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
This is the propaganda that is going to make me switch my homepage.. This article is speculation in its sole purpose to attack and then to CREATE mis-information and present it as truth to people that want to believe.. Again.. Create mis-truth... thats even the title of this article..
Rick, If i wrote this about you and your personal family you and I would probably end up in a fist fight cause you know its a lie and if I present it to people that dont know or are capable of understanding the FACTS and not my mis-information,
you would be defending that misinformation, putting you in a bad light, people judgeing you, whether or not you are a lier, attacking your personal creditbilty, oh wait a minute..
Got it... thats what this is.. .OK , forgive me I was wrong...
Thanks i now think i understand your motivations...
The Life of Mitt- Highlites (short version)
-Grew up as a rich mans son and via lots of shelter uses inherits the old mans money.
-As all proud chicken hawks he evades the Vietnam era draft by doing "missionary work" in the wild lands of France for the Mormon church where he stays on friends mansion with fellow "missionaries" and other" high society" budies
-Goes to private school where he bullies defenseles gay kid
-Gets elected in Mass. where he again fails to disclose his taxes and his caught using shelters and hidding residence legalities. Has the worst job growth while in office in Ma. --- 48th out of 50
-Joins Bain Capital and scalps firms pension plans and then closing plants...
-Runs for President while proposing less regulation for Wall Street, the privatization of Medicare (read antoher way to screw seniors), and an income tax structure that causes higher income tax burdens on the middle class and lower taxes for those on his tax bracket..
This is the continuing story of the common man he identifies so well with.
- Stand by for continuing story....
Clifff is 100% correct. I am a small business owner and do well for myself. You know why? Because I bust my a**. Nights, weekends, holidays, etc. I'm tired of hearing the argument that everyone works hard therefore everyone deserves equality. People who work the 9-5pm do work hard & I'm not disputing that, but I'll tell you one thing they don't have: THE RISK. A small business owner puts his credit, capital and about everything else under the sun on the line, most of which people will never realize or could possibly even fathom. With great risk comes great rewards. That's the ultimate goal, but it doesn't mean it's a GUARANTEE. It used to be in this country when people saw someone who worked hard & were successful they were inspired. Anymore people think individuals with wealth did something to cheat the system. They don't see the entire picture. A small business owner is paying the salary of their employees along with their health insurance, dental insurance, disability, matching their retirement contributions, etc.........the list goes on and on. Providing a better life for their employees & their families. Now how in the world is someone collecting food stamps/welfare checks and sitting on their a** all day making more of a contribution to society than what I just described????? THEY ARE NOT. I'm always amazed by the ignorance of the masses when I hear people comment on how unfair it is when a lottery winner gets $1 million and has to give $400,000 immediately to the gov't. Somehow this seems unfair to EVERYONE because it is up front & dramatic, but when a guy actually earns his $1 million by putting in 100 hours a week his $400,000 a year tax bill somehow doesn't equate to him paying his fair share???? You people had better wake up. The gov't has only what we give it & a free ride only lasts as long as there is $ to go around. When you start to condemn the wealthy and small business owners for working hard, taking risks and providing jobs you’ll soon realize your end result couldn’t be farther from the ideal utopia you dreamt up while you were in line collecting your welfare check........... which by the way was paid for by the same business owners you all so very much despise.
This is so sad. People are looking at percentages of what someone paid in taxes. All most writers and critics seem to care about are percentages. Well, let me enlighten many of you on what this man did that most people do not seem to get...especially looking at the numbers.
How may of you out there paid 3 million in taxes? Most people do not even make anywhere close to that. It may be only around 14% but, 3 million is 3 million. He paid in a year what most people will never make in a lifetime.
Keep in mind that he pays a good bit of his income to charity...more than many make in a year. People benefit from that money and if not for him giving, many would do without in some way or another.
Another reason he paid a lower percentage is due to taking a loss on his investments....Do many of you realize what this means???? He took a loss....It means he invested money into a business that kept people working at the time he invested and then, the company made bad decisions and he took the money back out at a loss per share to invest in other companies that employ people, whether here or in other countries to keep business going.
Many of you forget just how many people out there cheat the system with SS, Medicaid, medicare, and unemployment. Where is the outcry for that???? WHERE????
Lastly, lets take a look at taxes again....
How many of you bleeding hearts had to pay any taxes on April 15th??? If you did, you do not know much about taxes at all. Taxes are just estimates based on what you are making week to week/month to month/ biweekly to biweekly. It is easy to estimate you taxes as long as you have a reasonable assumption of what you are going to make...If you do not get this, you really need to take an economics class or learn to count....Here is the hard truth for many of you. If you get a refund on April 15th, you overpaid. If you are like me and had taxes due but, paid a little extra to get a refund for various reasons, you graduated econ 101. Fo the rest of you that have many kids to claim and lower income, ponder this: You had no taxible income or got back more than you paid in in taxes, you are cheating the system!!!! If you get back more than you paid in, it is called a credit and that is stealing from those that paid in and did not get back more than they paid in....it is legal but immoral. Also, it means that all those taxes that you say you paid like, state and federal sales tax is a joke cause you are getting part or all of it back depending on the difference between what you got back and what you paid in taxes.
Here is the reason to keep the taxes low for everyone, including the rich.... ask yourself when the last time you worked for a poor person????? You never will.
Thought to ponder::::: people say trickle down economics does not work....Just tell me how it does not work!!! It is the only way it works. It is either going to trickle down from people who have money that put people to work or create businesses with their money through investing or, it is going to trickle down from Gvts. One creates wealth by offering a service or product, the other just takes it and does what it sees fit (how is that going for ya?)
Stop "picking on" Romney (and Rafalka-- the dancing horse he rides on) which by the way cost the taxpayers a "charitable tax deduction of $76K" in his last years tax filing...
What's wrong with taking adavantage of every tax loophole known...go ahead fellow Tea Party members lets vote in the first Prez with Swiss and Cayman Islands bank accounts... I know that I, like you all, can identify with this man...he is just like one of us.
Here is the stupidity of this. The person making 50,000 and with one or two kids claiming no dependents during a tax year filed a return and got a check for what he paid in and probably a bonus. So the tax rate on this person is less than 0 because the government paid him or her. I don't like taxes any more than the next person but at least I didn't have to write a check to greedy Uncle Sam for three million. Come on people get over it and stop think that if the government takes more from a rich person you actually be better off. They are not going to write you a check. They just want to spend more. Here is reality Government BAD, people good or at least not as bad.
If one checks back over the federal spending of the last 30+ years since Reagan took office, you will see what amount was added to national debt during each presidency and each congress.
Most of the deficit spending which has taken place since Obama took office has occurred as a direct result of the Great Recession, its aftermath and the government initiatives to combat and ameliorate the effect of Great Recession and it's aftermath.
The Great Recession has caused the loss of at least two trillions dollars in federal revenue and at least two trillion dollars has been spent as a result of the need to counteract the Great Recession and aftermath. Such as the American Recovery & Reinvestment Act of 02/2009(the stimulus), unemployment insurance extensions, extension of the Bush tax cuts, payroll tax cuts and extension and so on. This alone accounts for more than four trillion dollars of revenue loss and spending all the direct result of the Great Depression.
And don't try to give my that American Interprise Institute baloney/malarkey that Fannie and Freddie were the major causes of the Great Recession and the worldwide financial crisis because it simply is not correct. F & F might have been in the second tier of contributors to the Housing Bubble and the Great Recession and the worldwide financial crisis but they certainly were not in the top five causes.
Warren Buffet says it is his moral obligation to pay more taxes. Yet Warren probably does just as Romney apparently does: Use every legal means to minimize his tax bill. And everyone does that. And the writer says "romney never evaded taxes altogether". Romney never "evaded" taxes, but instead used a common method which is to offset capital losses against capital gains and carryforward any unused losses.
Everybody does this, the rich, the middle class. Everyone who has capital gains and losses.. But yet the writer still equates this common use of tax law as evasion, a tax loophone or some other tricky maneuver that only the rich use. What nonsense. And the writer implies that somehow romney wants to intentionally lose $1 to save 15 cents in taxes. Pure nonsense.
I get so tired of right wing lying and whining.
everyone knows your boy bush left the economy bleeding jobs at the rate of 800k per month, the entire banking system in shambles, katrina still a drag on the economy, AMONG OTHER THINGS TOO NUMEROUS TO NAME (like the drag on the economy of the unfunded prescription drug mandate, two wars fought off the books, a war on terror not catching anybody, the enitre auto industry at the verge of collapse, etc., etc......), not to mention leaving the country walking on pins and needles wondering when the next shoe would drop (in other words, wondering what he would f##k up next).
Since Obama has taken office the right wing have obstructed almost everything he has tried to do to stimulate growth (what is it up to, 90 plus filibusters or threats, more than all other congresses combined), lied and mischaracterized every administration proposal and wasted time on everything from birth certificates to the debt ceiling (and doing real damage along the way).
Then all the right wingers want to do is whine and cry that Obama couldn't fix it as fast as they like.
As far as the "ole mitter" is concerned, If the man wasn't hiding something WORSE he'd release the tax returns, just like everyone else running for presideent does. HE HAS LIED ABOUT HIS TAXES TO AIDE HIS POLITICAL CAREER BEFORE : in massachusetts, he signed campaign finance docs saying he had filed as a massachusetts resident when he had not.
after all, mccain saw 'em, and he picked palin.
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 finished a down week on a cautious note with small caps leading the retreat. The Russell 2000 lost 0.5%, widening its weekly decline to 2.6%, while the S&P 500 shed 0.3%. The benchmark index ended the week lower by 2.7%.
This morning, the market was provided a basis to rebound with the July employment report, which was just right for the policy doves (209K versus Briefing.com consensus 220K). It showed payroll growth that was weaker than expected, ... 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'