Mitt Romney’s Tax Rate and Your Fair Share

I was just reading another leftist try to make the claim that Mitt Romney’s tax rate is lower than “ordinary Americans.” Mitt’s 2011 tax return is right here if anyone is curious.

The claim always looks something like this: “In 2011, Mitt Romney paid $1.9 million in taxes on $13.7 million of income — a 13.9% tax rate (and this claim is calculated to fire up working Americans who supposedly pay much high tax rates than Romney.) As always, this claim by those on the left is complete bogus…and those who use it to attack Romney are either misrepresenting the facts or they do not understand tax rates (or both.) Expect some form of this question to come up in the debates.

Here is how the average American can make an apples to apples comparison between Mitt Romney’s tax rate and their own. (I am an accountant, so I should be able to offer a little intelligence in this subject matter.)

Let’s assume the average American household makes $65,000/year, contains two spouses, a mortgage, a couple of kids and a couple of cars. (According to this website, that is pretty close to average.)

First — The household’s taxable income is not $65,000 because the couple pays health insurance, pays interest on their mortgage, property taxes, etc…and even if the couple does not take itemized tax deductions, it receives a standard deduction as an alternative. Further – the household receives a $1,000 tax credit per child. Finally, with graduated rates — the first $17,000 of the couple’s taxable income is taxed at 10% and the rest (up to $69,000) would be taxed at 15%. Therefore, a realistic tax return calculation for this hypothetical household would look more like this:

Adjusted Gross Income: $65,000
Standard Deduction: ($11,600)
Exemptions (4 x 3,700):($14,800)
Taxable Income: $38,600 (15% tax bracket)
Tax Before Credits: $ 4,940
Tax Credits: ($ 2,000)
Tax After Credits: $ 2,940

Effective Tax Rate on $65,000 of income: 4.5%

So, yes — the average American household pays a lower income tax rate than Mitt Romney.

How about an above average American household, say, one that earns $100,000 per year? (Same assumptions, except now any taxable income over $69,000 is going to be taxed at 25%)

Adjusted Gross Income: $100,000
Standard Deduction: ($11,600)
Exemptions (4 x 3,700): ($14,800)
Taxable Income: $73,600 (25% tax bracket)
Tax Before Credits: $10,050
Tax Credits: ($ 2,000)
Tax After Credits: $ 8,050

Effective Tax Rate on $100,000 of income: 8.05% (If itemized deductions were $20,000 for this taxpayer–which is pretty normal in this income range–the effective rate drops to 6.3%)

If we expand this example to a $150,000/year household under the same hypothetical assumptions, it gets a bit more interesting (but again – this is getting more and more above average household income):

Adjusted Gross Income: $150,000
Standard Deduction: ($11,600)
Exemptions (4 x 3,700): ($14,800)
Taxable Income: $123,600 (25% tax bracket)
Tax Before Credits: $ 22,550
Tax Credits: ($ 2,000)
Tax After Credits: $ 20,550

Effective Tax Rate on $150,000 of income: 13.7% (If itemized deductions were $30,000 for this taxpayer–which is pretty normal in this income range–the effective rate drops to 10.6%)

Also — People conveniently forget that one of the reasons Mitt pays such a low tax rate is due to the fact that he consistently contributes around 15%-20% of his income to charitable organizations…because that is several million dollars of his gross income tax won’t be taxed.

I suppose it is possible that were we to examine the tax rates on Americans making $200,000 or $250,000 per year or more…we might find those who pay a higher effective tax rate than Mitt Romney, but are these “ordinary Americans?” Obama doesn’t think so — he wants those Americans’ taxes raised even higher.

Update

I’ve been asked several times why I excluded social security taxes from my analysis. Here’s why: Social security is a forced savings plan. In theory, you are funding your own retirement with your social security contributions because you receive a retirement benefit statement each year that you pay into the system. I consider social security more of a “mandatory pension plan contribution” than I do a tax. Thus, it shouldn’t be included in your effective tax rate any more than should the 10% going into your 401(k) plan because you will be living off this money when you retire. If you don’t pay into the system, you don’t get any when you retire.

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17 Responses to Mitt Romney’s Tax Rate and Your Fair Share

  1. Chris says:

    Why did Mitt revise this return before releasing it to not deduct all of his charitable deductions? Does it have anything to do with inflating his tax rate to be more inline with the figure he claimed previously? And if he did pay more taxes than required by law, shouldn’t he bow out of the race since he said if that happened, he didn’t deserve to run for president?

  2. Barbara Bachman says:

    I have read a lot of the remarks on facebook and Mitt needs to get tough. He needs to convince the voters that he can be our president. The main thing is tell us what you are going to do to get this country going again.

  3. Mittrules says:

    @Chris

    Did Harry Reid tell you that? Did he name a source this time time or was he pulling “facts” out of his rear again?

  4. Ben Collins says:

    Ryan, I love the analysis. It’s great stuff. You should mention in the first or second paragraph that you are an accountant so that people know you have real credibility on this issue.

  5. Frozone says:

    Uhmm, capital gains verses income? Missed a big point there. This money has already been taxed once.

  6. Frozone says:

    But I like the debunking of the “rate” argument… I’ll add that to my list of refutations.

  7. Susan says:

    want to remind everyone that we didn’t hear any of the Dems complaining during Tim Geithner’s confirmation hearings regarding HIS non-paymnet of taxes. He may not have been running for President but being Treasury Secretary should have been scandalous enough. But it wasn’t.

    Also, I believe it was President Obama that said if he didn’t “get this done” in his first three years, we would be looking at a one term Presidency.(meaning HE wouldn’t run again) He’s running again.

  8. AfricanforRomney says:

    I don’t give a damn what Gov Romney pays. I know exactly how much taxes i’m paying under this incompent Prez and i do not like it at all. We’re being asked to pay for every little thing locally in some cases just to keep Obama’s lazy unions pensions.

    This Prez is such a divider, everything he does is so un-American, a lier Prez never seen in my life. Can we vote today and get it over with this affirmative Presidency?

  9. Zeb Westrom says:

    Average children per household = .97 (not two)
    Average household size = 2.5 (not four)
    Average earners per household = 1.3 (not two)
    Effective tax rate for single earner household at 65K = 13.7%
    Effective tax rate for two earner household at 65K = 10.8%

    HOWEVER, this does not include social security tax, payroll tax, state tax. None of which Romney pays.

  10. Annette S says:

    Romney pays what he is legally required to pay and he gave 3 million in charity. Romney took NO salary as the Governor of MA and he he took NO salary to turn around the Olympics. He could have continued to run Bain to become a wealthier man than he is today, but he chose to become a public servant and draw NO salary. He probably won’t draw a salary should he become our president. If you want to pay what Romney pays in taxes then go do what he did. Start your own private equity company.

    Everybody tries as hard as they can to pay as little as they can. Many people go beyond that…they cheat on their taxes and they don’t give any kind of a donation to charity. When it is 20 and 30 degrees out, do they think of people that are homeless. Do they go to their closet and look for sweatshirts, jackets or blankets to take to a shelter. They rationalize that the homeless have brought it upon themselves, but many are mentally ill or without work. So maybe many of these people should turn that finger around and point it at themselves.

    I agree with AfricansforRomney. I don’t give a damn about Romney’s taxes. If Romney can grow our economy and create jobs, he will help every citizen in our country.

    Romney/Ryan….2012!!

  11. Ann says:

    Mitt Romney’s tax returns have been hit on by the media like a birthday pinata… BUT I wonder why Obama has NOT released his college records, or his college applications, his passport and travel records, or explained why he and Michele had to give up their law licenses…. Wonder why the media is NOT crying out for Obama’s records?

  12. Brent Laird says:

    Lets see people are mad because he gives too much to charity?

  13. Jared says:

    Re: Zeb “HOWEVER, this does not include social security tax, payroll tax, state tax. None of which Romney pays.”

    Since when is state tax federal income tax (which is what the discussion is about)? Besides, in 2009 (I haven’t looked at this most recent return), Mitt Romney paid $750,000 in state and local taxes (http://www.uspoliticalscene.com/2012/01/mitt-romneys-tax-returns/).

    Mitt Romney does pay payroll taxes though. He earned around $400,000 of self-employment income last year – that is taxed at 35% plus he pays both portions of payroll taxes. It’s just that he makes so much money from investments that people ignore this.

    Most people will never come close to paying as much taxes in their lifetimes as Mitt Romney pays in one year.

  14. Joan C. says:

    The CNN business director stated that Mitt Romney is the smartest business man in American. Funny, they haven’t interviewed him since. We are so lucky, at this time to have someone with his business experience running for president. Now we MUST get him elected. Just look at Spain and Greece. We are almost there. Either Mitt saves us or we go over the cliff.

  15. Becky says:

    RE: Annette
    You go, girl. Loved your post
    Romney-Ryan 2012

  16. Joseph says:

    Romney was a scumbag for the work he did at Bain. Just another rich white guy taking advantage of the business laws (written by other rich white guys) to exploit the working class and earn profits at a rate that most civilised nations protect against. He got rich exploiting a system that is tearing America apart.

  17. Rick Ouellette says:

    Mitt Romney’s tax rate is determined by existing law which he has complied with. You forget that when Mitt was a wage earner he paid taxes at the top rate. So the money which he invested had already been taxed once. Now that money is generating income for him and most of it is derived from capital gains which is taxed at a lower rate . That applies to Warren Buffet, Bill Gates and many other rich people who have made money and invested it to get returns. This is only important now because Romney is a republican. It was never mentioned when the Kennedys were ruling the roost . Their money was inherited from the old man who made tons of money running rum during prohibition. Since they are democrats we need to overlook them and concentrate on weathy republicans. Obama’s goal is to tax the rich so he can spend more. They have absolutely no plan to reduce spending or the deficit and left unchecked they will ruin us economically. France just imposed a 75% tax on those earning over one million per year. Think of it-you earn one million and the govt gets 750K and you get 250K. So, the big money is moving out of France into neighboring countries and before long all that will be left are those who are on- the- take with no money to support them. It happened in Greece and it can happen here. Romney’s tax rate means absolutely nothing except to those who are jealous that they don’t have the intellect and determination to become wealthy. You cannot make the poor wealthy by making the rich poor. I’m sick and tired of the whiners who think the world owes them a liveliehood. Get off your butts and earn your own way. Most of the whiners who want to see Romney’s tax records would not be able to understand them anyways and they are just echoing the democrat talking points because they are too uninformed or ignorant to think for themselves. The governor says his tax records are hidden in a safe place and will probably never be found as they are under Obama’s birth certificate and his school records. Since the president’s birth certificate has been proven to be a fake the real one is most likely with the school records and it probably shows his real birthplace as the Protectorate of East Africa now known as Kenya.