# A look behind Romney's taxes

The U.S. tax code can be a cumbersome beast. How did Mitt Romney manage to pay roughly 15 percent in taxes last year?

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Kai Ryssdal: The rest of us have a good two and a half months 'til tax time. For Mitt Romney, it came last night.

The Republican presidential hopeful did what you can only call a midnight data dump. He gave his 2010 and 2011 returns to a couple of media organizations, then the candidate held a conference call this morning. The details you've probably heard: \$45 million or so in income the past two years, taxed at something less than 15 percent.

The U.S. tax code being a cumbersome beast, we've called an expert for help in figuring out what all the numbers really amount to. Tiffany Couch is a forensic accountant in Portland, Ore. Nice to talk to you again.

Tiffany Couch: Nice to talk to you.

Ryssdal: So Mr. Romney and this 13.9 percent effective tax rate that we've been reading about all day. What exactly does that mean?

Couch: That is a simple tax calculation where you take the total amount of tax Mr. Romney paid and you divide that by the total income that he earned.

Ryssdal: Simple math, right? Simple math.

Couch: It's simple math. In 2011, he earned approximately \$20 million. He paid a total amount of tax of approximately \$3 million. When you divide that \$3 million by the \$20 million, you get an effective tax rate for 2011 of about 15 percent.

Ryssdal: OK but I thought we have what we call a marginal tax rate system in this country -- that is, you have tiers and then the more you make, the more you pay on that extra money.

Couch: That's correct. We do, we have tax tables. If you look at the back of the booklet you get with your 1040 form, there are all those tax brackets that you see. If you make a certain amount of money, you have a certain amount of tax that you pay. And the more that you make, the more that you have to pay into the IRS.

Ryssdal: OK, but what happened here? Because Mitt Romney is like off the tax table, he's way up there.

Couch: Yes, he's way up there. But if you actually look at the types of income that he earned, it mostly came from capital gains, interest and dividend income, and all of that is taxed at a much lower or a capital gains rate for about 15 percent.

Ryssdal: All of this, though, we should point out, is entirely legal. I mean, he got some good accountants and said, 'listen, help me do what I've got to do.'

Couch: Well, you know, it's a couple of things. He's used his money to earn money and invest that money -- that is a great tax strategy. And not only is he growing his money obviously because he had gains, but his tax on those gains is much lower than had he earned that in wages.

Ryssdal: Everything we've been talking about, Tiffany, are federal tax rates, right? What are we missing here? There's state, there's local, there's Social Security, there's payroll taxes. I mean, there's a whole bunch of other stuff that we're not seeing in this Romney story today.

Couch: Well sure, it becomes quite complicated.

Ryssdal: Nuh-uh, tax codes? Complicated?

Couch: Oh, you know, maybe just slightly. There's state taxes, there are local taxes, we haven't even talked about Social Security and the payroll types of taxes. So there are lots of other taxes that Mr. Romney may be paying that we aren't privy to or really isn't part of this equation today.

Ryssdal: Tiffany Couch, a forensic accountant at the Acuity Group in Portland, Ore. Tiffany, thanks a lot.

Couch: Thank you.

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy. Follow Kai on Twitter @kairyssdal.

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Lili - Jan 24, 2012

I was very surprised by your incomplete report about Romney and his taxes based on capital gains.
With all respect, why don't you make a story about how that works. The risk of the investments. You left the impression that his tax rate is unfair, in addition, you are comparing capital gains taxes vs wages taxes. You cannot compare them.
This economy is also helped by all investors even of those called "angel investors" whom made dreams and ideas of entrepreneurs work.

TomKaz - Jan 24, 2012

So when are they going to change the name of this radio program to Stoopid Place?

This moronic comparison of capital gains tax rates to income tax rates takes the cake. Is it too hard to point out the major differences in capital gains income to regular income???

1. An investor puts his investments at RISK. The investor may make nothing on his investment, OR conceivably lose 10%, 20%, EVERYTHING! The worker who earns income from his job puts none of his net worth at risk. The very worst thing that can happen is his/her employer goes bankrupt and he/she loses out on 2 weeks of wages.

2. The investor pays taxes TWICE! As an equity investor, you are part owner of the company you invest in. The company you own pays Federal taxes, State taxes, local taxes, excise taxes, and pays HALF of all your employee's Social Security taxes. Any profit you make comes AFTER the taxes you've already paid as an owner.

3. Investment capital is the lifeblood of businesses. If you raise taxes on anything, you get less of it. Capital will always flow to places where it will get the highest return, and if the U.S. is stupid enough to raise the tax rate on capital gains, you can expect investment capital to flow elsewhere.

C'mom Marketplace. At least be a little less obvious in your left wing bias.

Lili - Jan 24, 2012

I was very surprised by your incomplete report about Rommney and his taxes based on capital gains.
With all respect, why don't you make a story about how that works. The risk of the investments. You left the impression that his tax rate is unfair, in addition, you are comparing capital gains taxes vs wages taxes. You cannot compare them.
This economy is also helped by all investors even of those called "angel investors" whom made dreams and ideas of entrepreneurs work.

Esteb@n - Jan 24, 2012

What about Romney's effective tax rate when considering corporate taxes? I was surprised you did not mention this in your program at all. Here is a link to a simple explanation to this complex issue.
http://vaerdi.com/2012/01/romney-the-election-and-double-taxation-an-all...
Hopefully you will touch in this aspect of our tax code as well.

TomKaz - Jan 24, 2012

This metaphoric tale of the pheasant hunting dog won't help the folks at Marketplace understand why capital gains tax rates are lower than the tax rates on regular income.

In 1848 Frederic Bastiat wrote "There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen."

Marketplace and their liberal minions are examples of the bad economist. Their political blinders won't allow them to see investors actually put their money at RISK and are taxed TWICE on their investments.

Why would Kai Ryssdal ask this idiotic question? "OK but I thought we have what we call a marginal tax rate system in this country -- that is, you have tiers and then the more you make, the more you pay on that extra money."

He either believes his listeners are stupid or knows his guest is unwilling/unable to explain why capital gains are taxed at a lower rate. Tiffany the "forensic accountant" came through. She obviously can't see the forest through the trees.

ezracorpse - Jan 24, 2012

I am not sure why you would broadcast such an incomplete story. I mean, I know you guys are smart and that you have access to major papers like the Wall Street Journal which today explains the away this myth about low taxes for the rich. According to the WSJ, "This is ironically the embodiment of the "corporate personhood" legal doctrine otherwise so decried by the left. The law taxes corporations as if they were separate beings from the shareholders who own them and then levies a separate tax on shareholder payouts and gains. This double taxation brings the effective tax rate on investment income to as much as 44.75%."

Therefore, Romney is paying 15% on returns that have already been taxed at the 35% corporate tax rate, plus local and state taxes bringing it close or over 50%.

Let's hope you provide a full overview next time.

http://online.wsj.com/article/SB1000142405297020371850457717883151922342...

Dan_H - Jan 24, 2012

Granted, Mr Romney is a millionaire several hundred times over and he made a nice packet with his speaking fees, but where did all this feigned ignorance of the US tax code come from? Listening to NPR that past several weeks you'd think they'd never heard of capital gains. Noooo, it's been this, 'special' rate, that, to listen to the reportage, you'd think Mr Romney had greased through congress with bribes. And another thing, yes, Romney is rich, but Senator Kerry's got him beat by a factor of 4 or 5 or so, and I don't remember any scrutiny of his taxes/finances in 2004.
So why all the inquisition now?