Romney Releases 2010 Tax Return

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Mitt Romney released his massive 203 page 2010 tax return yesterday.  The big story is the 14% tax rate that he pays.  But, to me, as a tax professional, my eyes went to Schedule A, Line 22, Tax Preparation Fees.  I’m always curious what high profile individuals pay for tax preparation services.  And, guess what?  The line is blank.  Is this a mistake?  Did Pricewaterhousecoopers LLP do it for free?  He was way over the 2% threshold so the tax preparation fees would have been a dollar for dollar deduction.  Oh, well,  I guess I’ll focus on the 14% issue.

Here are the facts:

1) His income was about $21.6 million

2) The majority of his income was from Capital Gains ($12.5 million)

3) The next largest portion was from Dividends ($4.9 million)

4) The third largest portion was from Interest ($3.3 million)

Capital gains are taxed at 15%.  There is a reason for that.  It encourages investment.  Raise the capital gain rates and you discourage investment.

Dividends are also taxed at 15%.  The reason for this is because they have already been taxed at the Corporate Income Tax rate of 35%.  Corporations don’t get a deduction for dividends.

Interest is taxed as ordinary income which means Mitt Romney paid 35% on his Interest Income.  This is because Corporations DO get a deduction for interest payments and therefore don’t have to pay taxes on it.

5) He gave $3 million to charity.  This helped reduce his taxable income and, of course, his overall tax rate.

6) He earned $593K from speaking fees, director fees, etc.  He reported this on Schedule C and paid the FULL Medicare Tax on it.  He could have run it through an S-Corporation, paid himself a reasonable salary, and then taken the rest of it as a distribution, like Newt Gingrich did, but he didn’t .   Not that there is anything wrong with the way Newt did it.  I’m just pointing out the facts.  Romney should at least get some points for that.

There is a lot to this tax return and I’m not going to spend the time going through all the forms.  I’ll just stick with the basics.  But, I don’t see anything big here.  The only ammunition will be for those who want to play class warfare.

Why Do We Demand To See Presidential Candidates Tax Returns?

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As you know, it has become commonplace for presidential candidates to release their tax returns to the public.  Of course, they are under no obligation to do so.  But, if they don’t, they are accused of hiding something.

The real question for me is, why do we feel like we have a right to see their private information?  Let’s think about the possible reasons for this.

1. We want to make sure they know how to prepare taxes.  Ummm, no.  They don’t prepare their own taxes.

2. We want to make sure they give money to charity.   This seems silly to me because any politician who is planning on running is going to make sure that they give to charity in advance, right?  Unless you’re John Kerry, Al Gore or Joe Biden.  John Kerry hardly ever gave anything to charity until 2003, the year before he ran for president and then he suddenly gave over $40,000.  Al Gore gave $353 to charity in 1997, while he was VP.  I guess things were just that tight for him.  And, of course, Joe Biden gave less than $1,000 per year to charity the ten years leading up to 2008 when he ran for president.  He didn’t bother bumping it up in 2007.

3.  We want to see how much their medical expenses are so we can make sure they are healthy.  This information is probably whited out and most people don’t go over the 7.5% threshold anyway, but even if they did and it wasn’t whited out you wouldn’t be able to tell for sure if the medical expenses were their’s, their spouse’s or their dependent’s.

4. We want to make sure they aren’t cheating on their taxes.  This also doesn’t make sense because how would you know?  You can’t tell by looking at someone’s tax return whether or not they cheated.  You would have to audit them and ask for backup documents.  Also, anyone who is planning on running for Governor, Senate, etc. is most likely not going to cheat on their taxes.  And, when they decide to run for President they certainly aren’t.  Most of these candidates have been in the public eye for years and years and know better than to try and cheat.  And, of course, they don’t do their own taxes anyway so in order to cheat they would have to lie to the tax preparer.

5.  We just want to know how much money they make.  Aha!  That’s it.  We want to know how much money they make compared to the percentage of tax that they pay so we can play class warfare.  But, does a presidential candidates income have anything to do with their potential ability to be president?  If success in your career is determined by the size of your income, wouldn’t we want a president to be extremely successful and have a very high income?  If that is the case, then why is it viewed as such a negative thing by the left that Mitt Romney has a high income?

I don’t really care how much money Mitt Romney makes, what percentage of it he paid to the U.S. Treasury, how much he gave to qualified 501(c)(3) charitable organizations, how much he spent on medical expenses or anything else that is suppose to be private.  I do care about what positions he takes on issues.