Here's how Mitt Romney might have paid no taxes
An income derived from capital gains is easier to manipulate for tax purposes.
By Rick Newman
Did he or didn't he? This is the oddly intriguing question swirling around Mitt Romney as critics contend that he may have paid no income tax for some portion of the last 10 years.
Senate Majority Leader Harry Reid has become chief inquisitor in this weird populist trial, claiming that a "successful businessman" familiar with Romney's finances told him that the Republican presidential candidate paid no taxes for a decade. There's a McCarthyist air to Reid's charge--since there's no proof that it's true--yet it may also be politically effective, since Romney already struggles with an aristocratic, out-of-touch image.
If Romney has paid taxes, as he insists, he could clear up the whole controversy by simply releasing several years' worth of tax returns, beyond the 2010 return and the 2011 estimate he's already released. But he has refused, and there may be good reason for that. "I wouldn't be surprised if he paid nearly zero taxes in 2008 and 2009," says Brad Badertscher, an accounting professor at the University of Notre Dame. "It's going to look bad no matter what he does."
Theories about Romney's tax strategy tend to focus on offshore investment vehicles and secretive accounts, but basic investing and accounting scenarios could easily explain a low tax bill. The clue comes in Schedule D of his 2010 return, in which he claimed a $4.8 million loss carried over from prior years. That helped reduce his tax bill for 2010, in which he paid $3 million in taxes on $21.7 million of income, for an effective tax rate of 13.9 percent.
The carryover means that Romney probably claimed a much bigger loss a year or two earlier, which could easily have pushed his tax rate for 2008 or 2009 down to the low single digits. Most investors lost money in 2008, the year that Lehman Brothers collapsed and the S&P 500 stock index fell by 37 percent. Romney was probably no different.
During bad years, wealthy investors often use a legal strategy called "tax harvesting" in which they sell weak investments at a loss, which they can use to offset the tax they'd need to pay on gains from better-performing investments. The loss can be carried forward, to help lower the tax bill in later years when investments might have done better. "It's very common for sophisticated investors," says Badertscher. "It's a good time to clean out your portfolio, sell the losers, and use the losses for tax purposes." Romney has said that his investments are in a blind trust, so if his advisors made such moves, they may have done so without his input.
In 2010, all of Romney's income came from investments as capital gains, dividends and interest. He claimed no income from wages or salaries. So his maximum tax rate would have topped out at around 15 percent—the rate that applies to most investment income. The loss carryover, sizeable charitable donations and other deductions helped shave his effective rate to 13.9 percent.
About half of Romney's income in 2010 came from capital gains. If that were zeroed out in 2008, say, on account of the crumbling economy, it could have cut his income for that year to $10 million or less, with a huge deduction for a capital loss. Combined with the same sorts of charitable donations and other deductions he claimed in 2010, that could have pushed his tax burden close to zero. If Romney's losses were big enough in 2008, he could have carried a portion of the loss forward into 2009, helping lower his taxes then, too. The fact that the loss carryover appeared on his 2010 return suggests that may well have happened.
Romney, in response to Reid's claim, has insisted that he paid taxes every year, and paid "a lot of taxes" overall. If true, that means Romney never evaded taxes altogether. And it would be hard to fault Romney for abiding by a tax code that simply tends to favor wealthy investors like him. Still, a typical worker earning $50,000 faces a maximum tax rate of 25 percent, so Romney's tax rate could have been a fraction of what most middle-class earners pay. Nor do most workers employ complex strategies to whittle their tax rate down to single digits.
Reid may suspect that, and simply be baiting Romney because he knows the candidate has little to gain and plenty to lose by releasing further returns. Meanwhile, Romney the candidate wants to eliminate taxes on all types of investment income for middle-class families, which might be a pre-emptive way of saying that the tax advantages he enjoys should be extended to all taxpayers.
President Obama wants to do the opposite. He has proposed raising the tax on capital gains from 15 percent to 20 percent, and treating dividend and interest income the same as earned income, subject to whatever bracket the taxpayer happens to be in. If more of Romney's tax returns do become public, they might have the unintended effect of advancing his opponent's tax plan.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
More from US News & World Report
why is it that when ever effort to improve the economy was blocked by the republicans no one say nothing even when they said that they would make him a one term president and the only way they could do that is stop him from helping everyone out and if continuing the bush tax cuts for the wealthy will help us to gain employment what’s stopping that from occurring now no one is stopping employment but the one who can hire, if people have a job they make money they go spend the money which creates more jobs so how is Obama stopping this from happening
Simple, because over the last 2 years the GOP have made taxes the centerpiece of their argument. Republicans have screamed about 50% of Americans not paying taxes and accused liberals of perpetuating this policy.
So, because conservatives have spent SO MUCH time crying about taxes, it is natural that people now want to see the taxes of THEIR CANDIDATE. People want to see if conservatives practice what they preach, or if they are simply hypocrites.
Obama also said recently,in case the libs have forgotten,about how people havent built their businesses,that government had a hand in that. What an outright lie,and it shows how low Democrats are willing to go to mislead people. There are more people on welfare,less jobs,higher unemployment since Obama took office. Yet he lectures America about civility even after the insensitive,hypocritical ads he puts out? He knows absolutely nothing about what civility means,nor does he really appreciate the private sector since he constantly is attacking them. I agree with jcb,this is just a bunch of garbage that the liberal media likes to put out. In other words,what Conservatives are saying(yes we are a lot smarter than liberals think)is keep government out of our business,dont tell people what they can and cant do when they can govern themselves,and cut spending,as well as kick out all the illegals. Simple as that. 16 trillion in debt? Sorry Obama,you cant run on that and get away with it.
did everyone for get that bush did the country in then left it for the next guy? shows that not everyone looks to reason just color
I used to be a poor democrat who believed all the BS liberals regurgitated. I was one of them. I'm still poor but no longer can tolerate the BS. I hope Romney made twice as much money as his attackers accuse him of making. It gives me hope. If you hate people that make money due to their hard work and ingenuity, you are most likely someone who wants something for nothing. You are most likely someone who has never been TRULY responsible for the well being of others... just a lot of lip service on how much you care. ( mmwhah mmwhah). You most likely would join some form of a Nanny Police in hopes of dictating how others should live their lives. I get nauseous thinking of how much time was wasted living in such a vacuous wasteland. One more thing. Could MSN be any more obvious in their liberal bias reporting. MSN should stand for More Slanted News.
Secondly, Capital Gains should NOT be taxed at a high rate. That is money that was taxed the first time it was earned and should not be subject to additional high taxation (to say no taxation would be debatable). It is a way to encourage people to invest instead of blowing it on a Chinese TV just as the Mortgage deduction is supposed to encourage home ownership. To tax the money twice would be - as the President likes to say - "unfair".
" MIGHT " have paid no taxes ? Perhaps R. Newman could write an interesting article about how approximately half the U.S. definately pays no taxes. What kind of manipulation are they using??
Okay why are we sitting here worried about if someone paid taxes or not, hell I think Romney would have had paid his taxes to avoid prison time and fines. This man isn't stupid; he just took what was given to him by our tax system; I would do the same. What about all the "Illegal Aliens" in this country that pay no taxes, use free medical and work under the table to send his/her money back home to support their families back in Mexico or Asia, don't you think that hurts this country by making money, not spending here and letting the tax payers absorb the cost for their Medical?
The real subjects should be- UNEMPLOYMENT, ECONOMY, and DEFICIT. Those are the subjects that will fix the USA, and stop us from falling in a deep depression Obama has no record of accomplishment in fours years except he raised the Deficit by 5 trillion in less than 4 yrs, the unemployment went up to 8.5% and has yet to fall below 8% and the economy is in poor shape. I don’t think I can give Obama a chance at another four years based on his record. If he was a great president and heading us into the right direction then yes I would vote for him, but I’m not voting just because he is Democrat. You see most people vote for all the wrong reason when they should think long and hard before picking someone. Good Luck in the future with your Kids and Grandkids, because if we move in the wrong direction for another four years you will not be able to buy the toilet paper that wipes you butt ever day and it almost that way now.
Concerning taxes, whatever Romney paid or didn't was tax money owed from his labor. I'm much more concerned about the tax money given away by the president to cronies and political allies such as SOLYNDRA and his failed pork barrel stimulus. No regard about our tax money or where it came from. Romney shows me that by utilizing the tax codes legally he most likely will utilize my tax dollars to maximum benefit for the country and get the country's credit rating back up.
Many younger women are looking to date older guys, mainly because older guys are relatively more successful in career and understand better how to treat their women. Many couples with age gap work out fine and get alone splendidly. (A_g_e_l_e_s_s_d_a_t_e _COM) is a focused community for older men dating younger women. If you are ready for a new adventure, give them a try!
that means Romney never evaded taxes altogether. And it would be hard to fault Romney for abiding by a tax code that simply tends to favor wealthy investors like him. Still, a typical worker earning $50,000 faces a maximum tax rate of 25 percent, so Romney's tax rate could have been a fraction of what most middle-class earners pay. Nor do most workers employ complex strategies
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Breaking up big banks is an untested solution to the too big to fail problem that attempts to isolate and dismantle large, troubled institutions while protecting the rest of the economy.
VIDEO ON MSN MONEY
[BRIEFING.COM] The stock market ended the Wednesday session on a mixed note. The tech-heavy Nasdaq displayed relative strength, climbing 0.4%, while the S&P 500 added 0.2% with five sectors settling in the green. For its part, the Dow Jones Industrial Average (-0.2%) spent the entire session below its flat line.
Equities started the midweek affair on a rather unassuming note in the absence of market-moving news or economic releases. With those pieces missing from the equation, ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'