Why Does Mitt Romney Pay Lower Taxes Than His Secretary?

[russ_watters]

Are you in the top 1% of the population which has 35% of the national net worth? That's whom it's indended for.

No. If you find a way to exempt me, great, but the problem remains: everyone who the tax touches will send all of their assets overseas to avoid paying it. And I may still do it just in case.

I don't know what the net worth cut off level would be, but 1.5 % would not exactly break a taxpayer in that select group.

1.5% per year is what you said. That's a huge amount of money you'd be taking from them.

 

[SW VandeCarr]

No. If you find a way to exempt me, great, but the problem remains: everyone who the tax touches will send all of their assets overseas to avoid paying it.

1.5% per year is what you said. That's a huge amount of money you'd be taking from them.

As I pointed out, real estate taxes of about that rate (every year) on assessed market value (not just equity) for middle class homeowners is tolerated as the cost for important community services including public schools. The relative cost on the top 1% would be far less in terms of disposable wealth. The US taxes only 26% of GDP, lower than most other developed countries. There will be some capital flight, maybe to Singapore, but I think people who want to go there have already left.

 

[Czcibor]

As soon as such a plan gets put on the table, much less passed, all of my non-material assets will go overseas.

As far as I know the rules in the Land of Free, they would include your assets abroad. And the USA is the only developed country that taxes citizens who live abroad, so I think that the only way would be resigning from citizenship, which your gov tries to make harder and harder.

Anyway, I consider a minor wealth tax as a reasonable idea. Income tax makes harder for new people to become rich (do you have in the US any conspiracy theory here? No? I'm disappointed :D ), while wealth tax hits disproportionately idle wealth (which is not so bad idea).

I think your plan would have the opposite effect of what you intend. It would result in a vast increase in what the lowe end gets taxed and a vast reduction in what the upper end gets taxed, since the rich spend a much lower fraction of their income than those in the middle and at the lower end do.

I'd agree with you. Bottom of society consumes all, while the higher in the ladder, the higher your saving rate.

 

[russ_watters]

As I pointed out, real estate taxes of about that rate (every year) on assessed market value (not just equity) for middle class homeowners is tolerated as the cost for important community services including public schools. The relative cost on the top 1% would be far less in terms of disposable wealth.

I'm not sure what you mean by that last bit. Relative to what? Where I live (Suburban Philly), the real estate tax is 0.4%. In Philly it is 1.34%. So you're proposing both a higher rate and taxing all of peoples' assets instead of just the house. One doesn't have to be anywhere close to the 1% to save/invest $1m for retirement, which your plan would appear to tax at $15,000 a year. If that person lives in a $250,000 house, in Philly that costs $3,350/year and in the suburbs $1,000. But it works the same for everyone: if you exempt such people (say, anyone under $5 million in assets?), you're still taxing those who are paying it a much higher rate and a much larger fraction of their assets than the property tax. It's a pretty big tax.

Also, I've never heard of the term "disposable wealth" and googling it doesn't turn-up anything. What does it mean?

 

[russ_watters]

As far as I know the rules in the Land of Free, they would include your assets abroad. And the USA is the only developed country that taxes citizens who live abroad, so I think that the only way would be resigning from citizenship, which your gov tries to make harder and harder.

It is a lot harder to track assets abroad than income abroad. If I buy a beach house in Cancun, is the IRS going to send an appraiser there every few years to assess its value?

Anyway, I consider a minor wealth tax as a reasonable idea. Income tax makes harder for new people to become rich.. while wealth tax hits disproportionately idle wealth (which is not so bad idea).

When 40+% of people pay no or negative income tax, we already have an extremely progressive taxation system. And peoples' biggest piece of "idle wealth" is their retirement savings, so just like picking loaded investments over unloaded ones, a wealth tax - even a seemingly small 1.5% - over the course of 40 or 50 years can have a massive impact on your retirement standard of living.

Throwing some quick numbers into a spreasheet, in a simple case of a person saving $10,000 a year starting at age 25, in a mutual fund that averages 8% over inflation, they'd have $2.8 million saved by age 65. The 1.5% tax reduces that to $1.9 million. So we've reduced it by about a third, or $900k (the government only gets $367k of that -- the rest is lost and weakens the economy). If, after that, they switch to something safer that earns 4% and take out $100k to live on a year, with no wealth tax, the money keeps growing but under the wealth tax, the person runs out of money at age 92. If that person is uncomfortable with so much risk in retirement and only earns 2%, he'd better die at age 84.

 

[jim hardy]

but is ultimately paid by the consumer.

What tax is NOT ultimately paid by the consumer?
Jefferson hit the nail on the head : "We have more machinery of government than is necessary - too many parasites living off the labors of the industrious." http://www.let.rug.nl/usa/presidents/thomas-jefferson/letters-of-thomas-jefferson/jefl279.php

How is that different than a retail sales tax or VAT?

It's not different from a sales tax. A VAT however by its nature a tax on productivity which seems to me counter-productive.

Are you saying that taxation is a form of regulation?

no, i thought that was your premise. I categorically oppose governmental "Redistribution of wealth"

IMO, the problem of overpayment of top executives can only partially be curbed by taxation and is probably too complex to regulate. Shareholders have to assert their authority as corporate owners over executive abuses.

We don't disagree that some ethical compass is sadly lacking. That wasn't always so.
My anecdote about executive salary in 1960's has one more subchapter.
It was explained to me by an aging utility executive:
"Son, we are given a virtual monopoly inside our territory. In return for that trust we must provide the public with electricity that's as affordable as we can make it for them. Further, Out of every dollar that passes through our hands we can extract maybe 5 cents for the shareholders, to whom we are also beholden. In return for their trust we are obliged to take only a fair share of that. Business has to be based on honesty and good judgement. "
Well, by the 80's that ethic disappeared , utilities became deregulated ( their monopolies were taken away ) , and we have today's chaos.
What happened to the Horatio Alger role model ?

Well, as I said, with any general consumpion tax, the more you spend, the more you pay.

And what's wrong with that ? Might keep corporate raiders from buying corporations to steal their pension funds.

Or do you mean that you would have a higher consumpion tax on the wealthy than on others?

Absolutely not. The wealthy generally buy bigger cars , bigger boats and bigger houses than us working folks. I buy $2000 used cars because they last me half as long as $40,000 new cars. So i don't pay a lot of sales tax on them. In that regard a flat tax makes itself progressive.

In other words, the rich guy pays more for the same goods as Joe Average. I don't know how you do that.

That'd be discrimination... usc18 ?

 

[jim hardy]

What about people who pay -10%?

I say Bavo ! They've figured out how to live within modest means. They pay basically only sales taxes which are flat.

Some of them are "Going Galt" though, and I have mixed feelings about that.

 

[jim hardy]

I think your plan would have the opposite effect of what you intend. It would result in a vast increase in what the lowe end gets taxed and a vast reduction in what the upper end gets taxed, since the rich spend a much lower fraction of their income than those in the middle and at the lower end do.

Oh did i forget to mention i'd tax stock market transactions just like any other purchase ?

 

[russ_watters]

Oh did i forge to mention i'd tax stock market transactions just like any other purchase ?

No, you didn't, but the main beauty of the stock market is that you don't have to make a lot of transactions to make money at it. Initial stock purchases are already exempted from income tax if done under an approved retirement savings program and pre-taxed as income otherwise. So that piece of it is already in place.

The big hit, though, from what you suggest is that it would reduce market trading, which would dampen the economy and put investment brokers out of business. (not that that last bit is too bad a thing -- they are already a dying breed due to internet trading).

edit:
Because of the overall terrible deal that is Social Security and the fact that it is going to get much, much worse before I retire no matter what, I'm already having to plan for how I will be able to overcome that double-hit and still retire comfortably on my own savings. Now you guys want to take that away from me to!?? I'm very opposed to anything that adversely affects personal retirement savings (unless coupled with a plan to fix SS).

 

[SW VandeCarr]

I'm not sure what you mean by that last bit. Relative to what? Where I live (Suburban Philly), the real estate tax is 0.4%. In Philly it is 1.34%. So you're proposing both a higher rate and taxing all of peoples' assets instead of just the house. One doesn't have to be anywhere close to the 1% to save/invest $1m for retirement, which your plan would appear to tax at $15,000 a year. If that person lives in a $250,000 house, in Philly that costs $3,350/year and in the suburbs $1,000. But it works the same for everyone: if you exempt such people (say, anyone under $5 million in assets?), you're still taxing those who are paying it a much higher rate and a much larger fraction of their assets than the property tax. It's a pretty big tax.

Also, I've never heard of the term "disposable wealth" and googling it doesn't turn-up anything. What does it mean?

First off, the proposed wealth tax only hits the top 1%. or so. I don't know what the cut off would be exactly, but you would only pay on the amount above that cut off. Consider that there are a about 3,200,000 people in the top 1% with a combined net worth of 21 trillion dollars. That's a net worth of $6,562,500 per capita. The tax would be $98,473 per capita ignoring the cut off (the cut off would make the taxed amount lower). Consider the ratio to be an index of disposable wealth with the taxed net worth as the numerator. Thinking in terms of net worth instead of income is not widespread, but dealing with massive untaxed wealth needs some new ideas.

If you're fortunate enough to be in the top 1% and you still want to go to Singapore (top income tax rate is 20%, no capital gains tax, and no wealth tax) remember what Czcibor just posted.

 

[russ_watters]

Well, I'm getting confused then by all the different proposals. If untaxed income is the problem, why are we even talking about wealth?

On its own though, even if your plan only targeted the 1% I'd still oppose it because:
1. It opens a door I'd rather keep closed.
2. I don't like the idea of taking money from someone just because in someone's estimation they can afford to lose it.
3. Wealth is not idle money. By existing, it helps grow the economy.
4. reducing American ownership of our economy will increase foreign ownership of our economy.

 

[jim hardy]

What about people who pay -10%?

i replied

I say Bavo ! They've figured out how to live within modest means. They pay basically only sales taxes which are flat.

which isn't quite a complete answer. There are scammers and that was probably your point.

Tax incentives are used by gov't to encourage development of things considered good for society, to wit the lucrative tax credits for renewable energy It's financing the wind industry.

Tax incentives get abused, so we got the "Alternative Minimum Tax" . Because of inflation and bracket creep that well intentioned bit came to a fiasco hurting upper middle class working folks.

I don't like to see the system abused, so i always argue for a simpler system with fewer "Pounds of Cure" attached.
Thoreau: "Simplify, simplify."

 

[gleem]

The way i see it about 50% of the population will not want tax reform of any kind since they currently benefit from it. Unfortunately like may recognized hazardous situations it will take catastrophe or crisis to get some action. In other words if most of us will have something to lose then we will act.

 

[SW VandeCarr]

Well, I'm getting confused then by all the different proposals. If untaxed income is the problem, why are we even talking about wealth?

As far as a wealth tax is concerned, I said it was a response to massive untaxed wealth. Income is not generally untaxed in the US, but some would say it's unfairly taxed (the Romney example) when higher incomes pay at a lower actual rate than lower incomes. But I'm claiming untaxed wealth is a bigger problem when the top 1% of the population (in terms of net worth) has almost 35% of the national net worth. You obviously don't agree.

 

[russ_watters]

i repliedwhich isn't quite a complete answer. There are scammers and that was probably your point.

Tax incentives are used by gov't to encourage development of things considered good for society, to wit the lucrative tax credits for renewable energy It's financing the wind industry.

Tax incentives get abused, so we got the "Alternative Minimum Tax" . Because of inflation and bracket creep that well intentioned bit came to a fiasco hurting upper middle class working folks.

I don't like to see the system abused, so i always argue for a simpler system with fewer "Pounds of Cure" attached.
Thoreau: "Simplify, simplify."

No, I think we're talking about opposite ends of the income scale: the people who "pay" -10% are at the bottom, not the top.

Even if in the net such people wil remain receivers, I'd still favor disconnecting their taxes from their benefits, because I think even the illusion that they are paying taxes is beneficial to them and society.

 

[russ_watters]

But I'm claiming untaxed wealth is a bigger problem when the top 1% of the population (in terms of net worth) has almost 35% of the national net worth. You obviously don't agree.

Yeah, I'm not someone who believes in the idea of governments forced equality of outcome as a matter of general moral/philosophical principle. And IMO, I think the historical record shows it to be counterproductive in the long run.

I think inequality that happens on its own is, in general, a good thing, not a bad thing, for both moral/philosophical reasons and practical reasons.

Further, I think the actual numbers are misleading due to the way the government structures the programs: they make it look like there is more inequality than there really is by not including the value of the government programs in the calculation. As I said before, we could almost literally make the "problem" go away just by changing the labels on the data. And I favor doing that, again, for moral/philosophical reasons. These "problems" exist in large part because the programs are set up and sold dishonestly. If we just change the labels to make it more accurate, people will make better decisions about them.

 

[rude man]

http://swampland.time.com/2012/01/24/mitt-romney-releases-tax-returns-paid-lower-taxes/

How did multi-millionaire Mitt Romney get to pay at a lower tax rate than his secretary or many middle and "working class" Americans for that matter? It clearly reflects a regressive tax system when, in fact, the US federal income tax is structured to be progressive. That is, the more you make, the higher your tax rate should be. Since we're talking about income taxes, not some other kind of tax, something must be terribly wrong.

Well, when you see how Romney did it, it's not so easy to see a solution, The basic reason is that wealthy people don't make most of their wealth from income. They make it from investments, which can grow to massive size without being taxed at all. You only pay an income tax when you sell some of your holdings at a profit. Even then, there are loopholes that reduce the tax which benefit the middle class as well as the wealthy. Consider middle class people who retire and sell their home of many years at a big profit

Romney had a taxable income of about $20 million after a charitable donation in the year in question. The amount came from selling stock at a capital gain where the rate is 15% vs the "tax reformed" rate of 35% on ordinary income for Romney's tax bracket. I wouldn't have mattered if it was 80%, since it's not ordinary income. Nothing fancy. Just taking advantage of a loophole that anyone who owns a house or condo or common stock, among other things, can benefit from.

What's your solution, if you believe this needs a solution?

Unearned income, like earned income, should be progressive.
If your modified AGI is $100,000 you should be given the 15% tax break. You took a risk, can't deduct any loss beyond a token $3000, and need an incentive to continue investing.
If your modified AGI is $10 million you should be taxed at 50%.
"Modified AGI" is all income, earned or unearned.

 

[HomogenousCow]

You can make up all the laws you want, he'll just get his lawyers and tax people to find new ways to get around them.

 

[rude man]

.(interestingly no deduction was made for tax preparation fee)

That cost is subject to a 2% threshold. I doubt his tax prep fee was on the order of $20e6*0.02 = $400,000.

 

[Khatti]

Are they revolting in Denmark now?

Well I can't speak to Denmark, but I keep in touch with relatives from Sweden and, to a lesser extent, Norway. Both sets of European relatives pay far, far more in taxes than we can conceive of with only a minimal of complaint, but the reasons are more cultural and historical than legal. Scandinavian societies are simply more communal than American society, and that little fact can't be changed by law. The most important thing to understand is that my European relatives feel they are actually getting something for their tax money, and Americans by and large don't. I don't see how that attitude can, or will, be exported to America anytime soon.

 

[SW VandeCarr]

Yeah, I'm not someone who believes in the idea of governments forced equality of outcome as a matter of general moral/philosophical principle. And IMO, I think the historical record shows it to be counterproductive in the long run.

http://www.pewresearch.org/fact-tan...th-recovers-but-largely-for-those-at-the-top/

I'm not posting this to change your mind, but just to provide an update for a possible cut off point with this source. On one hand, the latest total US net worth estimate was up sharply in 2014. These estimates are much more difficult than estimates based on income. While net worth is up, the given entry point for household (not per capita) net worth was about 2.3 million USD for the top 1% of household net worth (from this source). This is lower than I expected, but for now I'd set the cut off at 2.5 million household net worth for a flat 1.5% tax rate on net worth. This means the tax applies to the remainder after subtracting 2.5 million. Approved charitable and philanthropic donations and other taxes paid would be fully deductible from the net worth tax base. No need to reply.

 

[Czcibor]

It is a lot harder to track assets abroad than income abroad. If I buy a beach house in Cancun, is the IRS going to send an appraiser there every few years to assess its value?

No, assuming that I understand IRS logic, they would ask you to do it on your own. And fine you if you do it incorrectly. Plus judging from the way that they treat US citizens living abroad (who shockingly have some bank accounts abroad... yes, highly suspicious), you'd be presumed guilty, unless you prove otherwise.

When 40+% of people pay no or negative income tax, we already have an extremely progressive taxation system.

With those preferential way of treating capital gains, I'm far from calling US system as highly progressive. From countries that I faced with my own money - flat 19% Poland, 25% with tax free amount in Germany.

In the US you have such not fully desirable system of "winner takes it all". I mean the salary difference between manager vs. average worker in the US is much higher than in EU countries, and I really doubt that your managers are so many times more brilliant than those on our side of Atlantic.

Thus I perceive highly progressive tax as one of many potential way of deal with that "winner takes it all" approach. (in case of companies it looks like failed corporate governance)

And peoples' biggest piece of "idle wealth" is their retirement savings, so just like picking loaded investments over unloaded ones, a wealth tax - even a seemingly small 1.5% - over the course of 40 or 50 years can have a massive impact on your retirement standard of living.

As idle wealth I mean for example bloated balance sheets of many companies nowadays. Nothing inherently wrong about it, just it is not specially effective solution for the society.

I'm not advocating 1.5% property tax (unless it supposed to be connected with phasing out income tax). I'm just saying that in discussion whether to tax income or property, I'd say rather property.

(logic: less distorts economic decisions and robs rather oligarchs than people actively reinvesting)

 

[Czcibor]

Well, I'm getting confused then by all the different proposals. If untaxed income is the problem, why are we even talking about wealth?

On its own though, even if your plan only targeted the 1% I'd still oppose it because:
1. It opens a door I'd rather keep closed.
2. I don't like the idea of taking money from someone just because in someone's estimation they can afford to lose it.
3. Wealth is not idle money. By existing, it helps grow the economy.
4. reducing American ownership of our economy will increase foreign ownership of our economy.

2. Can't you use this argument against absolutely any tax?
3. Depends. Gov is mediocre at let say making a working business, so you need desperately a private owner there. But there are simpler areas - let's say keeping low risk bonds, where from third parties perspective private owner is expendable. And you can use here gov agency / central bank - as it was recently done during quantitative easing.
4. Who said you can not also hit foreigners with witholding taxes? Or especially if you tried to "go big" on taxes, make a deal with the EU (and later other countries) on some common tax block, to keep tax uniformly, moderately high and very harsh withholding taxes on the border of such block.

 

[Vanadium 50]

That cost is subject to a 2% threshold. I doubt his tax prep fee was on the order of $20e6*0.02 = $400,000.

I did not say what you "quoted".

 

[Vanadium 50]

I'm far from calling US system as highly progressive. From countries that I faced with my own money - flat 19% Poland, 25% with tax free amount in Germany.

The top US rate is 28.6%. In California, it's 41.9%, which would make it #2 in the OECD, just under Denmark's 42.0%.

 

[SW VandeCarr]

You do know that Romney's 1040 is public. One can look, and not speculate.

Romney paid $3M of tax on $21M of income. He had a $3M deduction for gifts to charity. He had $12M in capital gains, but - and this is a big but - it was offset by $5M in capital losses. I am not a tax accountant, but I expect this is a bigger effect than the capital gains rate, especially since Romney is subject to the AMT.

http://www.washingtonpost.com/opini...128882-0c20-11e2-a310-2363842b7057_story.html

Now that I was able establish a cut off for taxing the wealth of the top 1%, and only the top 1%, I thought I'd re evaluate Romney's tax situation in 2012 in the light of the wealth tax I described (post 51). As indicated, Romney paid about $3 million on $21 million of income, or about 14.3%. His disclosed maximum net worth at the time was stated to be $254 million. Now if he also had to pay my wealth tax, what would his overall federal tax be? He gets 2.5 million off because that's the cutoff. He can deduct his taxes for an additional 3 million and 3 million for charity. His adjusted net worth is then 245.5 million. The net worth tax is a flat 1.5% so he pays 3.68 million. Added to the 3 million he actually paid, his tax would have been 6.68 million. That is a 31.8% tax rate. Romney was in the 35% income tax bracket which (now) begins around $450,000, so most of his income would have been taxed at that rate without the significant reductions from using the long term capital gains rate. I don't know if Romney would have left the country or not if he had to pay this tax. Romney made his money in private equity, buying out sick companies cheap, fixing them and then selling them at a profit. I think private equity is a good thing. I don't think he could have done this in Panama to the extent he can do it here. In any case, he would have to give up his citizenship to avoid the US tax liability.

 

[Vanadium 50]

I don't like your plan.

$2.5M sounds like a lot of money, and it is, but having that much at age 68 does not make one Daddy Warbucks. Retiring on that allows for an income of $100,00 per year, which is about what a senior engineer makes. The fact of the matter is that most of the 1% are people nearing retirement or just after retirement. If one works for 50 years - say from 20 to 70 - one of those years is going to have the most money in it. So being in the "2 %" at some point in your life is not particularly rare. Being in the 1% is twice as rare, but only twice as rare. To take this a bit personally, I think it would be a crappy thing for the government to encourage me to save, and then on the verge of retirement start clutching that savings away.

I'm already unhappy with the government taxing ants to support grasshoppers. My neighbor took a second mortgage on her house, used the money to finance multiple trips to Vegas. She tried to get the first mortgage forgiven under HAMP. I didn't go to Las Vegas, and instead paid off my mortgage. Now my net worth is higher than hers - Why should I be subsidizing her trips to Vegas?

Philosophically, I am also opposed to it. A tax on wealth effectively says that you don't own anything - the government does, and is only letting you use it. The Fifth Amendment specifically prohibits this, for exactly this reason. (Which is why the Sixteenth Amendment was passed, permitting an income tax)

 

[jim hardy]

Now that I was able establish a cut off for taxing the wealth of the top 1%, and only the top 1%,

I would argue that amounts to a "Bill of attainder." It singles out an identifiable group for seizure of property without compensation . Founders anticipated this sort of thinking and forbade it to both congress and the states.

You'd have to tax everybody's wealth (horizontal equity) at a graduated rate (vertical equity).

http://www.washingtontimes.com/news/2015/mar/1/stephen-moore-do-the-rich-pay-their-fair-share-of-/

 

[SW VandeCarr]

I don't like your plan.

$2.5M sounds like a lot of money, and it is, but having that much at age 68 does not make one Daddy Warbucks. Retiring on that allows for an income of $100,00 per year, which is about what a senior engineer makes. The fact of the matter is that most of the 1% are people nearing retirement or just after retirement. If one works for 50 years - say from 20 to 70 - one of those years is going to have the most money in it. So being in the "2 %" at some point in your life is not particularly rare. Being in the 1% is twice as rare, but only twice as rare. To take this a bit personally, I think it would be a crappy thing for the government to encourage me to save, and then on the verge of retirement start clutching that savings away.

I'm already unhappy with the government taxing ants to support grasshoppers. My neighbor took a second mortgage on her house, used the money to finance multiple trips to Vegas. She tried to get the first mortgage forgiven under HAMP. I didn't go to Las Vegas, and instead paid off my mortgage. Now my net worth is higher than hers - Why should I be subsidizing her trips to Vegas?

Philosophically, I am also opposed to it. A tax on wealth effectively says that you don't own anything - the government does, and is only letting you use it. The Fifth Amendment specifically prohibits this, for exactly this reason. (Which is why the Sixteenth Amendment was passed, permitting an income tax)

Hmmm. I thought you were Canadian. Anyway, at 2.5 M, the wealth tax is 0. That's the cutoff. If it were 5 M and there were no deductions for charity or other taxes paid, it would be $37500. For some, that might be the only tax they pay. The rate could be less, the cut off higher, maybe more deductions, etc. The article in my post 51 indicated the US net worth jumped to 81 trillion in 2014, and almost all of the increase was in the top 1%! The middle class had negative net worth "growth". Articles cited in previous posts indicated nearly 35% of the US net worth was held by the top 1%. With the newer 81T figure, it might be closer to 40%. This is actually unprecedented. This is how permanent aristocracies get established and become entrenched. If the problem is the concentration of wealth, then at least part of the solution is to tax wealth. I actually don't like wealth taxes either. I'm comfortably retired and haven't paid any income tax for several years (but I'm not in the top 1% of wealth using the Pew Research figure). Raising income taxes does not work for most of this group.. If not a wealth tax, what?

 

[Czcibor]

The top US rate is 28.6%. In California, it's 41.9%, which would make it #2 in the OECD, just under Denmark's 42.0%.

OK, so the US problem with taxation is not lack of progressive tax rates (in theory they are even high by world standards), its more introducing dozens of preferential rates that make those progressive tax rates not applicable. And after noticing that the system is broken, instead of repairing it - introducing alternative minimum tax.