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Do the Romneys pay federal income tax when no one is watching?

TPM’s BENJY SARLIN (and many others)  seem to believe Romney's campaign assurances that they do:

Harry Reid Was Wrong. Sen. Harry Reid’s notoriously unsubstantiated claim that Romney paid no taxes for 10 years is not true. In his latest return, Romney paid an effective tax rate of 14.1 percent. As for his previous taxes, Romney’s trustee, R. Bradford Malt, provided no primary documents but offered some basic details backed up by a letter from accounting firm PriceWaterhouseCoopers. Malt said Romney’s lowest effective tax rate was 13.66 percent and his average rate was 20.20 percent across the 20-year period.
In fact, this is what Romney Disclosure campaign site shows (click on “Letter from PricewaterhouseCoopers” on the right):
The lowest of any annual “effective federal personal income tax rate” for any year during the period is 13.66. As you requested, we computed each annual “effective federal personal income tax rate” as total taxes owed divided by adjusted gross income as shown on the federal income tax returns as prepared.
Let us parse what is being said here. Specifically, why is that Price Waterhouse Coopers needed to follow precise language that defined “effective federal personal income tax rate”? What is missing in this definition is in bold:
The lowest of any annual “effective federal personal income tax rate” for any year during the period is 13.66. As you requested, we computed each annual “effective federal personal income tax rate” as total federal income taxes owed divided by adjusted gross income as shown on the federal income tax returns as prepared.
Total taxes owed may mean any combination of United States federal income taxes, payroll taxes (not likely – Romney did not work for salary in years), foreign tax paid, and so on.

So wide is the loophole, that the following is entirely consistent with the released statement:

Let’s say the Romneys end up with $10M adjusted gross income mostly from foreign investments.

They pay $900K in Massachusetts state taxes; and $466K in foreign taxes, getting total tax to 13.66% as described in the letter.

They end up with Alternative Minimum Tax with effective rate of 15% (consistent with the rates on capital gains and dividends), but then they subtract 14.999% charitable contribution to LDS (paid not in cash but in stock in an obscure security whose “fair market value” Bain gets to manipulate at whim), resulting in one dollar federal tax liability.

So contrived is the precise name the Romneys instructed to use that "effective federal personal income tax rate" returns only 17 hits if you set the date range from Sep 1, 1994–Sep 5, 2012 (and some of them still capture the recent Romney definition).

The Romney campaign should stop playing 20 questions. The country needs to see the actual returns.

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Comment Preferences

  •  Similar ambiguity in previous statements (3+ / 0-)
    Recommended by:
    Joy of Fishes, salmo, Smoh

    As seen in this Washington Post writeup back in August:

    GREER, S.C. — Republican presidential candidate Mitt Romney said Thursday that he has paid a federal income tax rate of at least 13 percent in each of the past 10 years, bowing to months of political pressure to disclose more information about his vast personal fortune.
    “I did go back and look at my taxes, and over the past 10 years I never paid less than 13 percent. I think the most recent year is 13.6 or something like that. So I paid taxes every single year,” he told reporters here Thursday.
  •  Further parsing that raises questions. (10+ / 0-)

    The second bullet point of the PricewaterhouseCooper (PwC) letter states in part:

    As you requested we computed each annual 'effective federal personal income tax rate' as total federal income taxes owed divided by adjusted gross income as shown on the federal income tax returns as prepared
    The "as you requested" is a disclaimer clarifying that the writer is following the specific instructions of the client for the method of computation, rather than following any accepted practices.  In other words, PwC is emphasizing "this is how you told us to do it, not necessarily how we or anyone else would have chosen to calculate that phrase,"  It is a CYA phrase.  Then, I think it is highly noteworthy that the AGI used as the denominator in the equation the Romneys told PwC to use is the AGI from the "tax returns as prepared", as opposed to the "tax returns as prepared during the period."   "Tax returns as prepared during the period is the term used in bullet points 3 (average of the annual "effective federal personal income tax rates"), 4 (average of the annnual "effective state personal income tax rates"), and 5 (average of the "effective annual charitable deduction rates").  The fact that a different term was used in the paragraph quoted means to me that it is a different set of returns that is being referenced.  My guess would be "tax returns as prepared during the period"  means the ones originally filed for each period, and "tax returns as prepared" is a broader category, potentially including amended returns.  
    •  Or. . . (0+ / 0-)

      Pointing out the ambiguity, it could also mean how much was owed AFTER an IRS adjustment pursuant to an audit!  In other words, he could have filed a return showing NO tax owed, due to phony tax shelter credits, for example, but the IRS determined he actually owed a lot, after they audited him.  That's certainly consistent with his known history -- when he was on the audit committee of the Marriott board of directors, Marriott invested in phony tax shelters generating paper losses, which Romney (as a member of the audit committee) must have approved.  They got caught by the IRS and had to pony up taxes, penalty, and interest.  That's documented.  Why wouldn't we think he would take the same approach to his personal taxes?

      "[W]e shall see the reign of witches pass over . . . and the people, recovering their true spirit, restore their government to its true principles." Jefferson

      by RenMin on Sun Sep 23, 2012 at 03:43:26 AM PDT

      [ Parent ]

  •  Absolutely right (10+ / 0-)

    As a tax lawyer, that's the first thing I though of.  Romney could even have an effective federal income tax rate of 15% without paying a penny of federal tax.  How?  Foreign tax credit.

    Example:  He has $0 US source income, $10 million in foreign capital gains.  He pays $1.5 million tax to the to  foreign jurisdiction.  

    When he fills out his federal return, he owes federal income tax of $1.5 million.  (15% rate on capital gains)  His effective federal income tax rate is 15%.

    But he paid $1.5 million foreign tax.  After calculating the federal income tax, he gets a credit against the federal income tax owed in the amount of foreign tax paid.  This reduces his federal tax payment to 0 -- zero!!  Even though his effective federal rate was 15%.

    This is just one very simplified example.  The bottom line is, there are any number of ways the PWC statement could be literally true, while at the same time Romney paid little or no federal income tax.
     

    "[W]e shall see the reign of witches pass over . . . and the people, recovering their true spirit, restore their government to its true principles." Jefferson

    by RenMin on Sun Sep 23, 2012 at 03:36:48 AM PDT

  •  I also suspect they went back and amended (2+ / 0-)
    Recommended by:
    freerad, codairem

    some of the tax years to pay more taxes, in order to change the overall average. After the election, they'll go back in and amend again to get Mitt his money back.

    Consider: it doesn't take six months to get an accounting giant to calculate your average tax rate over 20 years and issue a letter confirming this. It might take six days, tops, for a major client like Romney.

    Figuring out how to tinker with already filed returns and then amending them to produce the averages you want? Now, that's complicated enough to take six months.

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