On the eve of the tax day, what is better topic to blog about but the tax return of one currently residing in the White House, Barrack Obama, and one who wants to move there next January, Mitt Romney.
To be fair, I will point out that the tax return for Mitt Romney is estimation only—he has filed an extension to file his return. President Obama’s return is the actual one.
Line 38: Adjusted Gross Income (AGI) $789,674
Line 61: Total Tax $162,074
Obama’s effective tax rate: 20.5%
Line 9b: Wages/Salaries $395,188
Line 12: Business Income $1,382,889
Line 38: Adjusted Gross Income (AGI) $20,901,075
Line 61: Total Tax $3,226,623
Romney’s effective tax rate: 15.4%
Line 9b: Qualified Dividends $1,905,753
Line 13: Capital Gain $10,700,179
1) Let us look at line 61—total tax amount. Romney will pay almost 20 times the amount of tax that Obama paid.
2) Romney earned more than $12.6 million in qualified dividends and capital gains (line 9b + line 13)—assuming most of his capital gains are from long term investments—which are currently taxed at 15%. This is why his effective tax rate is at about 15%. One should keep in mind that the dividends are really double-taxed, once at the corporate level and then at the income level. In other words, his dividends were already taxed at the corporate level before he paid additional 15% on it. If one adds the corporate taxes paid on dividends, then Romney paid over 35% effectively.
On the other hand, Obama’s incomes are from wages (line 7) and business income (line 12) which are taxed as ordinary income level.
3) Of course, Obama has been touting the “Buffett Rule”—as election propaganda—to divide Americans into “99%” versus “1%” in order to conquer the votes in the “99%” group. This rule would only bring in additional $47 billion in 10 years—a drop in the annual deficit bucket of over a trillion dollar that his administration has been running on. And he offers no explanation for his desire to tax the rich more other than fairness.
4) One can argue that Romney is doing nothing to earn over $12.6 million in dividends and yet pays only 15% in tax rate while others have to work hard, earn less and pay higher rate. One, then, needs to keep in mind also the risk associated with investments:
- For his investments, companies then create jobs to hire people
- If companies make profit, companies pay corporate tax on the profit before Romney earns his incomes (in forms of dividends, capital gains) and he then pays tax on these incomes
- If companies do not make profit (i.e. lose money), Romney’s investment money will decrease
If tax rates are higher on the rich, they will be discouraged to invest. Jobs will be lost. Tax revenue will go down. Who loses? People who need jobs—like you and me—and the country will run larger deficit since tax revenue decreases. Who wins? No one will.
Don’t fall for the election year propaganda.