Mitt Romney was trounced in last week’s Republican presidential debates, in no small part because of his bungled answers to one question: When will you release your tax returns? He’s never before made personal returns public, even during his years as Massachusetts’ governor. Yesterday, he finally did.
Initially, Romney argued that his refusal to go public with these documents was to avoid becoming a victim of class-based attacks cooked up by Democrats and even some of his Republican opponents.
The thing is, nobody currently running for president is poor, by any stretch. Romney is worth in excess of $200 million. Ron Paul has written best-selling books and has a net worth of between $2 million and $5 million. Newt Gingrich made $3.1 million last year alone. Rick Santorum reported a net worth of between $500,000 and $1.8 million when he last served in the Senate. And the man whose job they want, President Obama — another best-selling author — is worth between $2.8 million and $11.8 million. The 1 percent has got this race in the bag.
But what’s worrisome for Romney is not how much he’s worth, per se. Rather, he’s likely concerned about all of the perfectly legal and above-board accounting practices that have allowed him to defer paying taxes or to pay lower rates than people with far less money than he has. Romney’s returns for 2009 and 2010, along with estimates for 2011, reveal that he typically pays between 13 and 15 percent a year, consistent with earnings from investments, offset by charitable deductions.
In other words, his rate is what the government expects you should pay if you’re single, make between $8,500 and $34,500 a year and have no deductions. Except that Romney’s doing a tiny bit better than that, economically.
What Romney’s personal financial disclosures reveal is that the system is rigged in favor of people who have more money (shocking, I know).
The first and best way to lower your tax rate is to get paid not in salary, but through dividends and stock grants. Once your income exceeds $34,500, taxes are higher on wages than they are on investment income. But, since it takes money to make money, this is of little consequence to most people.
The next legal way to lower your taxes is to not spend money. If you need every cent you earn, you might not have a choice here. But, for most of you, the government will let you put up to $17,000 in a retirement account this year. There, the money will grow tax-free until you make withdrawals when you retire (or turn 70½). For Romney, the ability to sock away nearly $20,000 a year is not going to move the needle.
This is where Romney’s offshore accounts — which reportedly contain more than $30 million — will come under scrutiny. Offshore accounts are very useful, assuming you don’t need the money in the U.S. Why? Well, with few exceptions, money is not taxed unless it’s brought into the country. By investing in Cayman Island-based funds, Romney can let his money grow on a tax-deferred basis. It’s just like a 401(k) plan — except without that pesky $17,000-a-year limit. Romney’s not alone in this. Multinational corporations do things like this all the time. In its annual report, a company like GE will helpfully explain how it manages its U.S. tax burden through the use of offshore accounts.
Presumably Romney (or his heirs) will someday want to relocate this money to the U.S. — and that’s when taxes will be paid on it. Or, if Romney’s opponent Santorum gets his way, maybe not. Santorum has proposed eliminating the tax on repatriated corporate money so that companies like GE (and people like Romney) will bring their money back and put it to productive economic use. George W. Bush tried this. The most significant result was that companies responded by buying up their competitors and paying dividends to their shareholders. But it is nonetheless an idea that somebody always mentions every few years.
The law is the law. If you have enough money, you can absolutely use offshore investment funds to protect it from taxation. And, if you can afford enough shares of Exxon to live on the cash dividend from that alone, then you will likely pay a lower tax rate than a schoolteacher.
Romney’s defenders, as well as his honest detractors, will take pains to point out that the man has done nothing wrong. He is, in fact, playing by the rules (and playing well). His problem is not what he’s worth or how he’s managed his family finances. It’s that his plum tax situation leads a citizen to question just why the rules were written the way they were.
The system clearly is designed with Romney’s advantage in mind, since no schoolteacher or police officer could make use of offshore accounts. Romney has proposed exempting people who make less than $200,000 a year from taxes on interest and capital gains. But in our current interest rate environment, such people aren’t making a lot of money on interest anyway. It matters to Romney, but only because he has way more than six figures in the bank.
Yes, it’s true that Romney hasn’t done anything wrong. But it’s hard to imagine why he would, what with the rules having been written for him and all.
Initially, Romney argued that his refusal to go public with these documents was to avoid becoming a victim of class-based attacks cooked up by Democrats and even some of his Republican opponents.
The thing is, nobody currently running for president is poor, by any stretch. Romney is worth in excess of $200 million. Ron Paul has written best-selling books and has a net worth of between $2 million and $5 million. Newt Gingrich made $3.1 million last year alone. Rick Santorum reported a net worth of between $500,000 and $1.8 million when he last served in the Senate. And the man whose job they want, President Obama — another best-selling author — is worth between $2.8 million and $11.8 million. The 1 percent has got this race in the bag.
But what’s worrisome for Romney is not how much he’s worth, per se. Rather, he’s likely concerned about all of the perfectly legal and above-board accounting practices that have allowed him to defer paying taxes or to pay lower rates than people with far less money than he has. Romney’s returns for 2009 and 2010, along with estimates for 2011, reveal that he typically pays between 13 and 15 percent a year, consistent with earnings from investments, offset by charitable deductions.
In other words, his rate is what the government expects you should pay if you’re single, make between $8,500 and $34,500 a year and have no deductions. Except that Romney’s doing a tiny bit better than that, economically.
What Romney’s personal financial disclosures reveal is that the system is rigged in favor of people who have more money (shocking, I know).
The first and best way to lower your tax rate is to get paid not in salary, but through dividends and stock grants. Once your income exceeds $34,500, taxes are higher on wages than they are on investment income. But, since it takes money to make money, this is of little consequence to most people.
The next legal way to lower your taxes is to not spend money. If you need every cent you earn, you might not have a choice here. But, for most of you, the government will let you put up to $17,000 in a retirement account this year. There, the money will grow tax-free until you make withdrawals when you retire (or turn 70½). For Romney, the ability to sock away nearly $20,000 a year is not going to move the needle.
This is where Romney’s offshore accounts — which reportedly contain more than $30 million — will come under scrutiny. Offshore accounts are very useful, assuming you don’t need the money in the U.S. Why? Well, with few exceptions, money is not taxed unless it’s brought into the country. By investing in Cayman Island-based funds, Romney can let his money grow on a tax-deferred basis. It’s just like a 401(k) plan — except without that pesky $17,000-a-year limit. Romney’s not alone in this. Multinational corporations do things like this all the time. In its annual report, a company like GE will helpfully explain how it manages its U.S. tax burden through the use of offshore accounts.
Presumably Romney (or his heirs) will someday want to relocate this money to the U.S. — and that’s when taxes will be paid on it. Or, if Romney’s opponent Santorum gets his way, maybe not. Santorum has proposed eliminating the tax on repatriated corporate money so that companies like GE (and people like Romney) will bring their money back and put it to productive economic use. George W. Bush tried this. The most significant result was that companies responded by buying up their competitors and paying dividends to their shareholders. But it is nonetheless an idea that somebody always mentions every few years.
The law is the law. If you have enough money, you can absolutely use offshore investment funds to protect it from taxation. And, if you can afford enough shares of Exxon to live on the cash dividend from that alone, then you will likely pay a lower tax rate than a schoolteacher.
Romney’s defenders, as well as his honest detractors, will take pains to point out that the man has done nothing wrong. He is, in fact, playing by the rules (and playing well). His problem is not what he’s worth or how he’s managed his family finances. It’s that his plum tax situation leads a citizen to question just why the rules were written the way they were.
The system clearly is designed with Romney’s advantage in mind, since no schoolteacher or police officer could make use of offshore accounts. Romney has proposed exempting people who make less than $200,000 a year from taxes on interest and capital gains. But in our current interest rate environment, such people aren’t making a lot of money on interest anyway. It matters to Romney, but only because he has way more than six figures in the bank.
Yes, it’s true that Romney hasn’t done anything wrong. But it’s hard to imagine why he would, what with the rules having been written for him and all.
