Mitt Romney Forced to Confront His Taxes

Posted: Jan 17, 2012 2:04 PM
Last night, GOP frontrunner Mitt Romney was pressed on releasing his tax returns, and said he may do so in April. Releasing tax returns is something that many candidates have done in recent presidential contests, but Romney's presumed wealth have many worried that it'll further the "out-of-touch" line of attack against the candidate.

Then, today, Romney guesstimated that he has recently faced an average tax rate of 15% on his income - something that could be used as a cudgel against the candidate, as the marginal income tax rate America's richest individuals is 35%.

The issue of Romney's wealth and his tax rate would be a political liability in attempts to appeal to independents who overwhelmingly support a progressive income tax system. If Romney's shifting into general election mode, however, he might be smart to get this information out there early.

Moreover, the story is a lot more complicated than it seems. Marginal tax rates are set quite progressively, and people who file as married filing jointly would face a 15% income tax rate only if they've made less than $69,000 per year. Capital gains and other investment taxes are also set at a 15% rate, which is likely how Romney is paying close to that. Suzy Khimm had a good rundown on how Romney's income is likely divided.

Marginal rates and effective rates are often quite different, though. It's likely that most people think they're paying a higher rate than they actually are. A table compiled by the Tax Policy Center makes that very clear.

Most of these questions won't really be put to rest unless Romney actually comes out with his tax returns, but it's important to note anyway.

Mitt Romney is a very wealthy man. From reports, he also makes most of his money from investment income. It's also possible that the talking point about Romney paying a lower percentage in taxes than his secretary is true. Based on his guesstimation of his own tax rate, he's still likely paying a rate greater than most taxpayers, but it's definitely problematic that he's paying what would be a middle-class rate on an elite income. The income tax code is quite complex, and there aren't too many people whose effective tax rate is equal to their marginal tax rate. The greater point - that Romney is paying a lower rate than peers in his income group - definitely holds if he does pay a 15% effective rate, and it could become a big message of either Romney's GOP opponents or the Democrats.

Editor's note: this story has been corrected. An earlier version used incorrect tax data.