The U.S. tax code may be difficult to grasp, but understanding the presidential candidates' plans for it doesn't have to be. President Obama wants to raise his own taxes, while Mitt Romney wants to dramatically reduce the already small slice he pays to Uncle Sam.
Of course, that simplification doesn't shed light on just how dramatic President Romney's windfall for his family would actually be. Mitt's plan, which the nonpartisan Tax Policy Center forecast would cut taxes for the richest five percent of earners while increasing the tax bill for the other 95 percent of Americans, could slash his own annual IRS payment by almost half. And by eliminating the estate tax, the $250 million man would potentially divert $80 million (and possibly more) from the United States Treasury to his own heirs.
On Friday, Gov. Romney defended his mystery finances, declaring, "I have paid taxes every year. A lot of taxes. A lot of taxes." But when he announced Sunday that he wants "something dramatic" to boost the economy, he must have been speaking about his own.
(Continue reading below the fold.)
At the end of 2012, the Bush tax cuts of 2001 and 2003 will expire. Among other changes to the tax code, President Obama wants to let the top 35 percent tax rate for income over $250,000 to return to its Clinton-era level of 39.6 percent and implement the Buffett Rule guaranteeing millionaires pay a minimum 30 percent effective tax rate. Obama would also end the "carried interest exemption" that allows Mitt Romney and other similar financiers to pay under 15 percent to Uncle Sam each year. In contrast, Romney would not only make the Bush tax cuts permanent, but deliver a 20 percent across-the-board tax cut. Upper income taxpayers would not only see their rate slashed to 28 percent, but would benefit by the elimination of the Alternative Minimum Tax (AMT).
Compared with what they owed in April, both men would be dinged in 2013 under Obama's proposal, along with other wealthy taxpayers. They could expect savings under Romney, depending on which tax breaks the former Massachusetts governor decides to oppose.
(It's worth noting that Romney thus far has refused to say which of the $1 trillion in revenue lost to tax breaks and deductions he would recover. But as Ezra Klein rightly pointed out, "The size of the tax cut he's proposing for the rich is larger than all of the tax expenditures that go to the rich put together. As such, it is mathematically impossible for him to keep his promise to make sure the top one percent keeps paying the same or more.")
But left unsaid in the AP analysis is that Mitt Romney's proposed tax cut windfall to his family would dwarf his own personal payday. Ending the estate tax would not only mean billions back for the families of Mitt's billionaire backers, but as the Center for American Progress showed in the chart at the top, a huge payday for the Romney clan as well.
It's bad enough that the $250 million man Romney pays less than 15 percent of his income to Uncle Sam each year, a rate well below most middle class families. Worse still, the notorious "carried interest" exemption for private equity managers (like his son Tagg) Romney wants to preserve taxes him not at the ordinary income rate of 35 percent but at the capital gains rate now half of what it was only 15 years ago. (As it turns out, most of Mitt's millions each year come from his controversial former employer, Bain Capital.) On top of his Cayman Island investments and past Swiss bank accounts, Romney has created a $100 million trust fund for his sons - tax free. Thanks to some (apparently legal) chicanery on the part of his former employer, Mitt has also accumulated an IRA worth a reported $100 million. The Romney camp even complained about that, worrying that recent tax code changes had "created a tax problem" for the former Massachusetts governor and asking, "Who wants to have $100 million in an IRA?"less than a quarter of one percent of American estates each year. According to the Tax Policy Center, in 2009 fewer than 2,700 family farms and businesses owed the tax to Uncle Sam. But thanks to successful Republican brinksmanship, the December 2010 tax cut compromise lowered the rate from 45 percent to 35 percent while boosting the estate tax exemption to $10 million per couple. Now, Mitt Romney wants to make sure those 40 richest estates estimated to now pay the tax each year could keep billions of dollars away from the federal government.
And among those 40 estates would be those of the Walton family, the Adelsons, the Koch brothers and his own. With President Romney zeroing out the estate tax, those 17 grandchildren would get a golden shower when their grandparents Mitt and Ann leave the scene. On paper, their payday courtesy of all other American taxpayers could reach $84,000,000, that is, 35 percent of $240 million. (While the effective estate tax rate is lower than 35 percent, Romney's wealth may also be substantially greater than has been reported.)
Those winnings would represent a pretty good return on investment for the former Bain Capital CEO. Back in 2008, Romney spent $45 million of his own money in his first presidential bid, money he wrote off in hopes of securing the vice presidential slot on John McCain's Republican ticket. As Mitt's son Matt explained at the time, the Five Brothers had no problem with their diminished inheritance:
"I don't ever expect to see any of that anyways. I don't think any of us kids are counting on that money. If my dad decides to use the money he's made, then we support him."And why not? If Mitt Romney becomes president of the United States, Matt and his four brothers will get that money—and more—back from Uncle Sam.