in CA)and a 15% federal gains tax, along with a state gains tax.
    Middle and low earners either paid 10%-25% Federally and then 5-7% in the State of Ca (a maximum of 35%). However, 47% of the middle and low income earners paid no federal income tax, and many of those recieved a refund (subsidy) from the Federal Govt. Middle and low earners paid all of the other taxes (property, sales, gas etc.) and would be liable for any of the other taxes applicable if they had investment income or foreign accounts/investments.
    So, in what way did either of those groups not pay a fair share?? As I see it, it’s about a better general tax system with less loopholes and deductions across the board. It’s about government not spending like it’s been given a blank check and not being the bully on the block.
    If you think Clinton and Kerry understand the middle class better then others, so be it, everyone has a right to their opinion. In my humble opinion, most politicans are top earners and most don’t have a clue how the other half lives, period. Regardless of that, their job is not about their personal wealth or assets, it’s about governing under the laws set forth and the founding spirit of our constitutional republic. Of course, anyone can write the federal or state government a check if they want, so all those wealthy individuals calling for higher taxes don’t need to wait for that to happen to make a differnce, they can open up their check book whenever and give to their government (as Warren Buffet did recently). A recent gov’t study showed that in the last three years Americans have increased their credit scores and vastly decreased their debt, a reasonable and wise reaction to our situation. How about our State and Federal Gov’t do the same.

  10. 0 Representation says:

    As I read the comments to this article I’m baffled by the responses of most of the comments basically saying it’s ok for a multi-billionaire to pay low taxes when a family making $70k pays more. So please explain to me just why is it ok for a family making $70k to pay more taxes than a multi-billionaire? To me this isn’t a class war. Frankly this grossly unfair and in my opinion wrong.

  11. Michael Sheehan says:

    It’s easy – make the top tax bracket 20% for both wages and investment income, and create a lower rate of 10% for anyone making less than $75,000 a year, while eliminating ALL loopholes and deductions except for mortgage interest and dependent children. End of story.

    And FORCE government to live within its means, like its good, responsible citizens. This is THE problem with the unsustainable debt. Too much government.

    If everyone pays at least some federal tax, that is a “fair share.” The fact that the top 1% now pays 37% of all Federal income taxes is not fair at all – making the few pay for the welfare and “free stuff” for the many is absolutely unfair.

  12. MOCKINGBIRD says:

    Commonsense-you missed my point. I know Kerry and Clinton are rich. I know they take advantage of the Supreme Court bestowing personhood on corporations. How rich they are wasn’t my point at all.

    My point was that it’s about charactor and how the Republicans DON’T REPRESENT the people anymore (unlike Ike who did). Kerry, Clinton, and Pelosi, even though rich, represent my interests and I don’t think any of them would bat an eye at paying more in taxes. In fact, Clinton raised taxes and the rich weren’t bellowing their anger from the rooftops.

    You people miss the point about our anger at the rich. WE AREN’T ANGRY THAT THEY’RE RICH. We’re angry because they don’t pay their fair share for the infrastructure they need and use. We’re angry at their current greediness, pumping money into elections to take away the rights of working people. We’re angry at losing the ability to get and keep a fair wage job with benefits and SECURITY. We’re angry that their gambling shinanigans created this economic DEPRESSION we the people are in. We’re angry at their hoarding money instead of investing in the America where their dreams came to fruition.

    So you see, it’s not because they’re rich.

  13. Canthisbe says:

    Heard Clinton give a college commencement speech. Everyone had to wait 45 minutes because he was late. Told kids not to focus on money, but focus on public service. Said they could do this by buying his book about how many good things he is doing and volunteering to work for his charity front for pennies.

  14. NoQuarters says:

    Mocking, Paaaaaalease
    there’s a worng way to give to charitys?
    if the following did donate, i bet ya it wasn’t the NRA or evil oil
    Huffman, Lawson, McCuan, Renee, Solomon, Woolsey
    Prop 8 give me a break twice the people voted on this, oh thats rights there all bigots, Right?

  15. Commonsense says:

    Actually Graeme is right Mockingbird…
    Some facts:
    1.) John Kerry is worth $194 million dollars, he has paid about the same tax on that money as Mitt Romney (13-15% because majority comes from investments), Kerry owns 5 homes, Kerry has donated roughly half of what Mitt Romney has to charity and John Kerry was 2nd in Corporate donations (about 6.1 million). John Kerry has owned/been a part of corporations that have benefited from the “legal fiction” of personhood, and in fact spent much debating the issue of corporate tax with Bush, and never once complained or even commented.
    2.) Bill Clinton is worth $40 million, but at least pays higher taxes then most because his $1 million speaking fee is “wages”, and not investment income, owns at least two homes. He does run a charity organization, The Clinton Foundation and guess who the biggest contributors are by far? Corporations, both domestic and foreign. Historically, his biggest contributions as a politician also came from large financial corporations. The Clinton’s self worth has continued to increase over the last 3 years.
    3.) Nancy Pelosi is worth $43 million, has increased her earnings via information she learned via her position in Congress and while many have lost money the last few years, she continues to increase her self-worth. Contrast her counter part (who isn’t poor by any means, but isn’t in her ballpark), John Boehner is worth $2.1 million.

    So, please a little honesty here, both sides are made up people who are financially well off and both sides receive large contributions from corporations, including Wall Street. The distinction between parties is much like the distinction between people and corporations at this point in history, a legal fiction created for organizational purpose.
    If we spent a little more time on the individual, their conduct, and their voting record and a little less time on party affiliation, we might be able to elect some effective people, but I”m not holding my breath at this point.

  16. MOCKINGBIRD says:

    Wrong again Graeme. Neither Clinton or Kerry said that Corporations were people. Mitt is out of touch with the people. He can’t relate to us on any level. Clinton is definitely in touch because he likes everyone and now spends his time helping others (unlike Bush).
    Mitt hasn’t a clue how the bottom 99% live. Clinton was once one of us and knows. No comparison here.
    You people called Kerry an elitest when he was running and were more worried about his higher intelligence than his money. Funny that you don’t call Mitt an elitest because that’s what he is. Now THAT’S a comparison.

  17. Graeme Wellington says:

    Let’s check the Press Democrat archives for their scathing criticism of John Kerry and Ted Kennedy when they were running for president – who are both richer than Romney. Let’s read the criticism of Bill Clinton’s fortune too. No problem with Obama raising a billion in campaign contributions – no doubt completely from 99% ers I suppose?

  18. Commonsense says:

    Mr. Coursey is writing from a certain point of view or bias that I dont’ necessarily agree with, but is the point of having an opinion. And, while I have no problem with a fair and balanced review of the tax code in an effort to delete many loopholes (like how certain income may be defined under specific circumstances), I don’t agree with the blanket statement that certain people need to pay more in taxes simply because we want to spend more. That discourages success, drive and reinvestment and encourages entitlement, a lack of accountability and investment abroad.
    Again, we should probably just agree to disagree, as from my point of view we are a country with sufficient resources, talent and drive and the problem isn’t the failure of one portion to contribute, but a failure of many portions to pay attention and participate and a failure of other portions to effectively utilize the existing resources.

  19. Lets be Rreasonable says:

    @CS – Coursey said it better than I can:

  20. MOCKINGBIRD says:

    Romney gave to the Mormon Church. Not exactly “charity” in my view. Though I have to give the Mormons credit. They WERE the first responders during Katrina when Bush and his loyal lackeys dithered away. They were packed and ready to go immediately. But I’m not too happy with their interference in the PROP 8 election.

  21. NoQuarters says:

    Romney give to charitys at an equal amount as his tax obligation

    I wonder how much the following gave to charity’s?

    Democrats, Huffman, Lawson, McCuan, Renee, Solomon, Woolsey

  22. Commonsense says:

    Just replace “job creators/we” with “government/we”…, because there is little to no distinction at this point.

  23. Commonsense says:

    I understood your comment to indicate my position of being taxed both at “earning” and “after investment” was incorrect? And, my point, was that it is in fact taxed at both points, and usually it’s taxed as ordinary income. The fact that there are some loopholes in regards to defining some income capital gains instead of ordinary income only changes the rate at which it’s initially taxed, at the end of the day it’s still taxed at each point. I have no idea about your taxes, but I am quite confident that comparing the taxation of Romney’s income with others who earn money quite differenlty is much like comparing apples to oranges.

  24. Lets be Rreasonable says:

    @Oracle – Yes, let them eat cake!

  25. The Oracle says:

    Society is a better place when we smart and hard working job creators are allowed to keep more capital. We are better suited to decide how to use capital, then let it trickle down to those of you how aren’t as smart and hard-working. This is one of the reasons it’s or leaders follow God’s design and taxes capital gains at a lower rate than labor income. We smart and hard working people don’t rely ob labor for our income. We gain more capital by outsmarting others. Those of you who disapprove of these insights merely are envious and promoting class warfare.

  26. Lets be Reasonable says:

    @CS – I didn’t say he wasn’t taxed, I said he was likely taxed at 15% – which is much less than I get taxed, while I make a whole lot less. On top of that, he probably didn’t pay any payroll taxes. The fact that most of these low tax options are available for the most part to the wealthy increases the concentration of wealth, which is not a good thing.

  27. Commonsense says:

    I went to your posted site, it stated quite clearly that money invested is generally taxed prior to investment. So, in fact your article supports my prior comments. The article is specifically about the hedge fund loophole, which defines certain fees associated with management of those funds as capital gains instead of ordinary income. If your argument is the demise of such loopholes, then I agree, but it doesn’t change the fact that the money was initially taxed, whether as ordinary income or as capital gains before it was invested and then taxed again as captial gains.
    We’ve had this discussion before, and my comment was that America and Americans do gain from investment either financially themselves because many ordinary Americans do invest, even though not at the millions level and because of the new business, etc born of re-investment. And, again the article you provide doesn’t directly address that point, nor does it disprove it.
    Lastly, I’m all for getting rid of certain loopholes and simplifying the tax code, but if you think its Republicans holding that up, then there I again must disagree. Both parties hold that up because both parties benefit from the current system financially (even allowed to use their inside information for investing, something oridnary people would get a visit from SCC for).

  28. MOCKINGBIRD says:

    With payroll taxes (Fica) I paid a higher percentage in taxes than Romney did. Signficantly higher.

    But my roof leaks, I need a new stove, the bearing is going out in my washer, my dryer roars, and I take the bus everyday to save money. If I had the money I COULD STIMULATE THE ECONOMY by hiring a roofer (jobs), going to Asien’s for a new stove and washer/dryer duo (supporting a local small business), and buy a car so I don’t have to sclep my purchases on the bus and walk a mile home.

    So who is the economy stimulator-Romney or me? I’d say me, and hundreds of millions like me.

  29. Lets be Reasonable says:

    @CS – Actually, when Romney “earned” the original money, he also probably didn’t pay more than 15% in federal taxes:
    You’ve claimed before that most Americans benefit from Capital Gains, but it just isn’t true – 75% of ALL Capital Gains go to the top 1%:
    Let’s simplify the tax code. Make all income the same, regardless of source, and then you can lower the top marginal rate if you want. Or better yet, use the money to close the deficit and/or lower corporate taxes.
    Instead, the Republicans want to put Capital Gains to 0% tax rate, and the wealthy would never have to pay taxes again. They also want to eliminate the Estate tax altogether, so they can then pass on that wealth to their children completely intact. Isn’t this what our Founding fathers were trying to get away from – aristocracy by birth!?

  30. Commonsense says:

    While one may argue for an increase in the capital gains tax, we need to remember that Romney had to earn it before he invested it, unless he inherited it. Point being, the money he invested and earned gains on didn’t just fall from the sky and it was very likely taxed at some point before it was invested. So, greatly increasing the capital gains tax could be viewed as punishing those that have done well and re-invested it… a slippery slope that may end up diminshing investments. Also,
    before we all bash Romney on the tax issues (there are others more bash worthy in my book, his healthcare bill as gov. and his flip flops), he did donate $7 million dollars to charity, a large percentage of the after tax $18 million. Maybe we should start by giving those in the U.S. congress and our local legislatures a little more of the same scrutiny we give the POTUS and POTUS candidates.

  31. Jim87 says:

    Where Is Obama’s college transcripts, and when will this class warfare end? Socialism did not ever work in Europe, in fact it’s sending their debt to hell, so why punish success, along with the real provider of jobs. if government wants more income, than maybe it’s time they invest more in oil and gold and other commodities. Government seems to me they are no better than a bully going after others lunch money.

  32. It's Doable says:

    Good for Romney. He paid millions in taxes while millions in this country paid no federal income taxes.

    Isn’t it the goal of all politicans and citizens to get to a position of living off investments and not earn a dime in wages? Its called retirement.

    Our son works for Facebook and has from almost the beginning. I hope Facebook does go public and he joins the millionaire ranks. He has worked hard to earned it.

  33. Bill me says:

    The “junkie” needs a fix. Desperately seeking it from new taxes rather than eliminating duplicate departments, unnecessary subsidies/studies/grants/and programs that benefit only special paybacks to their biggest political donors. If and when the government stops being a junkie in denial, then we can discuss new taxes. Show me the cutbacks! It isn’t even an issue of whether the rich don’t pay a fair share, it is an issue about all the waste that is built into the system. Private business would focus on the waste first.

  34. Money Grubber says:

    Its bad enough to demand higher taxes “or else” the kids get it by Gov Jerry Brown.

    But to operate the machinery of government on the mere hope of higher taxes from FaceBook is classic government incompetence.

    I applaud any person, wealthy or not, who chooses to leave the state rather than put up with the immaturity of government people.

  35. Money Grubber says:

    Publishing the tax returns online of Presidential candidates is probably useful for readers.

    But WHY do I suspect that the Press Democrat, which has a reputation for slanted news coverage, will NOT publish tax returns of every other candidate of BOTH parties ????

    After all, we all can see that Romney’s a great target since he has wealth.

    Will you promise your readers, Press Democrat, to publish the same material for all candidates of BOTH parties ?

    No? I thought not.

  36. Sports fan says:

    Democrats are counting on voters who don’t understand the
    tax code and the basic difference between salary and investments.

    Romney already paid the higher tax rate when he earned a salary. The capital gains tax is a SECOND tax!

    All big-government liberals always want more.

  37. Follower says:

    “Will the company go public, creating a lot of new millionaires”

    “New millionaires”? I thought those evil corporations only made RICH people richer!

    New Millionaires?

    I’m so confused….