Rod Dreher of The American Conservative hammers Romney for thinking that his claim that he’s never paid less than 13% in federal income taxes actually helps him rather than hurting him when it comes to the income tax issue.
I’m not blaming Romney for taking advantage of every legal avenue to reducing his tax burden. I would do the same if I were in his shoes. In fact, we have a financial adviser who helps us minimize our tax burden every year. Because of my book deal, I’m making a significantly higher salary this year than usual — not in the same universe as Romney’s annual income, though, and even after the best tax advice, I’m paying a far greater percentage of my income to the government than he is. I hate it, but you know, this is a good problem to have. I wish I had this problem every year.
What Simon is getting at is Romney is an extremely rich man who pays significantly less of a percentage of his income in taxes than millions of people who make far less than he does, and he still seems to think he deserves a cookie. I’m sick and tired of him and his wife whining about how people are so mean to them about their taxes…
Some conservatives crack on Romney for not having come up by now with an effective response to criticism about his extreme wealth and how out of touch that may or may not make him with average Americans. I hear them, but honestly, in an economy as bad as this one, I don’t see any way for a man worth $200 million to talk comfortably about how it’s really okay that he paid such a small percentage of his income in taxes.
Worse, to proudly proclaim that he pays a far smaller percentage than many of us as though that should be enough to satisfy us.
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Chiroptera
August 21, 2012 at 11:42 am (UTC -4) Link to this comment
…and how out of touch that may or may not make him with average Americans.
Anyone else remember how much flack Obama took because he eats arugala and didn’t know what kind of cheese is supposed to go on a Philly cheese steak sandwich?
'smee
August 21, 2012 at 11:57 am (UTC -4) Link to this comment
…and how out of touch that may or may not make him with average Americans.
I seem to remember a word that was used…. Now what was it?
Ah yes! Elitist!
eric
August 21, 2012 at 12:07 pm (UTC -4) Link to this comment
Even worse, to say that (if he’s President) he will lower his own tax rates while raising ours.
I found it very ironic a few years ago when Republicans were fighting against the Alternative Minimum Tax (AMT), since inflation was starting to give it real bite.* The AMT is basically the exact sort of flat tax they had been demanding for the last decade. But the truth is, their desired tax structure is so regressive that a strong, 15-20% flat tax at this point would actually hurt most of their constituents.
*To be fair, there was strong bi-partisan support to change it. But Dem opposition to a flat tax is not ironic, its entirely expected.
Jordan Genso
August 21, 2012 at 12:13 pm (UTC -4) Link to this comment
Exactly. It’s not just that he pays 13%, it’s that he thinks 13% is too high, and so he wants to give himself (and others like him) massive tax cuts so that percentage can get below 1%.
A rational person sees his tax returns (the one year we have) and thinks that the system is flawed, in that it is wrong for him to write off his wife’s horse as a business expense and take advantage of so many loopholes that he pays a very low percentage. Mitt Romney looks at his tax returns and thinks the system is flawed, in that he is paying too much in his opinion.
Voters that agree with his opinion should vote for him. Voters that disagree with him should vote for President Obama. If only “should” was an indication of what “will” happen…
oranje
August 21, 2012 at 12:14 pm (UTC -4) Link to this comment
They’re looking at dollars instead of percentages and claiming they’ve done enough. I wish they could understand that an economy with such inequality ultimately doesn’t work for anyone, including them.
And I ask this honestly, for anyone better off than I am. I have it reasonably well: I live in an area with low property values, low property taxes, I don’t have children, I work multiple jobs, my wife is well employed. I’m not rich, but I’m covering my bills. The question I have is, what do you want with so staggeringly much money that you’re worried about paying a higher tax rate? Heck, even at the income I have now, I’m more than happy to chip in to get the potholes in my street fixed. Do I just not have expensive taste?
Reginald Selkirk
August 21, 2012 at 12:18 pm (UTC -4) Link to this comment
But he (and others like him) would use all that extra money to create jobs for the less fortunate. Because it’s worked so well so far…
Jordan Genso
August 21, 2012 at 12:20 pm (UTC -4) Link to this comment
Not surprisingly, I’m not qualified to answer, but my guess would be “$$$ = power”.
Michael Heath
August 21, 2012 at 12:26 pm (UTC -4) Link to this comment
What I see is a Republican party increasingly comfortable overtly promoting policies which they perceive will help them as politicians and help a relative handful of citizens; in spite of our also understanding such policies harm overall economic growth and the wellbeing of nearly all U.S. citizens, and their children.
As Ed has blogged about before, even Ronald Reagan fought and successfully insured tax rates later in his term were effectively progressive to the detriment of the top income quintile. In 2003, George W. Bush’s commission on tax reform refused to consider policies they [falsely] deemed to not be progressive and therefore not worthy of consideration. E.g., VAT and consumption taxes, which can, if competently implemented, be progressive and can also increase median discretionary income so therefore a win for the rest of us.
Dennis N
August 21, 2012 at 1:02 pm (UTC -4) Link to this comment
I am blaming Romney, and I would not do the same if I was in his shoes. I can understand someone making 30k minimizing their tax burden. Someone making 100k, 200k, even a million. But having 250 mil in the bank and 100k in income just for speaking fees? At that point, anything you do to shirk your tax burden makes you an unpatriotic, greedy asshole. And he thinks he should President?
Area Man
August 21, 2012 at 1:23 pm (UTC -4) Link to this comment
“The question I have is, what do you want with so staggeringly much money that you’re worried about paying a higher tax rate?”
Well, if recent events are any indication, having ginormous amounts of money allow you to purchase the government you want.
You also suspect that a lot of it has to do with massive egotism. The rich people who whine about the president being mean to them, mostly without evidence, spend much of their time surrounded by sycophants who treat them with deference and gratitude. They see calls for them to pay higher taxes as personal affront to their greatness.
It’s also the case that people tend to judge their station in life by looking at the people who are nearest to them on the socio-economic ladder. Someone who has “only” $50 million is going to look at the billionaires and suddenly feel poor.
Doug Little
August 21, 2012 at 1:48 pm (UTC -4) Link to this comment
There’s taking advantage of loopholes and then there’s going out of one’s way and turning it into an art form which seems to be what Romney has done and then of course gloating about it.
caseloweraz
August 21, 2012 at 2:03 pm (UTC -4) Link to this comment
Chiroptera wrote: “Anyone else remember how much flack Obama took because he eats arugula and didn’t know what kind of cheese is supposed to go on a Philly cheese steak sandwich?”
Yes, and let’s not forget his preference for Dijon mustard.
d cwilson
August 21, 2012 at 2:09 pm (UTC -4) Link to this comment
Has Mark Halpiren weighed in yet? I’m sure he has a narrative ready for how this actually helps Romney, just like he said McCain’s inability to remember how many houses he owns would be good for his candidacy.
Ben P
August 21, 2012 at 2:55 pm (UTC -4) Link to this comment
Three comments
1. SO when exactly does this “minimizing your tax burden” go from fair to being a greedy asshole? or is this just naked envy talking?
2. Just remember, most of those loopholes were well intentioned. How many people would squeal if they killed the mortgage interest deduction, and how many companies would fold if they were required to pay taxes on gross revenue rather than net profits?
3. I think this overall issue shows in a very particular way that Romney lives in an insular community. It’s very similar in a way to something Jamie Dimon said before congress.
Gary Ackerman asked Jamie Dimon (the Chief Exec of JP Morgan) what the difference between investing and gambling was. Dimon answered
“I think when you gamble you usually lose to the House.”
Ackerman shot back ” That’s been my general experience with investing.”
Dimon responded “I’d be happy to get you a better financial advisor.”
The upshot of this is that investing is gambling, but most top financial people see it as gambling that can be “won” by people if they are smart enough. Many top finance people think of themselves as entitled to every time because it was solely their intelligence that led to them “beating the house” and making that money.
Romney, like Dimon, comes from a very narrow circle of people at the top of the financial industry. Romney’s particular area was consulting, the concept that you know so much more about running businesses than other people and are so much smarter than other people that the type of business doesn’t even matter, you can come into that business, learn whatever specific information you need and then do it better than the people already there.
In that sort of community, structuring your finances so that you only pay 13% is “beating the house” and something justifiably worth bragging over. Turning your wife’s horse from a hobby that eats up $50k a year into a business that loses $50k that can be deducted from your other income for taxes is something you brag about to your friends over a glass of wine. The same is true of finding that investment that returns 15% or 30% or 100%. After all, all those middle class people could do the same thing if only they were smart enough to figure it out, right?
I don’t think Romney’s ever really made the internal transition from moving in communities like that to moving in a community where “investing” means you pick from the 4 options your employer provided 401k offers, estate planning means asking the question “do you have a will?,” and tax planning means asking the person at HR Block whether you can itemize your deductions this year.
Dennis N
August 21, 2012 at 3:22 pm (UTC -4) Link to this comment
Somewhere between 1 and 200 million dollars. Feel free to pick a number, I don’t much care. Let’s say when you are able to fully support your next 5 generations, you can ease off on the greed.
yoav
August 21, 2012 at 3:28 pm (UTC -4) Link to this comment
People like Dimon and Mittens get to win their bets because they have marked the cards, loaded the dice ,rigged the roulette wheel and slipped the dealer a $100 to make sure it’s the rest of us who are left holding the bag once the dust settles.
oranje
August 21, 2012 at 3:36 pm (UTC -4) Link to this comment
“…they have marked the cards, loaded the dice ,rigged the roulette wheel and slipped the dealer a $100 to make sure it’s the rest of us who are left holding the bag once the dust settles.”
Dimon and Romney in Ocean’s 14.
d cwilson
August 21, 2012 at 3:40 pm (UTC -4) Link to this comment
This despite the fact that numerous studies have shown that their “intelligence” has about the same predictive ability as allowing a chimpanzee to pull stocks out of a hat.
Jordan Genso
August 21, 2012 at 3:40 pm (UTC -4) Link to this comment
I disagree. I am making assumptions, so it wouldn’t be difficult for me to make a fool of myself, but I highly doubt that many of the loopholes that Romney takes advantage of were designed for reasons other than helping the wealthy (of course, if helping the wealthy meets your definition of being “well intentioned”, then we can both be right).
I am open to being persuaded. So let’s take the one loophole that has been covered by the media (his wife’s horse)- please explain the well-intentioned reasons behind designing that loophole in a way that allows him to take advantage of it.
I’m in total agreement with you that most loopholes used by the masses are well-intentioned, although again this is based on how you define “well-intentioned”. But I think the wealthy have been able to write tax laws specifically designed to help them at the expense of everyone else, and it’s those loopholes that allow Mitt Romney to pay such a low %.
Ben P
August 21, 2012 at 4:37 pm (UTC -4) Link to this comment
Sure. Although I don’t know what he actually does with his wife’s horse so this is supposition. But at the end of the day this is really just a matter of basic business taxation issues.
It is possible to buy a racehorse as an investment right? So why wouldn’t the law allow you to have “a business” own the horse? You set up a small pass-through S-Corp or LLC called “Romney’s Racehorse Inc.” and you sell the horse to the corporation for $1. The corporate documents say that the corporation’s expected revenue is to come from prizes won by the horse.
Romney’s Racehorse, Inc., has a separate bank account and Tax ID number and pays all the expenses for operating the racehorse, stabling, food, vet bills etc. The horse is entered in competitions but in all likliehood never makes a fraction of those costs in prices.
THe costs of supporting the horse will be deducted as business expenses and offset against any price money won. Every year Romney’s racehorse LLC will probably file a tax return showing that it lost $X dollars that year. The entity is pass through so it won’t pay any separate taxes. This is again, something that is very common among small businesses.
The entity is a pass through taxation entity so separately, Romney on his personal tax return will have an entry under the “Investment Gain/Loss Column, and show that he owns “Romney’s Racehorse LLC,” and it lost $X dollars that year. That loss will be accounted against his personal income and deducted from it.
Everything here is not some ultra-technical loophole, although those do exist. Everything that I’ve described is more or less part of routine corporate and tax law. It is being put to a “creative” use, but one that is otherwise well within the bounds of the law.
When you take a minute to think about this, what do you change?
- DO you remove pass through taxation for small businesses? That potentially means that every small business has to pay corporate taxes, then pay any remaining money to its owners as dividends, which will then get double taxed, but this not only grievously harms many actual small businesses, it wouldn’t change the outcome here because Romney’s Racehorse LLC still doesn’t make money and wouldn’t have paid any taxes.
- You can say that corporations should pay taxes on something other than net profits, but again this would seriously hurt many perfectly legitimate businesses, and in general terms I don’t think it’s fair to say that a corporation that has genuinely lost money should still have to pay income taxes.
- you can say, “well Romney shouldn’t be able to treat his wife’s horse as a business in the first place,” but the problem is, how do you create a rule that prohibits this behavior with any specificity? What if, instead of a racehorse, Romney let his wife run a small restaurant as a business, tolerating it losing money every year because she enjoyed it?
Ben P
August 21, 2012 at 4:42 pm (UTC -4) Link to this comment
What I describe above is, for the most part, those are many of the same “loopholes.” Things like being able to treat your wife’s horse like a business don’t come from a specific “horse loophole” but rather from broadly drafted laws that don’t specifically prohibit something like that.
The places where you see really narrow technical loopholes are typically in accounting standards relating to depreciating capital and dealing with how they account for offshore transactions. If there’s black magic in what accountants do, that’s where it is.
Jordan Genso
August 21, 2012 at 4:56 pm (UTC -4) Link to this comment
And what is the well-intentioned reasoning behind allowing a show horse to be treated as an “investment”?
Let’s take your analogy with the restaurant. If she enjoys making her family dinner each evening, what is to stop her from opening up a private “club” restaurant where only her invited guests (aka family) can attend. She makes them meals each evening, but they only pay her $1 per meal even though it costs her $10 per meal. Has she now found a way to write off 90% of her family’s food costs as a tax deduction?
If they are taking an activity that clearly has no intention of making any money (although it is technically possible they could make money, it is clear they have no intention/expectation), what is the well-intentioned reason behind allowing them to call that a “business”?
Doug Little
August 21, 2012 at 5:12 pm (UTC -4) Link to this comment
Ben P @20,
But that’s the point isn’t it. Going to those kinds of lengths to avoid paying tax on something that is clearly a hobby is the problem.
Ben P
August 21, 2012 at 5:20 pm (UTC -4) Link to this comment
The “well intentioned” reasoning is not knowing where you draw the line. These aren’t loopholes, which are special exceptions drawn into a law. These are creative applications which cannot easily be prohibited because doing it would cost more money and cause more harm than it’s worth.
The IRS always focuses on formalities over substance in matters like this and for good reason. The alternative is them filing criminal charges against you for tax fraud, then they have to prove that you had the intent to deceive and they have to prove it beyond a reasonable doubt.
What you describe is intentionally deceptive. Selling $10 worth of food for $1 dollar cannot show anything other than an intent to take a loss. Entering a horse into competitions that may pay for a year’s worth of expenses if it wins, but where the horse often does not win is not the same thing.
However, despite the fact that you intended your hypothetical as absurd, it is more possible than you think, provided you follow all the formalities to the letter.
There’s actually a very close analogue to your hypothetical that happens here in Arkansas in some dry counties. Local liquor laws prohibit serving alcohol to the public, but a liquor permit may be available to a “private club.”
So what do you do? You form a nonprofit corporation, the nonprofit corporation obtains a liquor license. Customers come into the establishment, pay a nominal “membership fee” and then sell liquor only to the members. The fiction is that you are only serving members of the club alcohol they have purchased.
Translate that to your scenario. You want to start a private supper club that will serve dinner to members out of the membership fees they pay. Sure, you could do this, but you better (a) have the club has its own corporate form,(b) make sure all funds for the club are completely segregated, (c) make sure the club pays all fees and taxes and files every certificate and tax return to the letter, and (d) actually follow through the transactions.
Ben P
August 21, 2012 at 5:30 pm (UTC -4) Link to this comment
I’ll give you another example here, and this is actually one that is relatively pedestrian. I know lots of people that do this.
My state has a special law pertaining to Jetskis (the personal watercraft). The law provides that if you own a personal watercraft you are required to have liability insurance on it and are automatically liable for any injury or damage that comes out of its use, regardless of who is driving it.
John Doe owns a Jet-Ski, he goes to the lake with his children and their friends. While at the lake, the 16 year old friend of John Doe’s child borrows the jetski and gets into an accident in which a third party is badly injured.
The 16 year old has no money and John Doe may or may not have had insurance on the Jetski. John doe isn’t liable because he isn’t obligated to control the 16 year old, and the 16 year old’s parents aren’t liable because they weren’t even there.
So the law got passed.
What do you do?
Pay $25 to the state and form “John Doe’s Jetski, LLC.” The sole purpose of this corporation is to own the jetski. Should someone get into an accident, the owner of the Jetski is the corporation, not you personally
You can say this is fraudulent, but what are you going to do to prohibit it? Say that corporations wont’ own jetskis? that wont’ work. Say that the corporation in such instance is fraud? Well who gets to decide that and what standard do they use?
Jordan Genso
August 21, 2012 at 5:56 pm (UTC -4) Link to this comment
Ben P,
You’ve made a very compelling argument, and I agree with most of what you said. It is a tough call on where to draw the line.
Isn’t that what the IRS is for? To decide what is fraudulent tax evasion, and what is legitimate?
Now the IRS is strangely not constrained by the “innocent until proven guilty” standard, since the burden is on you to prove your write-offs are real. I do think the IRS should take an “innocent until proven guilty” approach when considering what is legitimate vs fraud, but they should have the ability to call out BS as BS, and they should do so whenever it is obvious.
chilidog99
August 21, 2012 at 8:47 pm (UTC -4) Link to this comment
FYI
The real reason that Romney is not releasing any tax returns prior to 2010 has to do with the UBS bank tax cheat amnesty program at the IRS.
Romney is a tax cheat. He funneled profits from his offshore equity fund accounts to a Swiss bank account without paying taxes on them.
fastlane
August 22, 2012 at 12:45 pm (UTC -4) Link to this comment
I’m racing motorcycles as a hobby. I think I will set up an LLC, and find a way to deduct a lot of, if not all those, expenses. Sweet deal!
I suspect that is why so many of the racers at the local club actually have ‘Racing Name, Inc.’ on their equipment, now that I think about it. It’s an expensive hobby, so write it off as much as possible.