Mitt’s taxes

Romney’s tax dump today is full of interesting stuff.  He reports earning $14m and paying $2m in taxes, for a US federal income rate of about 14%.  He gave $4m to charity, presumably including a 10% tithe to his church. (This is  not the “put what you wish in the collection plate” kind of thing most churchgoers know about: if you don’t give the right amount – and the right amount is determined by something very like an audit – you get a lot of what the Mormons call ‘fellowship’ about it, a nice way of saying your whole social and business life goes to hell in a handbasket, and you are excommunicated from some critical church sacraments.  There’s a reason Ann keeps wanting to count their tithing in with their taxes.)  Whether the international business empire that is the LDS church is rightly considered a charity in ordinary language is a separate issue, of course.

The Romneys only deducted $2.25m, apparently to keep their average tax rate above the outrage level at least until the election (later they can amend their return – or just carry the deduction over to a future year: it will be worth a lot more if the Bush tax cuts expire, and the financing costs of a deal like this are historically low now.)  At the capital gains tax level of 15%, this means they gave (or lent at no interest) about a quarter-million dollars to an institution that Mr. Romney believes is much too big and spends too much money, but Romney has never had a problem violating a deeply-held position of principle if it will make him look good to someone for a news cycle or two.  It also means, by his own words, that people should think him unqualified for the presidency, as he is on record saying anyone who pays more taxes than legally necessary is some kind of fool.

What he actually owed, ignoring the foregone charitable deduction, was about 12.4%.  Apparently he doesn’t have a major problem with people paying almost equal amounts to their churches and their government; if his recipe were generalized, the two together would account for about 70% of GDP.

As neither Romney has a salaried job (no payroll tax), their federal income tax is probably close to their total federal tax, so they are paying a smaller percentage of their enormous income to the government he wishes to lead than the median American family: a $150/minute guy who doesn’t even have to go to the office is liable for a smaller percentage of his income than people who earn $15/hr actually punching in and out.  This state of affairs is apparently OK with Mitt; nothing in his tax plan, as far as I can see, would cost him a penny.

Much remains unclear and probably will not be revealed.  For example, what definition of “income” should we calculate the Romneys’ tax burden on?  They have all sorts of unrealized gains, and any person of wealth can hire people to find lots of ways – equine, for example – to move what most people would regard as income out of AGI or taxable income.  We’re still waiting to learn about the offshore accounts.

The bald facts of this round of transparency, whatever shoes haven’t hit the floor yet, are grossly, radiantly, repulsive.  That an enormously rich presidential candidate can present them with a straight face, without simultaneously deploring the sweetness of his deal, and the system he got it from, is simply unspeakable.

Author: Michael O'Hare

Professor of Public Policy at the Goldman School of Public Policy, University of California, Berkeley, Michael O'Hare was raised in New York City and trained at Harvard as an architect and structural engineer. Diverted from an honest career designing buildings by the offer of a job in which he could think about anything he wanted to and spend his time with very smart and curious young people, he fell among economists and such like, and continues to benefit from their generosity with on-the-job social science training. He has followed the process and principles of design into "nonphysical environments" such as production processes in organizations, regulation, and information management and published a variety of research in environmental policy, government policy towards the arts, and management, with special interests in energy, facility siting, information and perceptions in public choice and work environments, and policy design. His current research is focused on transportation biofuels and their effects on global land use, food security, and international trade; regulatory policy in the face of scientific uncertainty; and, after a three-decade hiatus, on NIMBY conflicts afflicting high speed rail right-of-way and nuclear waste disposal sites. He is also a regular writer on pedagogy, especially teaching in professional education, and co-edited the "Curriculum and Case Notes" section of the Journal of Policy Analysis and Management. Between faculty appointments at the MIT Department of Urban Studies and Planning and the John F. Kennedy School of Government at Harvard, he was director of policy analysis at the Massachusetts Executive Office of Environmental Affairs. He has had visiting appointments at Università Bocconi in Milan and the National University of Singapore and teaches regularly in the Goldman School's executive (mid-career) programs. At GSPP, O'Hare has taught a studio course in Program and Policy Design, Arts and Cultural Policy, Public Management, the pedagogy course for graduate student instructors, Quantitative Methods, Environmental Policy, and the introduction to public policy for its undergraduate minor, which he supervises. Generally, he considers himself the school's resident expert in any subject in which there is no such thing as real expertise (a recent project concerned the governance and design of California county fairs), but is secure in the distinction of being the only faculty member with a metal lathe in his basement and a 4×5 Ebony view camera. At the moment, he would rather be making something with his hands than writing this blurb.

26 thoughts on “Mitt’s taxes”

  1. Ok, this displays a level of innumeracy that has again dragged me out of my self-appointed exile

    $14in income. $4 million in charity. That’s 29% in charity. 10% tithe. That means, what? $2.6m more in charity than the church required of him?

    You’re complaining because he only gave ALMOST THREE TIMES THE 10 PERCENT HIS CHURCH DEMANDED OF HIM? You’re implying that he only gave as much as he did because of the tithing requirement, when he gave three times the tithing requirement? Twenty times the rate at which Biden donated! (I was frankly stonkered at that: I actually gave more to charity last year, in absolute terms, than Biden! And Biden is wealthy, I regularly eat instant ramen. Geeze, what a skinflint!)

    Did your calculator break, or something? Or has the fact that he’s not a Democrat simply broken your capacity for rational thought?

    And, interesting speculation that he’s going to, in a year or two, go back and file amended returns to reclaim the taxes he paid this year. You do realize that it’s just speculation, right?

    Why don’t you just admit what all the evidence points to: You may have fundamental disagreements about what government should do, but Romney is actually a remarkably charitable guy, when it comes to his own money, rather than other people’s.

    1. “including a 10% tithe to his church” was neither innumerate nor a misstatement of anything.

      Can you explain the “quarter-million dollars to an institution that Mr. Romney believes is much too big and spends too much money” to us? Just checking.

    2. Brett, I’m not complaining about how much he gave to charity. And his deductible giving is not the reason for his low effective tax rate, which is what I am complaining about (along with his evident satisfaction with it).

      1. I don’t give a bucket of warm spit what tax *rate* he paid. The costs of government an individual is responsible for do not scale remotely linearly with income. Romney doesn’t drive on a couple hundred times as many miles of highway as I do. He doesn’t have a couple hundred times as many cops surrounding him in an armed cordon. (Ok, THAT he might have at the moment… Because he’s a candidate for President, not because he’s wealthy.) Nothing he gets from government scales with income, so I don’t see why taxes should, either.

        Justice is that people pay for what they get, and get what they pay for. By that standard, Romney is subject to a massive injustice, because he’s paying enormously more than his fair share of the load. And being made to do so in order that people who are thus spared shouldering their share of the burden will vote for more government than they’d ever consider rational if they were getting the bill.

        We are burdened with government which isn’t cost effective, because the beneficiaries have no reason to care if it’s cost effective, not bearing the cost themselves. And this is not an accident, it was engineered by people who fear what the voters would think of the amount of government they want, if ever the voters got a fair bill for it.

        No, you’re not objecting to his charitable donations, just pretending they’re purely to keep on the good side of his religion, when he makes several times the donations THAT would require. You’re objecting to the fact that, even though he pays enormously more in taxes than the average person, in return for no more services, he’s not being bled pale enough for your satisfaction.

        I’m not the least bit sympathetic with your view.

        1. Nice to have you back, Brett. Does “pay for what you get” justice comprise personally paying for ‘getting’ cancer if you can and dying if you can’t, or for being dealt a special-needs child, or for large economic forces making it efficient overall to shut down the factory in your small town? On the other side, what about paying for getting an advantageous set of grandparents and trust fund before you take your second breath; doesn’t your justice scheme demand a pretty confiscatory tax on inherited wealth and social capital?

          Government and the taxes it entails, along with the need to tax the rich more in order to get the right amount of government, is how I get to not confront people dying of hunger and homeless because they got too old or too sick to work. I pay a lot of taxes and they allow me to shave in the morning and sleep at night, a bargain I can’t find in any other store. My financial rule, by the way, is that when I find a really good deal, I try to buy a lot of it; whether a deal is good depends on the B/C ratio, not on C.

        2. Brett, Romney’s benefit from government is measured by much more than highway miles and police protection. You can’t separate Romney’s fortune from the skewed tax code that made much of his rent seeking and wealth-extraction possible. Loading a company with debt in order to pay yourself a bonus and dumping pension obligations on the feds may make you rich but they are not wealth producing activities. Romney is in no danger of being a victim of injustice or being bled pale. Whatever his tax burden his is a position of awesome privilege and comfort from which he can command economic resources vastly in excess of any actual wealth he has created.

        3. This strikes me as a pretty strained argument against progressive (or even against flat) taxation.

          In practice, there are a number of distinct arguments for progressive taxation:

          (1) The “diminishing marginal utility of money”. This is a point that Matthew Yglesias has written about before a couple of times. Briefly, while each dollar of the first $50k of your income buy you significant increases in quality of life, the last millionth or ten millionth dollar has a far lower effective value for you. If we tax a billionaire for 10% of their income, it hurts them far less than someone with $50k annual income, because that part of their income is worth far less to the billionaire (to the point where it becomes more of a status symbol than actual income).

          (2) Non-progressive taxation destabilizes society in the long term, because it increasingly concentrates more and more wealth in the hands of a minority. The easiest way to become richer is, right now, to be born rich. Your fate as an American these days is primarily determined by your and your parent’s socioeconomic status, not your skill and effort. (There’s a related point that can be made concerning the estate tax.) In the end, this leads to social stratification and in particular, increasing poverty levels, which have all kinds of deleterious effects, such as a high crime rate and a negative impact on education.

          (3) From a fairness standpoint, the primary way to make lots and lots of money is not due to your personal efforts, but to get other people to do the hard work (insofar as physical labor is concerned) for you. Even a successful businessman like Steve Jobs put in only a fraction of the effort that the millions of Chinese workers did (combined) when building his iPhones. At the extreme end, it’s perfectly possible to make lots of money by not doing anything at all and just hiring a competent investor to grow your money.

          (4) While Mitt Romney may, personally, not use many more miles of highway than the average person, he most definitely did make a lot of his money by utilizing a lot more than his personal “highway share” (not to mention various forms of corporate welfare) than the average person. When you run a firm (for the purpose of restructuring it or otherwise), you depend on all your employees having highways, roads, or public transport to commute and to ship and obtain goods.

        4. Oh, yeah, that’s the new latest right-wing talking point. That not merely should taxes be at one flat rate across all ability-to-pay levels, but actually should be a stated figure per person. Thanks Brett for the viewpoint from Solipsist Island.

        5. Everyone else makes good points, but there’s a pretty simple argument here:

          Mitt Romney has a lot of property, which he wouldn’t have if there weren’t a government that protects his property rights. So his interest in a functioning US government is in fact proportional to how much stuff he has. (Well, maybe he’d still get to keep the money he’s stashed in the Caymans if the US government weren’t there anymore, but then he doesn’t pay as much tax on that, does he?)

          1. I don’t think matt w’s point goes to the argument, which is about increasing tax rates, not just increasing taxes, on higher incomes. So the person who earns $50 000 pays 10%, but the person who earns $250 000 pays 20% (I have no idea what the actual US brackets are – obviously). matt w’s argument would have the person earning $250 000 just pay 10% as well – as would Brett’s.

            Katja has set out several of the arguments in favour of graduated tax rates. The moral argument is ‘from the person to whom much is given, much is expected’ and even if ‘they built it’, they had the help of a secure state infrastructure, education etc etc. – and what Katja said.

            Three of the themes of discussion about Romney’s taxes have not been about progressive tax rates or his personal charitability, but about:

            i) what manoeuvers he has used to lower his actual tax rate to a good deal lower (not even the same as) people making much less – in other words how he has avoided the impact of the normal (and normally progressive) rates – and is it appropriate for those methods to exist (not Romney’s issue, except as representative of a class of users) and for a man who would be president to use them (very much his issue, especially the foreign-based dodges).

            ii) whether some of the manoeuvers were illegal, e.g. offshore accounts that he may have had to use a federal immunity from prosecution to bring into the country – again a reflection on the character of the man, not about tax policy as such.

            iii) why he has not simply released his actual tax returns, as his father did a generation ago and as presidential candidates since his father’s day, and many other candidates, do as a matter of course. It seem to show contempt for the voters to say ‘you don’t need to know what everyone else in my position has told you for a generation, including my old man.’ Despite much other evidence of that contempt, this one still irritates, and it’s pretty easy for people to understand (unlike tax policy, where reasonable people may disagree.)

          2. Yeah, that’s the same argument the mob uses, when selling “insurance”; “Nice business you got here, be a shame if it burned to the ground.” And like the mob, it’s actually the government itself that would be the source of the attack if you didn’t pony up.

          3. John G, that’s not what Brett was arguing; Brett was arguing that Romney is entitled to pay a lower tax rate than anyone else: “Nothing he gets from government scales with income, so I don’t see why taxes should, either.” Specifically about increasing taxes rather than increasing tax rates.

        6. Brett –

          If I am not reading you incorrectly, you seem to be stating as a strict matter of principle citizens should pay taxes in exact proportion to the goods/services they receive from the government less an injustice would exist. Like many arguments about principle from Libertarians, I am more often than not left scratching my head in bewilderment at exactly how, as a purely practical matter, a given policy prescription would be put into place. Therefore, I would be most interested in your explication of how exactly this system would function.

          To wit, would not some sort of vast and intrusive – dare I say bureaucratic? – mechanism be necessitated to provide an accurate, quantitative measure of the dollar amount of government goods/services consumed? And would not such a thing be a tremendous expansion of the reach of government even more deeply into one’s personal life, in my understanding contravening at least two bedrock principles underlying Libertarianism as a philosophy? Envisioning implementation my first thought is that I, for one, don’t wish for the burden of even more mandatory financial record keeping.

          I’m not sure how widespread is the idea mentioned by Betsy below that we instead opt for a stated-dollar-figure-per-person approach, but such an idea fails on exactly the same stated grounds as your objection to the way the tax code works currently, namely lack of a 1:1 ratio between consumption and pay-in. For example, I work in the profession of architecture. About half the time I work from a home office, the other half at a shared local office space that I often bike to. If you will, contrast my situation with that of a long-haul trucker, and more specifically, our differing utilization of the interstate highway system. I think it safe to say that the trucker derives the greatest part, if not very nearly all, of their income via use of these roadways. I also feel confident in claiming that this trucker on average does travel at least 20-25 times more miles on the highway system than I do (yearly). Certainly at minimum they should pay 20-25 more in highway taxes than I? How do we measure that? And account for miles traveled on federal, state and local roadways? Miles driven in your while vehicle loaned to a friend? Hell, out where I live many folks like to run studded tires in conditions that don’t warrant and so degrade the pavement that these highways are white-knuckle to drive in rainy conditions. I mention this only to show an example of the same type of vehicle driving the same number of miles on the same road where the cost to the government to provide that service are not equal.

          But bottom line is this: if it’s not 1:1, i.e., “paying for [our/their] share” as you state in a subsequent post, then all we are doing is arguing about percentages.

  2. Folks,

    Give Brett a break. All he’s saying is that the Bellmore household ought to pay a bigger share of the federal revenue than it currently does, because the Romney household ought to pay a SMALLER share than IT currently does.

    Brett’s a smart guy, so he is NOT likely to misinterpret plain English and respond with some irrelevancy about his passionate desire to reduce the federal budget. His proposition is that the Romneys pay more than their fair SHARE of the total federal tax burden, and this argument does not depend on the SIZE of that total burden. He could (and I dare say, would) be making the same argument tomorrow if the federal budget, Romney’s taxes, and Brett’s taxes were all magically cut in half overnight. To Brett, it’s just not FAIR that the poor, put-upon rich pay X% of the federal tax burden, while everyone else only pays (100-X)% of it. To him, the only fair thing is to make X smaller. That this would make 100-X bigger is obvious to somebody of Brett’s intelligence.

    That’s why I say Brett wants to pay a bigger share of total federal revenue and let Romney pay a smaller one. He’s not stupid for wanting that. He just has a different definition of “fairness” than most people. A strange, weirdly wholesome sense of fairness, based on compassion for the oppressed minority that is the super-rich. I hate to say it for fear of offending his libertarian sensibilities, but Brett is an altruist at heart.


  3. Actually, I’ve got a quite common sense of fairness, which is why Democrats don’t automatically win every election. And, yeah, I am something of an altruist at heart, which is why I donate to charity more than Biden does, in absolute terms, on a much smaller income. Remember, libertarianism isn’t about what you do with your money, it’s about remembering that other people’s money isn’t yours.

    There’s an element of truth to the way you describe it: Yes, if Romney and I both paid for our share of the government, Romney would be paying a lot less, and I’d be paying somewhat more.

    But the issue of the size of the government is scarcely irrelevant, because in a world where people did pay for their share of the government, the government WOULD be a lot smaller.

    You know, if you ran the billing at a restaurant the way the government handles taxes, 51% of the people would be ordering filet or lobster, because somebody else would be footing most of the bill. But if you charged each patron for their own order, suddenly the hamburger platter would look pretty good to most people.

    You want a filet and lobster government, in a country where most of the people can only afford the hamburger platter. Clearly the only way you can get this is to make sure that most people aren’t paying for their meal. Hence Romney gets screwed.

    Of course, in real life restaurants can’t pick out one patron, “You, yes you!” and make them pay for everybody else’s meals. Restaurants don’t have the power to shoot that patron if he refuses to pay for everyone else’s meals, the way governments do.

    Yes, governments have that power. Might, as usual, does not equal right.

    1. Brett, go back to eighth-grade civics class. One of the differences between the mob and the government, is that the government derives its powers from the governed. Yes, that gives it the ability to do some things that some people won’t like, and to enforce those acts. You’re free to leave for another country or state if this doesn’t suit you.

      1. This sort of response was weak sauce when I first heard it bandied about by Regeanites back in the 80’s. It still is some 30 something years later.

    2. restaurant…

      One of these things is not like the other.

      It should also be noted that approximately 25% of restaurants fail in their first year of existence. Exactly 0% of the United States’ governments did in their first year. Yes we came damn close in year 74, but even so, managed to hold together, despite many folks continuing disagreements regarding what is the most felicitous philosophy of governance.

      Which is another way of saying welcome back.

    3. That’s one horrible analogy.

      Unlike a restaurant, a government does not have a menu of services that I can order from. I cannot call the FBI to order a security detail for my daughter’s birthday party. I cannot have the federal government build me a personal highway to my front door.

      It’s a classic “not even wrong” example.

      In the end, though, the bigger point is that we are a society, not 311 million Robinson Crusoe clones. Had Mitt Romney been born all alone on an island without contact to the outside world, he would not be a rich man these days; most likely, he would not even be literate. He would not have had a school or college to attend, nor a doctor to treat him when sick. He would have been forced to grow his own food or hunt. The quality of life that he enjoys is the product of the work of millions of other people, including the thousands of scientists who developed the foundations of modern technology and medicine.

      Living together as a society has allowed us to pool our resources so that every single citizen enjoys the benefits at a ridiculous discount. The total costs that were required over the course of human history (adjusted for inflation) just so that Mitt Romney can use a cellphone today far exceed his personal fortune. He (and others) can still afford that cellphone because he happens to live in a society that has borne that cost collectively. When he visits his doctor, that is affordable for him because economies of scale keep that fee down: Mitt Romney, rich as he is, could not afford the entirety of medical research, medical education, and medical institutions that were necessary for his doctor to learn his craft; the fees he pays are only a fraction of the total cost. The rest, as before, has been borne by the rest of America (and the world).

      Conversely, his personal wealth is not a proximate measure for how much he has contributed to that society he benefits so much from himself. It is a measure of how much he has benefited more than how much he has contributed (which, given that his wealth is the combination of inherited money, some business acumen, and a lot of corporate welfare, is not all that much).

      We do accept a certain amount of financial inequality because history has taught us that a free market based on financial incentives works pretty decently at ensuring optimal outcomes (once one controls its more dangerous aspects). But in the end, Mitt Romney’s fortune is largely the result of investments made both by this and the current generations in the future of America, and as he benefits from these investments, he can of course be asked to contribute back.

      1. “Government” ≠ “Society”. And how many people lived in that same society, with cell phones, and roads, and all that, and didn’t become wealthy? Why attribute the difference between Romney’s wealth and mine or yours to what we had in common, rather than what was different between us? A lot of that being Romney himself?

        Romney pays the cellphone company for his cell phone. He pays his doctor for his medical care. And so on. The government is not levying taxes to pay for a billion years of history back to the origins of life on Earth. It’s levying taxes to pay for things it’s doing TODAY.

        This is all just rationalization that the wealthy owe all their success to government, and thus government is entitled to take all they have. That’s all it is, rationalization. You need to screw over people like Romney in order to pay for all the government you want, so you rationalize that they somehow owe all their success to government. When the same reasoning would say they all owe it to dentists. Or to plumbers. Or to any other essential factor in civilization, of which government is only one, but the one with the guns, so it get special treatment.

        And you obsess about the percentage, because 12% looks like less than 20%, so you can think to yourself, “Romney pays less taxes than I do!”, and have a reason to get mad at him, when the truth is he pays hundreds of times more taxes than you do.

        Does Romney have a debt to government? Sure. But it’s not a couple hundred times larger than my debt to government. The government takes that much money from the wealthy for the same reason Dillinger robbed banks: “Because that’s where the money is.” No other reason but that they’ve got it to take.

        1. The government is the group of agents we elect to manage our society. They may not always do well, but we’re still using this system because it historically ahs

          Romney (or Bill Gates, or Steve Jobs, or Warren Buffet) being richer than other people is a combination of luck, having something that the market needed, and in his particular case, inherited wealth and connections. Income is not a function of effort or contribution. It’s largely a function of having marketable skills. As it so happens, we pay a CEO hundreds of times as much as a construction worker, even though the construction worker is objectively working much harder, because market forces put the CEO at a huge advantage (plus, at current payment levels, a CEO is actually getting more than what the market would realistically offer under a fully competitive model because of cronyism factors).

          Yes, Romney pays the cellphone company for his cell phone. The rate he pays is an enormous discount for the actual costs it took to develop the darn thing. He’s benefiting from the economies of scale of living in a large, interdependent society. It does not even remotely develop cover the actual costs. He’s depending on billions worth of work and inventiveness by other people in order to be able to use a cellpone for a few bucks a month. All of Romney’s quality of life depends on leveraging the economies of scale present in our society in a way that is disproportionate to his actual contributions.

          For example, capital gains income (which makes up the bulk of his income these days) is not a measure of his contribution to society. It’s just pretty much an automatic function of him being rich and being able to hire a competent investor. It’s a pure benefit for him and not much in terms of contribution (in fact, it has been argued that the low capital gains tax rate contributes to asset price inflation, which may be actively harmful to our economy). It’s a personal money printing scheme.

          No, I don’t obsess about his personal income tax rate. Others may, but I don’t care much that he has struck it rich (as I’ve stated before); just as I don’t care about a lottery winner being rich. My concern is keeping America in a decent shape (lack of poverty, good infrastructure), and for that I expect the Romneys of this world to pony up their share. If they don’t want to pay taxes, well, then they can move to a remote island without electricity and hospitals and see how well they do without their hated government.

          Regarding the “taking money from the wealthy is robbery” argument, I have stated actual reasons above. I know that classifying taxation as theft or robbery is the cool thing amongst liberterians, but in an actual debate you have to do more than just utter misleading analogies. And yes, he has actually drawn upon government benefits and the work of others hundreds of times more than other people to build his fortune (and right now, he pretty much exclusively relies on the work of others to grow it).

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