WASHINGTON, April 14, 2012 — Like it or not, odds are you paid your taxes this year. And on time. If you’re like most people you paid a tax rate around 25 to 28% on your earned income, whether you were a chef, slinging hash, or an accountant, slinging numbers.
However, that income is called earned income because you earned it by the sweat of your brow or your mind. If you glide up into the top one percent of the population, then you most likely made most of your money from unearned income, meaning you didn’t hold down a job to make that money and your taxes are probably in the 15% range.
Just for the record, the IRS defines income derived from sources other than employment (interest, dividends from investments, or rental property income) as unearned income. That is their term, not mine. But it is accurate.
Just ask Warren Buffett, CEO of the investment firm Berkshire Hathaway, who got this whole discussion rolling last August with an opinion piece in the New York Times when he suggested the tax code be changed to make millionaire and billionaires like himself pay their fair share of taxes by changing the tax code to make investment earnings taxed at a higher and thus fairer rate.
He noted that his tax bill for 2010 (we haven’t yet seen the 2011 tax returns) was just under $7 million dollars or 17.4%, but his adjusted gross income was $62,855,038 before exemptions and deductions.
Buffett also explained that he paid a lower tax rate than his secretary because most of his income came from his investments. It was that op-ed piece that has led to the Buffett Rule that will come before the Senate for a vote on Monday, April 16. The Buffet Rule, which 60% of Americans favor, would now require people with an annual income above $1 million dollars to be taxed at least at 30%, no matter how that income was made.
The Buffett Rule would affect Warren Buffett, President Obama, and presumptive GOP presidential nominee Mitt Romney to name three in that category.
So when President Obama released his 2011 tax returns, it was immediately noticed that he too paid a lower tax rate than his secretary. The Obamas reported a joint adjusted gross income of $789,674 last year, paying $162,074 in federal taxes, which is about 20.5%, and putting the Obamas in the top 1% of taxpayers. They donated 22% or $172,130 of their income to charity.
The President’s secretary, Anita Decker Breckenridge, who earns a $95,000 salary, most likely falls into the 28% tax rate. (What is truly astounding is that the President’s confidential secretary earns so little. Buffett’s secretary supposedly earns in the $200,000 to $300,000 range, which is understandable. But for the government to pay the President’s secretary so little boggles the mind.)
For the record, Vice President Joe Biden and his wife reported a joint income of $379,035, paying $105,357 in federal taxes and state taxes in both Delaware and Virginia. Their tax rate was 27.8%.
Now to Mitt Romney. Everyone knows he is rich, very rich, maybe not super rich like Buffett, but he is in the stratosphere. But where are his tax returns? Alas, he wasn’t ready to file and asked for an extension, meaning that he won’t be releasing them for maybe six months. How politically convenient.
But then again, maybe not. If he had released them like everyone else running, the returns would have been pored over and raked through and then rehashed on the cable networks until finally the commentaries ran their course and the issue was finally behind him. Now all everyone is talking about is what is Mitt Romney hiding.
He has been reluctant all along to release his tax returns. This past January, Romney was finally pressured, after criticism from his opponents, into making his 2010 tax returns available. It revealed an income of $21.7 million, taxed at 13.9%, thanks to investment income. The Romneys have a net worth between $190 million to $250 million.
Romneys had estimated that their 2011 income would be $21 million which means a tax bill of $3.2 million.
In the form released on Friday, they did not estimate their income this time. The form only listed the Romneys’ estimated tax liability as $3.2 million, adding that the family has already made payments of $3.4 million. So they are conceivably owed money by the federal government.
Of course, the big question is where is Romney’s money? On a Caribbean island or a Swiss bank account? And what about the returns from when he headed up Bain Capital? If Mitt thinks the questions will go away because he didn’t file on time like the rest of us, they won’t.
As he attempts to sell himself as a man of the people, understanding the woes of the middle class struggle, he will have a hard time showing that side of himself as he supports the Ryan Budget and more tax breaks for millionaires like himself.
Don’t look for Romney to lobby for the Buffett Rule. In fact, look for the Buffett Rule to go down in flames. After all, 50% of the people in Congress and the Senate are millionaires. How do you think they are going to vote?
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