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Explainer: Why Mitt's Taxes are 5 Times More Complicated Than Newt's

Tuesday, January 24, 2012

Republican presidential hopeful Mitt Romney delivers a speech ahead of the State of the Union presidential address at National Gypsum Company in Tampa, Florida, January 24, 2012. (Getty)

According to a tax expert, Romney's 2010 return is on another planet from his main competition, Newt Gingrich.

Mitt Romney's 2010 tax return was released this morning, along with his 2011 return, after much prodding from his Republican opponents, who hoped that information about his income and effective tax rate would undermine Romney's attempts to seem "in touch." Newt Gingrich, who released his 2010 tax return last week, was among those leading the call for Romney to make his tax information public.

What we learned from Newt

Newt Gingrich's return shows he made $3,162,424 in 2010 and paid a total tax bill of $994,708. His effective tax rate was about 31 percent, close to what you'd expect for someone in the top tier of the tax bracket.

Alan Taksar, a CPA in Sherman Oaks, California, said the return was perfectly boring. "He's got wages, interest, dividends, an S-corp. I do these returns all day long."

Gingrich's primary sources of income were wages ($450,000) and his S corporation Gingrich Holdings, Inc (about $2.5 million). Taksar said all this was "ordinary income," or income that doesn't come from capital gains. (In fact, Gingrich posts a loss of $3,000 in capital gains.) If not for the fact that it's about 60 pages long and deals with millions of dollars, the return would look pretty average, according to Taksar.

What we learned from Mitt

Mitt Romney's return shows he made $21,661,344 in 2010—about seven times as much as Gingrich—and paid a total tax bill of just over $3 million—only about three times as much as Gingrich. His effective tax rate was about 14 percent, close to what you'd expect for someone who makes almost all his money in capital gains, which are taxed at 15 percent.

"Mitt paid as little as you can pay," said Alan Taksar. "I have clients who make $100,000 who pay a higher effective rate than Mitt."

Romney's return is in many ways a negative image of Gingrich's: Romney reports zero income from wages and about $12.5 million—more than half his total income—from capital gains. Romney reports earnings from blind trusts, investment in foreign companies, and other funds. The rest comes from interest, dividends, refunds, and business income.

In addition to the high total income and low effective tax rate, the most striking thing about Romney's tax return is its length and complexity. At 204 pages, it's incredibly sophisticated compared with Newt Gingrich's.

"The guys who did Newt's tax return, if they did Mitt's, they would have a headache," Taksar said. "You don't even see this kind of return from wealthy people, usually. He's totally into investing money, and owns a portion of a corporation doing investments out of the country. He's reporting it, which is fine, but to the average guy, [those options] just aren't available."

While Taksar said there's nothing incriminating or underhanded about either candidate's tax return, Mitt's should provide plenty of ammunition for Newt Gingrich.

"[Mitt's] tax return is five times more complicated than the average taxpayer's return," Taksar said. "There's no way in a thousand years that I could look at it and say, that guy lives in the same world I do."

Which is exactly the picture Mitt's opponents have been trying to paint.

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Comments [4]

Jack Jackson from Central New Jersey

@BC from Pittsburgh

Sorry to say but your response is hogwash. Capital losses are deducted from that years capital gainw. If your losses are larger than your gains you can reduce income up to an additional $3k AND you can carry losses forward to the next tax year if greater than $3K.

You DO realize that the money I spend for gas has already been taxed when I earned it? And is taxed again at the pump. The big hole in this 'it was taxed once' argument is that all money is in someone else's account (except the FED) before it was in yours. That's what value-added means. Or maybe you have never heard of the multiplier...(I can be as snarky and dismissive as you...probably more). How many companies actually pay 35% of the profits in taxes? The same number of millionaires who pay 35%. Zero.

Capital gains is a reward for risk? What risk if the donor class can arm-wrestle Congress into a bailout? If the average worker had MAINTAINED the buying power of the average worker in 1962, the AVERAGE salary would be over $108K. The tax code and inequitable treatment, now slides that income into upper tier pockets. Thank a political system where money talks.

I'll stack my education on economics and my ability to actually recall history against yours any day. Bring it on!

Feb. 17 2012 11:17 AM
BC from Pittsburgh, PA

Jack... This is a typical mistake that most folks make. First - Mitt and other investors (including pension funds, your etrade account, etc.) are putting capital at risk. If the complaint is that the government should not tax gains on that investmet at a lower rate as to encourage it then you should also argue that ALL money lost from that risk should be deductable - it is currently not and therefore the lower task rate not only encourages investment but mitigates the downside risk for ALL investors. Secondly you do realize that the gain made by Mitt and others has already been taxed correct? The company those investments are in are taxed... so if we assume an average corporate rate in our country of 35% that means the money that Mitt got a gain on the government has not taken half of it from all stakeholders....

The issue with this election - and American politics for that matter - is that the world has become much more complicated and the average voter just listens to what people say without really understanding the fundamentals of basic economics (which drive everything)... All of the ideas our president stands for are fantastic in theory - give people healthcare, re-distribute wealth and make everyone better off - the problem is throughout history these policies have failed....

One can argue healthcare has succeeded in places like Sweeden - what you need to realize is that Sweeden's population is very small relative to the revenue generated by say their financial system (which is barely regulated in comparison to ours)... Can you make it work there - of course - but look at a bigger economy like Canada - how are those wait times working out or them?

This all comes down to this word "fair" that everyone seems to be scared to define. Speeches about the rich being fair in what they pay are great for politics - mainly because most people are not rich (I am for instance well in the old "99%"). This has become a much different country from the one our parents and grandparents gave us - mainly because people now feel entitled - working 2 or 3 crappy jobs to put food on the table is no longer something people are willing to do because their neighbor drives an Audi so therefore they are entiled to one too...

Its a shame but I wish everyone would get educated on facts rather than political lines to understand why this country has become the nation it is....

READ THOMAS SOWELL BASIC ECONOMICS - great guide to truly understanding what is at stake....

Jan. 25 2012 04:24 PM
Jack Jackson from Central New Jersey

$20M in income from one guy pumps $3M back to the federal treasury. The same $20M spread over 400 households throws $5.6M to the treasury. Same 15% marginal rate but the families that work for the money also pay FICA (which their employers match). Interest on personal savings is taxed as income! Why is the previously earned money of millionaires treated so differently than the savings of average people? Because millionaires have enough dough to donate to politicians who promise to keep it this way. Private money out of elections NOW! Can't we at least cap undisclosed money - SuperPAC, etc. at $1,000 per year per entity - individual, 527S, corporation, etc.?

Jan. 24 2012 07:22 PM
listener

While we are all playing tax accountant to Romney and Gingrich with their money what is ignored is how much of OUR money has the Democrat controlled US Senate consumed and spent in the last 1000 days since they passed a budget? Can we ask that question this year when many of them are up for election?

Jan. 24 2012 03:29 PM

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