Mitt Romney’s tax bill: How low did it go?
Democrats have been calling for GOP presidential candidate Mitt Romney to release more of his tax returns, but sometimes I think they’d rather keep things just the way they are. As long as Romney’s pre-2011 returns remain private, President Obama’s supporters are free to suggest what Romney might be hiding -- a few years with zero tax payments, perhaps? And reporters keep the issue alive by asking Romney questions that the candidate can’t answer -- or can’t answer well.
The latest example comes from ABC World News, which interviewed Romney in Jerusalem about the things one would expect them to discuss in Jerusalem. To wit, the United States’ relationship with Israel and what to do if Israel launches a strike on Iran’s nuclear program. But about halfway into the discussion, interviewer David Muir asked Romney about his record as a taxpayer. Here’s Muir:
“You are here on what some have termed your world audition and Democrats, not surprisingly, continue to hammer you back home on taxes, you remain firm two years and two years only. So from what you have released and from what we have seen we know that there was one year when you paid about 13.9% tax rate. Can we clear this up by asking a simple yes-or-no question? Was there ever any year when you paid lower than 13.9%?”
Romney demurred, giving rise to a host of theories as to why he couldn’t give Muir a yes or no. And so the story lives on. But Muir’s was hardly a simple question. I don’t have any idea what my effective tax rate has been over the years, do you? Granted, I’m not running for anything. Nevertheless, all I know is that my effective rate, like everyone else’s, is considerably lower than the marginal rate that applies to my tax bracket.
Now, 13.9% is a pretty low number, but there are several ways for taxpayers to get below that level. The easiest is to earn less than the average taxpaying household. Another way is to have somewhat higher earnings, but lots of personal deductions and exemptions -- e.g., several dependents and a big mortgage. A third way is to have most of one’s earnings from interest, dividends and capital gains, not wages subject to payroll taxes. If those earnings were particularly large, the tax rate would still be low if they were offset by plentiful losses.
There’s nothing shameful about any of those explanations. You can’t blame Romney for the fact that Congress decided to give a tax break to interest, dividends and capital gains on the theory that it would boost savings and investment. If you don’t like that preference, the only thing you can fault Romney for is proposing to expand it. Romney’s plan would maintain the current tax break for investment income for households such as his own, while expanding it for taxpayers with annual incomes below $200,000.
Where things would get dicier for Romney is if his returns revealed the sort of financial engineering that only the very wealthiest Americans can afford to do. Bloomberg BusinessWeek magazine described a number of these tax-avoidance strategies last year. Many such steps are perfectly legal, and someone of Romney’s resources would be a fool not to explore them. Beyond that, Romney has probably paid a king’s ransom in taxes over the years. But one can only imagine the 30-second spots the Obama campaign would run if it turned out that Romney had paid a pittance in taxes during the downturn, regardless of the explanation.
The speculation about Romney the taxpayer contributes an important piece to the story the Obama campaign is trying to tell about its rival. Under the Democrats’ view, Romney is a guy who plays by a different set of rules, who can’t understand middle-class families because he doesn’t feel any of the pressures they do.
That speculation is viable as long as there are no actual returns to examine. Maybe the contents would be more damaging to the presumptive GOP nominee, maybe they would be less. Regardless, Romney appears to be betting that public’s interest in this topic will fade as the campaign wears on, just as the stories about Romney’s prep-school years and his family dog have passed in and out of the media spotlight. There are, after all, other things to obsess over. Like, say, the economy.
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