NOTES ON THE TABLE COMPARING ROMNEY AND MINIMUM WAGE WORKER “TOTAL TAX RATES UNDER CURRENT SYSTEM”
Romney notes:
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1.Figure from his 1040. The carried-interest loophole alone saved the Romneys $1.4 million in federal income taxes.
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2.Figure from his 1040
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3.Figure from his 1040. Payment of employer portion of Social Security for his employees. However, most economists believe that, in the end, all or most of this tax is paid by employees in reduced wages.
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4.Mr. Romney has stated that he paid $700,000 in state and local taxes in 2010. On schedule A he claims to have paid $672,444 in state and local income taxes, but this can include overpayments or payments for prior years. Both claims are at odds with his Statement 3 submitted with his federal tax return, which states he paid only about one-tenth of this, $75,850 in state and local income taxes. According to the return in 2009 he paid $673,697, but received 365,276 in refunds, resulting in net state-local income tax of about $308,421 that year. Nonetheless I have used the generous figure of $500,000 owed in state and local income taxes in 2010. If he had paid all his state taxes in Massachusetts, he should have paid about 6% of his federal income or about $1.3 million. He has three homes in various states, so he likely pays part of his state tax in those other states. New Hampshire, for instance, does not tax capital gains, which represent about 60% of his federal income.
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5.Here I assume $1,000,000 annual expenses on taxable items. Among states where he has homes, the average sales tax is about 5%. New Hampshire, where he has one of his homes, has no sales tax.
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6.His real estate taxes are as listed on Schedule A, submitted with his federal 1040 for 2010. His three homes have an estimated value of $24 million, so he pays a less-than-1% tax on the value of his homes. The weighted average in the states he has his three homes is 1.4%. At one point Mr. Romney claimed a home in Utah was his primary residence and so got a 45% real-estate tax break, but he later claimed Massachusetts was his primary residence during the same period, as this was required for his run for governor there. (Boston Globe)
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7.Figure from his 1040
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8.His total reportable "income" from his 2010 1040 was $21,661,344.
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9.Here I make the assumption that a successful businessman like Mr. Romney had total investment gains for the year that are equal to the increase in value of the US Stock Market, as measured by the S&P 500. It had a return of 14.9% in 2010. A 14.9% increase on $2,400,000 is $35.6 million. The capital gains he reported are partly "carried interest" payments. How can this be greater than his reported income? Most investment gains are capital gains, increases in the value of a holding. The increase in value is only considered income for tax purposes when the holding is sold, that is when the gain is "realized." Thus, an investor's stock holding, for instance, can increase from $2 million to $3 million in a year, but he need not report it or pay taxes on the extra $1 million unless he sells the stock shares. Further, "paper" capital gain losses can be accumulated to reduce any taxable capital gains a tax payer may have to take. Mr. Romney's 2010 return shows a carryover of about $4 million in capital losses, which means he paid zero taxes on capital gains in 2009, despite the fact that the United States stock market, and almost certainly, Mr. Romney's fortune, went up well over 20% in 2009. Thus, we see that reported taxable income on the 1040 bear little relationship to the investment gains of the very wealthy. The very wealthy can live on interest and dividends, so they rarely need to sell investments. Unrealized gains grow tax free year after year. When assets are inherited, often avoiding estate taxes through complicated trusts, all the capital gains on them are forgiven. That is, all unrealized capital gains accrued over the lifeve of the deceased are not taxed at the time they are inherited and never will be taxed.
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10. Mr. Romney's net-worth (accumulated wealth) seems to be a great mystery. (It seems his highly-paid accountants cannot add.) It has been variously estimated as between $190 million and $500 million. He says it is $200 million and change. I have used the conservative figure $240 million but guess it is substantially more.
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11.What is the effect of indirect corporate taxes on Mr. Romney? He has claimed that his 15% capital gains rate and the 35% maximum corporate rate add up to a 50% tax on him. Firstly, the effective tax rate on corporations is about 27% on taxable profits. Secondly, economists agree that only half of corporate taxes are paid by shareholders and the other half paid be worker in reduced wages and consumers in increased prices. Next much, and possibly almost all, of Mr. Romney's gains flow from private equity sources, which are largely insulated from corporate tax liability (see detailed explanation from a law professor). Nonetheless, I have applied the same standard I arrived at through the calculations made in my tax reform essay: Corporate taxes reduce dividends by about 14%, they reduce capital gains by about 1%, they reduce salaries by 2%, and they increase prices by 1%. An alternative calculation produces a very similar result. If half of Mr. Romney's is in corporate stocks, he owns 0.0001% of US corporations. In 2010 corporations paid $234 billion in corporate taxes at the federal, state, ad local level. As explained above half of this, $117,000, is paid by owners of the corporation. Even assuming that he is not largely insulated from corporate taxes through his private equity dealings (as he is), his 0.001% share of that is $1,170,000.
Minimum-wage worker notes:
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12.Single full-time minimum wage worker ($7.25/hr x 2000 hours/yr= $14,500/yr) with standard deduction, one exemption and $400 dollar making-work-pay benefit (now expired). She would not qualify for food stamps or Earned income tax credit. Form 1040-EZ
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13.$14,500 wages x 7.65%
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14.New York City Resident pays both state and city income taxes. Form IT-201
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15.Sales tax: $3000 x 8.625%; Gas tax: 8000 miles, 15mpg, $0.487/gal
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16.$7.25/hr x 2000 hours/yr= $14,500/yr
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17. Net worth: $900; Assets: Second-hand car, clothes, furnishings, $200 cash; Debt: $3500 on car
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18.I have applied the same standard I arrived at through the calculations made in my tax reform essay: Corporate taxes reduce salaries by 2% and they increase prices by 1%: $14500 x 2%, 12,000 x 1%
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19.Most economists agree that employees in the end pay the entire employer-portion of their payroll (Social Security) tax through decreased wages.
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20.Economists agree that 70-75% of real estate taxes are passed along to renters in increased rent. I have assumed a $1200 monthly rent, 2 roommates, a typical 17:1 property value to annual rent ratio, a 2.2% property tax rate, and that 70% transfer of property tax burden to the renters.
