Saturday, August 18, 2012

Politicians and Tax Returns

A friend, who is also a priest, made the following post on Facebook today: "Reflection: Great leaders never ask their people to do something they, themselves, won't do. That's a nice yardstick to apply to political leaders. If, for example, the deficit is horrendous, a great leader should be willing to sacrifice his/her own vested economic interest for the good of the Country and pay an even greater price than that which others are called to pay. That's called leading."   It got my dander up a bit because there seemed to be a reference to one candidate (Romney) who in the last few days has released that he paid an average rate of 13% on taxes in the last decade.    That got me to look carefully at both candidate's income tax returns for the year of 2010.   You can see them by clicking on the names in the brackets. (Romney  Obama).  I also looked briefly at their 2011 returns.

Here are some interesting things I found from reviewing both returns.   First,  both candidates paid a lot of tax (the President paid a bit more than a quarter of his income to taxes, while Romney paid about 14%).  For Romney his tax payments in 2010 amounted to more than $3 million.  Both made a lot of money - the President made $1.7 million, including his salary as president.  Romney made $21.6 million.   But the structure of their incomes were different - Romney's was primarily from dividends ($4.9 million) and capital gains ($12.5 million).  Obama had a significant portion of his income ($1.4 million) from business income but he still got a lot from his salary as president.  The President, presumably because of his current position where things like housing and transportation are provided, may not have many of the deductions that most people would be able to utilize.

Both were generous in their donations.   Romney gave $1.5 million to his church but also gave $1.5 million in appreciated stock to a foundation which aids families of sick kids.  That amounts to about 14% of his AGI.  Obama gave only cash (almost $250,000), a major portion of that went to one foundation that helps families of veterans.   Obama's percentage is also 14%.   The average for taxpayers in the US is between 2% and 4%.

Romney took no deductions for mortgage interest while the President took just under $50,000.  Romney paid $232,000 in Alternative Minimum Tax, Obama paid none.

Note in 2011 Romney made a bit more than $20 million and paid 15% of his AGI in federal taxes and made donations which equal almost 20% of his AGI.    The President's income declined from 2010 ($789,000 - including $440,000 of business income) and he paid a bit more than 20% in taxes and also made donations which equal about 22% of his income.

There are a couple of issues that we should keep in focus.  First, both candidates make a lot of money and have complex lives AND pay a fair amount of their income to taxes - Romney does not earn a salary so the vast majority of his income comes from two sources (dividends and capital gains) which the current code favors in relation to salary income.  (I might add those things were adopted for sound policy reasons.)   Second, both are extraordinarily generous on charitable contributions.   As opposed to some earlier members of the political class - they seem to understand that charitable support is in addition to governmental support.  Finally, it needs to be repeated that people who earn these amounts of money have both the propensity and the likelihood of having significant variations in their income.  In one sense Romney's is more stable because most of his assets are contained in a series of blind trusts.  In any event the final conclusion I have is more simple.   A lot of the hubbub about income taxes is meant to rile people up not to add light to the discussion.   I am still concerned enough about privacy that I disagree with the dogmatic response of politicians to release all of their tax returns.  From my perspective a better approach would be to have a set of returns of a candidate be submitted to some tax experts who could then supply macro numbers and make judgments about whether the candidate had paid a fair share of taxes.   Oh, wait, we have that with the IRS already.  When candidates don't follow the law, just like other people, the IRS can (and does) audit them.

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