Thursday, October 18, 2012

How Big A Lie Did Mitt Romney Tell When He Said His Federal Taxes Were Never Less Than Thirteen Percent Of His Income? (And Why It Affects The Economy)

Romney during second Presidential debate this week where he said he talked about eliminating capital gains taxes
Mitt Romney misled us when he told us that federal taxes on his very substantial income were always at least thirteen percent.   Knowing how very little Romney is really required to pay in taxes matters a lot.  It matters a lot because it is creating a drag on the economy.

As of now, Mitt Romney has still released only two of his tax returns.  For the longest time he had released only one tax return.  That was back when he was assuring us that, not to worry, in the absence of releasing more information he could assure us that his tax liability was always at least thirteen percent.  (See: Romney Says He Paid at Least 13% in Income Taxes, by Michael D. Shear, August 16, 2012.)

In September, Romney finally released his 2011 tax returns.  It turned out that the federal taxes he owed for his adjusted gross income of about $13.7 million was actually about only ten percent. That’s far less than that thirteen percent figure he’s been pushing out to the public with assurances back in August.

So that it didn’t appear that Romney had been too outrageously inaccurate or misleading Romney had a fix-it when he finally released this tax return: He consciously elected to pay more taxes than he had to:
Mr. Romney has said that he has paid at least 13 percent in federal income taxes in each of the last 10 years.

In order for that claim to be true in 2011, Mr. Romney had to voluntarily take a smaller deduction than he was entitled to for his charitable deductions, his advisers said Friday.
(See: September 21, 2012, Romney Releases 2011 Tax Returns, By Michael D. Shear.)

Romney overpaid his taxes by enough that he actually paid about fourteen percent in taxes.

The fix-it, as after-the-fact fix-its go, is pretty inadequate in a couple of ways. 

The first thing that makes this fix-it inadequate is that Romney was on record saying he wouldn’t be qualified to be president if he paid more taxes than he actually had to.  He said that just last July when ABC’s David Muir asked him it in an interview whether he had ever paid taxes lower than 13.9%.  (If you are wondering why Romney paid fourteen percent when he overpaid his taxes, rather than just enough to get thirteen percent, the reason may be that Muir asked him about this 13.9% figure.)

Romney responded to Muir as follows:
My view is that I have paid all the taxes required by law [. . . . .]  I don’t pay more than are legally due. And frankly if I had paid more than are legally due I don’t think I’d be qualified to become president.  I think people would want me to follow the law and pay only what . .  Ah. . the tax code requires.
You can hear an audio clip* of him saying exactly this in a Brian Lehrer show segment the following Monday. .  Romney released his tax returns just before the weekend on a Friday. . (starting at 3:52).  You can click to hear it below in the embedded audio.



You can also watch the ABC Muir interview itself or read the transcript.*
(* Here is an issue of exactitude that will be of geeky interest to those who wonkily track how the media presents stories: If you look at the transcript of the interview you can see that the audio of the Brian Lehrer show clip, a direct lift from the ABC video, and the ABC video itself are undetectably edited- ABC slid in a cut to a photo to hide the cut, but the edited deletion from what Romney said is nothing that will help or especially hurt him.  It goes in where I inserted the bracketed ellipses in the quote above: “From time to time I've been audited as happens I think to other citizens as well and the accounting firm which prepares my taxes has done a very thorough and complete job paying taxes as legally due.”)
The second thing that makes Romney’s coy ploy of this after-the-fact fix-it inadequate is that overpaying one’s federal taxes does nothing in terms of locking in his tax liability at that higher rate.  In its first New York Times report (not the second) about Romney finally releasing his 2011 tax return the paper hinted at this when it suggested that it was possible Romney “could still deduct the unclaimed amount of his charitable donations in future tax years.”

This deserves to be truly nailed down!: Overpaying taxes doesn’t establish (or `fix') tax liability.  It’s instead like socking your money away for future withdrawal from the bank.  Yep!

To confirm this I called the firm of Reiner and Reiner, Wall Street lawyers I like to consult for tax advice who also prepare tax returns.  I was assured that anytime Mr. Romney wants, after the election or otherwise, all he has to do is file an amended tax return and he can then claim the charitable deductions he didn’t recently claim. VoilĂ !  Mr. Romney will then have paid only the minimum ten percent in income taxes he is legally obligated to pay.  He can do this for up to three years after filing and thereby no longer be unqualified (by his own standards) to be president by paying more taxes than are legally due.

Do people, politicians and others often go around amending their income tax returns, even doing so when getting what they have filed correct is important for political purposes?  You bet they do!  In one of the same articles reporting on Romney’s final release of his tax returns we learned that his vice-presidential running mate Paul Ryan filed an amended return to deal with the fact that he and his wife failed/forgot to report $61,122 of their income for 2011:
In an amended return also released Friday, Representative Paul D. Ryan, Mr. Romney's running mate, disclosed that he and his wife had initially failed to report $61,122 in income from 2011. He said the failure was inadvertent. The change raised their total income to $323,416 and increased their taxes by $19,917 to $64,674, or 20 percent of adjusted gross income.
(See: Romney Reveals He Paid 14% Rate in 2011 Tax Return, by Nicholas Confessore and David Kocieniewski, September 21, 2012.)

It’s been suggested that the Democrats haven’t wanted to drill down on the fact that Romney’s tax liability was actually only ten percent in 2011 because it involves the difficult issue of Mr. Romney’s making what qualifies as “charitable” deductions.  That gets into a whole other kettle of fish when it comes to the vast wealth that only a few people control in this nation.  There are those like New York Mayor Michael Bloomberg or real estate developer/public subsidy collector Bruce Ratner who direct huge amounts of their “charitable” and deductible "giving," wielding it for political and personal gain.

When it comes to having to pay so very little income tax, the fascinating thing is that payment of taxes is an element of the disdain that Romeny expressed in his infamous 47% percent remark about all those Americans Romeny says “believe that they are victims” and don’t “take personal responsibility and care for their lives,” is that, in Romeny’s words:
These are people who pay no income tax. Forty-seven percent of Americans pay no income tax.
A lot has been written after Romney’s remarks about the 47% of Americans who don’t pay taxes (actually 46.4%), about how that includes young people and students, elderly collecting on the Social Security benefits they paid for, active service men and women, Americans paying payroll and Social Security taxes at a higher rate than those with higher incomes, and as Jon Stewart made fun of on the Daily Show would have included Romney's own parents when they needed to take advantage of public assistance.  (See: The 47 Percent, In One Graphic, by Jacob Goldstein, September 18, 2012, Who Are the 47 Percent? 7 Facts about the Americans Mitt Romney Attacked, by Kevin Fallon, Sep 18, 2012 and Fact-checking Romney's "47 percent" comment, by Lucy Madison, CBS News/ September 18, 2012.)

Romney’s ten percent tax liability isn’t quite down to the level of having to pay no federal taxes at all but there are those among the wealthy, those Romney might himself have been addressing at the political fund raiser where he made his 47% remark, who actually are among the 47% who don’t pay taxes.  Back when Romney hadn't yet released his 2011 tax returns the New York Times filled the void with a story about the sort of things that tax returns of the rich can reveal.  It contained the following information “never before disclosed” by the IRS (emphasis supplied):
It so happens that this summer the Internal Revenue Service released data from the 400 individual income tax returns reporting the highest adjusted gross income. This elite ultrarich group earned on average $202 million in 2009, the latest year available. And buried in the data is the startling disclosure that six of the 400 paid no federal income tax.
(See: Common Sense, In Superrich, Clues to What Might Be in Romney’s Returns, by James B. Stewart, August 10, 2012.)

Six of those with highest adjusted gross income in the nation paid no federal income tax?   And where between no federal income tax and Romney’s ten percent tax liability do the rest of those with highest incomes in the nation stand in terms of the taxes they are required to pay?

During this week’s presidential debate Romney offered what was, no doubt, intended to be an obfuscating figure in his regard, that:
The top 5 percent of taxpayers . . . pay 60 percent of the income tax the nation collects.
The more correct figure is actually apparently 57 percent (not 60 percent), but to the extent that the figure is true it says more about the way that income in this country has been increasingly skewed to go more to the already wealthy and more advantaged, those who even paying such lower such rates, still wind up picking up that much of the nation’s taxes.  It also shows why, as incomes increasing skew to go to a small minority of the population, it is so important that that population pay their fair share, rather than the lower preferential rates Romney champions.

One reason Romney pays lower taxes than everyone else is because so much of Romney’s income is in investments and capital gains being taxed at a preferential lower rate than what other Americans must pay on their earned income.  During the debate Romney tried to pull another fast one: That because he wanted “middle-income taxpayers to have lower taxes” he had a plan where they “no longer will pay any tax on interest, dividends or capital gains.”  (One wonders: When Romney says he wants to benefit a“crushed” “middle class of America,” what percent of that group does he consider to be included in the 47% he disdains?)

When implemented Romney’s capital gains tax elimination plan will probably involve further tax cuts for himself and the similarly wealthy but CBS notes (providing a chart): That “most middle class taxpayers are not currently paying a ton of tax in these [capital gains, etc.] areas.”

Why are all the preferential tax treatments that skew more wealth to the wealthy and have them shoulder less than their fair share a very important concern?  It not only makes the rest of us poorer; it is also bad for the economy.  Here is caution about the United States from the International Monetary Fund which normally might be concerning itself instead with travesties of third world economies in the countries of continents like South America:
“Growth becomes more fragile” in countries with high levels of inequality like the United States, said Jonathan D. Ostry of the International Monetary Fund, whose research suggests that the widening disparity since the 1980s might shorten the nation’s economic expansions by as much as a third.

Reducing inequality and bolstering growth, in the long run, might be “two sides of the same coin,” research published last year by the I.M.F. concluded.

    * * * *

The I.M.F. has cautioned the United States, too. “Some dismiss inequality and focus instead on overall growth — arguing, in effect, that a rising tide lifts all boats,” a commentary by fund economists said. “When a handful of yachts become ocean liners while the rest remain lowly canoes, something is seriously amiss.”
(See: Income Inequality May Take Toll on Growth, by Annie Lowrey, October 16, 2012.)

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