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  • Morning Bell: Mitt Romney's Taxes and True Reform

    How many times should your money be taxed? One time? Two times? Three times? Four? Sounds like a ridiculous proposition, but that’s the true story of capital gains taxes in America, and it’s one that’s not being told in the continuing debate over Governor Mitt Romney’s taxes.

    For more than a week, the media has focused on the subject of just how much Romney pays in taxes. On Tuesday, the governor released his tax returns indicating that he paid about 15 percent in taxes last year. At first blush, that sounds like a low rate, especially considering that Romney is admittedly worth millions. But as with all things in politics, there is more to the story.

    As most Americans know, marginal individual income tax rates in America range between 15 and 35 percent. However, Americans making money from investments typically earn dividends. They face a lower rate to reduce the tax barrier to investing and growing businesses. For Americans in the lowest two income brackets, the tax rate on dividends is zero. For all the rest, the dividend tax rate is 15 percent — hence Romney’s rate.

    Why do dividends face lower rates than wages or interest income? Because dividends have already faced one full level of tax at the corporate level.

    But that’s income tax. Americans making money from investments also typically pay a capital gains tax at the same lower rate as for dividends. Income and capital gains are very different. Income is what is generated from using resources, as wage income is generated by providing labor services, whereas a capital gain results from an increase in an asset price. Capital gains face a lower rate to reduce the tax barrier to investing, especially in high-risk, high-return, job-creating, business-growing investments.

    So right off the bat, Romney is paying what is legally required of him — and even when compared to the average federal income tax burden in America of 9.3 percent, he’s paying more. There’s still more to the story, though.

    When Romney pays 15 percent to Uncle Sam, that’s not the first time that money was taxed. J.D. Foster, the Norman B. Ture Senior Fellow in the Economics of Fiscal Policy at The Heritage Foundation, explains that Romney’s money has likely gone through four levels of taxation, meaning that the level of taxation was at 50 percent and likely much higher:

    At the very least, he paid nearly 45 percent, but a chunk of this tax was collected before he even saw the remainder. Income from capital gains and dividends means the income was first earned by businesses, most likely corporations which paid tax at 35 percent. So Romney paid his 15 percent only after the government had taken its 35 percent cut. That leaves Romney with a combined tax of 45 cents on the dollar of corporate earnings.

    So that’s two levels of taxation — the corporate rate and the capital gains rate. But there’s more. Foster explains that Romney’s cash was likely subject to taxes on capital income repeatedly in the past. Few investments are one and done; rather, most are earned taxed dividends and capital gains over extended periods that are reinvested and taxed again and again. This is a third “level” of taxation. And then Romney was also taxed at the individual rate as wage or salary income–a fourth level. And that’s how you get above 50 percent in taxes. (And don’t forget that Romney contributes 15 percent of his income to charity–money that might not be available if the capital gains tax were raised as many liberals propose.)

    Are four levels of taxation, topping out at 50 percent “fair” enough for the left? Unfortunately, the truth about capital gains taxes don’t fit as neatly into a headline as ‘Millionaire Only Pays 15% Tax Rate,’ but Americans deserve to know the truth — and they also deserve to be able to save, invest, spend, and contribute the money they have earned without it being confiscated by progressive politicians seeking a “fair” redistribution of wealth ushered in by a growing federal government.

    Instead of eating the rich and burning down their mansions, Congress should find ways to make it easier for Americans to keep their money, invest it, and become more prosperous. In a new paper, Heritage’s Curtis Dubay enumerates ways that Washington can focus on growth and set the economy free, among them: prevent tax hikes, extend the payroll tax holiday or replace it with a more pro-growth policy, make permanent the tax cuts that expire at the end of the year, avoid raising taxes after cutting taxes, repeal the Patient Protection and Affordable Care Act and the tax hikes that go with it, and switch to the New Flat Tax, which would tax individuals on what they spend each year rather than what they earn.

    In politics, it’s easy to demonize the rich and engage in class warfare, but tearing people down instead of building others up is no way to govern a country. If Washington politicians truly want to turn America around, they should focus on ways to raise the bar and help individuals succeed–not knock down real success stories in order to become populist heroes.

    Quick Hits:

    Posted in Economics [slideshow_deploy]

    85 Responses to Morning Bell: Mitt Romney's Taxes and True Reform

    1. Jill Maine says:

      So BHO can stand there and lie his face off knowing that the ignorant short attention span people who vote for him won't do their homework and learn the truth. I can't believe the nerve.

      • PADDY O says:

        To Jill Maine,
        In the black community they use a term calling someone a " JIVE TURKEY" meaning someone who gives you bull dung when they talk. I think we have a jive turkey in the White House!

    2. T-Texas says:

      I don't care how much Rommey's taxes are,as long they are paid. What I want to know is.What about this impostor in the WH when Article II section 1 up held in 1875 by the Supreme Court states he his ineligible to be President

    3. Janie Shimer says:

      I have never paid less than one third of my income in taxes and I've never made over $50,000. Mostly lots less. These percentages are very misleading. Everyone I know pays at least one third of their income in taxes. I have no problem with Romney's taxes, but I'd sure like to know when they passed the laws that allow people not to have to file at all!!!

      • FL VOTER says:

        If you are paying over 1/3 in taxes, you must be doing something wrong. Or else you are including S.S., FICA and state taxes.

    4. Gary says:

      yes, Obama's policies will actually reduce the number of taxpayers. It will also reduce tax revenue from millionaires after they hide most of it. He knows this will happen. He is not stupid. We are stupid if we think he doesn't know it. He wants to drive this country deeper in debt and looks forward to relishing the moment when, if reelected, he can say to himself that we all took the bait!!!

    5. JWS says:

      This explanation might be interesting for people that have no idea what taxation is all about. For myself I don't care what they all pay as long as it is legal and passes the muster of the IRS. The funny part is that the ones that are complaining the most are the same that passes the tax laws to begin with.

    6. jweb says:

      I care more about auditing the Federal Reserve rather than Romney. A man of understanding will care more about who is controlling the issuance of currency rather than who fiddles with legistslation. For a large prosperous nation to only be permitted to use one from of currency is highly unsual. Competition is a major contributor to equilibrium. The FRS controls our sole source of money, they control the monetary policy, and they control the pocket book of government. So what do YOU control? Really spend some time thinking about what you really control and how you are using it for the cause of Liberty for you and your postarity. We can do it! Don't allow your will to be broken! They derive there power to government via the consent of the people!

    7. Paul says:

      I like and agree with your idea of, 'Flat Tax' rat, on income spent, not earned!

    8. fedupaj says:

      Well done and well said. It is too bad that so many voters don't know and understand this, instead listening to the exaggerations of the media and the administration. The US would function much better if the public based their judgement and votes on fact rather than the lies of politicians and media.

    9. It never ceases to amaze me how many people in mainstream America just don't get the difference. It's basic economics and yet in the main people are ignorant of the facts. I have never had enough money to invest to GET capital gains, yet I know they are there and what they are, so not having money is no excuse.

    10. AL Koppen says:

      You refer to the Flat Tax as being a tax on what we spend. My understanding is that the Flat Tax is like our current income tax, but without all the exemptions, special credits and brackets.
      The consumption tax is the Fair Tax, NOT the Flat Tax. Readers can find out all about the Fair Tax at: http://www.fairtax.org/site/PageServer?pagename=a

    11. T. McCarthy says:

      Wonderfully informative article! What a shame, during this time of "class warfare" (declared by Obama and the left), that this information isn't being used as an "educational moment" by the candidates…or MSM…but then, do we really expect the MSM to do this…it doesn't fit their game plan!
      Not everyone benefits from your wonderful website. I'm so glad I do! Keep up the great job!

    12. Lloyd Scallan says:

      This media onslaught is not about Romney's tax rate. It's business as usual by the leftist media attacking
      any Republican that dares to threatens Obama's dictatorship. I'm not a Romney supporter, but it appears
      Romney paid what the law requires. Why don't the media ask why some of Obama "advisers" still owe
      $813,000 to the IRS?

    13. Rita Reuer says:

      This situation about all the misunderstanding of Mitt Romney's tax rate reveals the vast amount of ignorance people have about taxes and investing. I believe that these subjects should be required learning in our schools. Also there should be more emphasis in education about history. In the SD legislature now there is a bill introduced about teaching the Bible in schools since our founders set up our country on the basis of biblical principals.

    14. Mary Sue says:

      Glad someone finally told the truth publicly. Thank you.

    15. Ted Niederecker says:

      You state that we should "switch to the New Flat Tax, which would tax individuals on what they spend each year rather than what they earn.". That sounds like the so-called "Fair" tax which to me sounds more this a VAT than a traditional Flat Tax. I prefer the traditional, Arthur Laffer, supply-side concept of a Flat Tax on earnings.

    16. Phyllis Poole says:

      The Flat Tax. Isn't this on income rather than spending? It's based differently on which income it is taxed on etc. Maybe the writer or the editor -typist or?? made a mistake.
      I believe it is the FAIR TAX that is based on spending. It has some difficulties because mostly of the taxation on labor which I think should be eliminated. Taxing labor reduces the desire to spend on even repairing your home o car and would make bookeeping more entailed for small businesses such as home repair.
      Taxing on labor also will cause a hardship on manufacturing. The FAIR TAX will cause a problem on manufacturing enough because there will be no taxation on used goods. Keeping the cost down of new manufacturing would be no taxation on labor making it more competitive to used goods. Used goods also would be more sought after and start to rise in price – supply and demand.


    17. Eric R Brown says:

      Mike, the story would be more forthcoming if it at least acknowledged that some individuals are taxed at 15% on first earned income. You can google it. But there are tax carry forward loopholes. hedge fund managers, tort lawyers, and actors/actress types are allowed favorable income tax rates on first earned income.

      Too bad no one discusses this. A good debate professor could do a much better job of bringing out both sides of the argument.

      I am a conservative who believes that there should not be favoritism with the landed elite.

      Eric R. Brown

    18. Phyllis Poole says:

      The Fair tax would also eliminate all loopholes that the income tax now gives.
      It would tax through spending all illegal busnesses which now do not pay income taxes simply because they are illegal
      The fair tax is a subject which should be asked of all candidates -and give every one of them a chancs to answer with equal time. It will be a most important issue in the coming admistration.
      please God help us!!

    19. Bob says:

      As I understand it.; Romney might have been taxed at the corporate rate of 35% on the money he earned and then invested. The taxes that he is paying on the dividends is what that money is earning, it is not the same money being taxed twice. Don't get me wrong, I am for Mitt Romney, I just think if I am right that your explaination will come back to haunt you when the Dems go after you. If I am wrong please let me know.

      • FlaJim says:

        You're confusing dividends with interest. Dividends are profits distributed after the corporate rate has been paid, hence the double taxation. Then there are the state taxes and Mass has one of the higher rates (thanks, in part, to Romney).

      • mike says:

        Your point is valid, ROMNEY did not pay that corporate tax, the consumers of their product did. (the company has not money without customers). He paid income tax on the money he invested, nothing on the corporate tax, and was then taxed on his dividend.

    20. Newton G says:

      Romney paid 13.9 % income tax and has millions in a bank account in the Cayman Islands and millions more in a Swiss bank account? Even if it's legal, it's patently unfair and gives an appearance of impropriety. And, the IRS came after me because I forgot to put down $15 interest income. That's the problem.

    21. Dave Pflumm says:

      Lets say for instance that the CEO Immelt of GE collects 5 million in stock grants and defers them for 1 year to make them illegible for Long Term Capital Gains taxed at 15%. We already know that his company pays little or no taxes…yet he still only pays 15%…. now how is that fair and how is that an effective rate of 45% per your article?

      What is wrong here is that the Bush tax cuts were intended to stabilize the markets and promote investment in American businesses. It was not intended to allow CEO’s and executives to game the system and only pay tax on 15% of their earnings. This needs to be addressed.

      I say that Capital Gains deductions need to be capped at $200,000 to stop this type of abuse! Or,
      they should be limited to be able to pay the lower Capital Gains rate up to their actual paid cash salary, as
      some executives collect little or no salary, and their compensation is entirely stock grants. This is flat
      out wrong and they are gaming the system. If they don’t collect a salary they are even dodging SS, Medicare
      and Medicaid taxes as well. This is wrong.

      Also, why do the working class have to pay 16.4% of their salary to SS, Medicare & Medicaid, when the wealthy executives are able to exempt the majority of their income from this level of taxation?

      Are the tax codes simply set up to hold down the masses into financial slavery? Likely so since we have little or no say in how they are set up. No wonder the majority of the GOP candidate want to throw out the current tax system, it is inherently flawed.

    22. Debbie says:

      Don't forget about all the payroll taxes, Mr. Romney paid as an employer.

    23. Wayne Peterkin says:

      Excellent article and true. Sadly, the public will not hear most of this because it does not fit the class warfare tactics of the administration too readily embraced by much of the media. I will add one more point. Taxes are personal property confiscated by a government to be used for the public welfare. Charitable donations are personal property donated by someone for the public welfare. The only real difference is who gets to decide what public welfare receives the benefit. Therefore, one can argue that the total "taxes" paid are the sum of the taxes and the charitable donations.

    24. ThomNJ says:

      Excellent and succinct article. I am sending the link to my entire e-mail list.

      Fundamentally, the proggessives (or communists) see a pie that is finite in size, whereas our side sees that everyone has the opportunity to make and bake their own pie, so to speak.

      • Bryce says:

        Yeah, Romney sure baked his own pie. In the pie factory bequeathed to him by his multimillionaire father, with filling stolen from struggling pie companies by Bain Capital.

    25. Iconoclast says:

      Romney is paying his taxes, as we all are supposed to. in accordance with the tax legislation enacted by the Democrat controlled Congress and signed by Obama in Dec., 2010. Does Obama want to reform his own tax legislation ?

    26. Eric N says:

      This assertion about double taxation has been made many times. To know how valid it is, I need to know the answer to this question: If corporations are taxed on their profits, are dividends deducted from the corporate income before or after the tax is applied? If before, there is no double taxation. If after, there is. Is it really as unfair and dumb as the "marriage penalty"? I've never seen this detail clearly explained.

      Perhaps a more important factor in capital gains taxes which I've never seen addressed either, is that in the interest of fairness, shouldn't the person being taxed be able to increase his basis by the amount of inflation in figuring his taxable capital gains? Or take an annual inflation loss on bonds and cash?

    27. Bob Sweeney says:

      As I understand it Romney's money might have been taxed at the Coporate rate of 35%, and after he invested what was left, that money earned interest or dividends. He is paying 15% on that money, he is not paying on the money that he has already paid the 35% on. Don't get me wrong, I am for Mitt Romney, I just think that if I am right then don't spin it any other way, it will come back to haunt us when the Dems. go after his success. That earned money could have been from previous years and maybe he didn't pay the 35% on that money for years.

    28. sdfultz says:

      Your attempting to preach to the choir, If I take my money regardless of how I received that money and invest it, thereby creating capital gains or more money, I expect it to be taxed.
      That's why some states tax drug dealers, inheritance, lottery and gambling winnings, right?
      Again, you're trying to preach to the choir, who at this moment, apparently have not woken up yet, because I'm the first to post.
      Please help me gain perspective into your explanation of why the Romneys should not have to pay again as you put it.

    29. Joe Parker says:

      If Warren Buffet and his progressive wealthy friends want to pay more taxes they can without any more legislation or government rules. They merely delete all deductions and change their money to earned income. Joe

      • FlaJim says:

        There's actually an IRS form that you can use to direct contributions to paying down the national debt. When cornered by CNS reporters several weeks ago and asked about utilizing that, they either laughed it off or refused to answer.

    30. It doesn’t matter what Mitt has planned, if he get the nomination, not only will Obama EAT HIM ALIVE on the fact that he is the 1%, but anything else, he just like Obama, and in the general election, people would rather stick to the evil they know. If Mitt gets the nod, the GOP just re-elected Obama by default. Glad to see we are on the same page…. Four more years – yay

      Not that a Mitt administration would be any different than w.Bush/Obama’s, it would still be four more years of the same. for a total of 16years of downward spiral in civil liberties and economic decline…. Awesome.

      America needs to stop voting and falling for the same one-liners, gimmicks, and cheap (expensive) promises that bribe them with their own money.

    31. Jim Patterson says:

      This would be true if it weren't for the fact that the effective corporate tax rate in this country is frequently 0%! There are so many sweetheart deals that congress has made with large corporations that the situation GE faces is also zero despite billions in profits. And the real fact is that ALL money paid out, including the wages paid to employees.

      Let's get to the real heart of things here though. The whole debate over income tax is really moot. According to Reagan's Grace Commission Report, all of the money collected by the IRS goes to pay interest to the Fed. We also have plenty of use taxes to fund the government as they are doing now.

      The fact is that ALL of us should be in GE's tax bracket. There is no need for the IRS even to exist.

    32. David Papandrew CPA says:

      First of all let me say I am on your side. But I really think that conservatives need to learn better the concept of capital gains because I hear all of the time that it's "the second bite of the apple" or some such language. It doesn't represent a double taxed transaction, it represents the realized appreciation on a capital asset once it is sold, the difference between the selling price and the cost. Now the cost (what you paid for it) probably came from money which was already taxed but that is not being taxed again, just that appreciation is being taxed and it is new income.

      • FlaJim says:

        I'm glad you're not my CPA. You don't seem to understand the difference between dividend income and capital gains. The continuing education requirements in most states were designed precisely for people like you.

    33. Jeanne Stotler says:

      A reform of the Tax Law so that EVERYONE pays some FEDERAL TAX, it's is just not fair that we expect those who work hard and become independent to assume support of those who just rely on someone else. A flat tax of all salaries would be fair, at least the poorest would contribute something.

      • Bryce says:

        So, rather than asking Romney to pay more than $0.15 on every earned dollar (and boy howdy, he's got more dollars than he knows what to do with), you're going to ask the girl manning the checkout at WalMart to fork over some of her rent money. Because unlike the "unemployed" Mitt Romney, who makes the vast bulk of his money from the labors of others, that girl — who has been on her feet for the last twelve hours — is mooching off the system.

        She already pays plenty of taxes. She pays state income taxes. She pays payroll taxes. She pays sales taxes. It's absurd to ask those who are struggling to afford even a meager existence to increase their tax burden so that we can lower it on multimillionaires like Mitt Romney.

        Please, please, please, make this a central plank of the 2012 election: Mitt Romney needs you WalMart cashiers to pay his tax burden for him.

    34. Theres been an on again, off again debate over the tax code and tax reform for as long as I have been an adult. The Flat Tax, Fair Tax, National Sales Tax, ect….and NOTHING ever happens once the smoke has cleared, and politicians are done using the prop for their benefit. The Progressive Income Tax, and thousands of rules, exceptions, and loopholes are here to stay. Too many want it messy. Confusing. Benefiting those who have the wealth and influence to navigate it. Putting pressure under the penalty of incarceration, heavy fines and penalties…all to squeeze the middle class and lower upper class of every drop possible, and redistribute that wealth both up and down the economic ladder to for political and electoral gain. The current tax code is not going anywhere…Get used to it.

    35. John Salo says:


      Too bad you don't like my comments. The first thing you must do to solve any problem is to understand the root cause. If you don't then you will never solve the problem. Years from now you still won't understand the problem.


    36. Jim Buzzell says:

      Judge Learned Hand once said, no one owes any duty to the federal government to increase the taxes due to the federal government, or words to extent. Meaning take every advantage to reduce the amount you owe by legally taking deduction authorized in the tax codes. Romney did that, and he was legally correct in doing so. Being wealth does not qualify his for The Office of President of the United States, what qualifies him is his record as a governor, governing tells more of a story than his business and investment background. What did he accomplish in his four years as governor of MA, and how does that corrilate to the tasks at hand correcting our nation's path to Marxist Socialism?

      • Bryce says:

        We're not arguing that Mitt should pay more taxes than the law requires. We're arguing that the law should require him to pay more taxes. We're arguing that the law is immoral for requiring less sacrifice from the uberwealthy than from a person making 60K.

        Why is that such a difficult concept to grasp?

        This is why Mitt tried to avoid releasing his tax records: he knows that there is something shameful about hoarding hundreds of millions of dollars while so many can't afford the necessities of life. He knows that there's something wrong with a tax code that allows him to pay so little, and he knows he'll be held accountable as a member of the class that bought that tax code.

    37. D. H. Leake says:

      Why doesn't Heritage support the FairTax as opposed to the Flat Tax?

      With the latter, we get to keep all the regressive trappings of the present tax system — FICA, payroll deduction, the IRS. In other words, we still punish productivity and penalize low income wage earners.

      The FairTax (H.R. 25/S. 13), is backed by more than $20 million in research and currently has 67 co-sponsors in the House and 9 in the Senate (more than any other tax alternative has garnered to date). The FairTax, through the implementation of its "Prebate," zeroes out taxes for families living below the poverty line. The same mechanism creates effective tax rates for the middle class in the ranges of 11 to 13 percent and for the very wealthy a full 23 percent. At the same time, by eliminating all taxes on income, most workers will see an average 29 percent increase in take home wages.

      "The FairTax: When You Understand it, You'll Demand It."
      D.H. Leake
      Winter Park, FL

    38. Gary Sheldon says:

      The Buffet puppet and his racist class warfare tax scheme rhetoric encouraging envy and discontent is proof positive of his Communist core. The Buffet puppet is an insult to evey citizen of this one nation under God, the executive branch, and the office of President of the U.S.

    39. Cliff2008 says:

      I support a low capital gains tax in that it is an incentive to invest. It helps people of moderate means to build an adequate retirement account. Having said that, it is a fallacy to depict capital gains taxes as a 2nd taxing of ones money. The capital gains tax is a tax on the gains that is made off of this money–hence the name. If you were to invest $10,000, have the value of your investment grow to $15,000 by the day you cashed out, you would be taxed on $5,000 gains. Your original $10,000 would not be taxed. The real argument against raising the capital gains tax rate is that the risk/reward scenario becomes increasingly less appealing the higher the tax rate. I am more incensed at the fact that only $3,000 total per year can be taken no matter the amount of the loss or number of losses.

    40. People that pay their taxes and even those that have been exempted from paying income taxes, now estimated to be reaching the 50% level, don't realize that they are paying a lot in taxes that are hidden in all the "costs of living" items we deal with every day. If we could put together a list of all the things we pay taxes on or pay hidden taxes on, labeled as something else, we would all be so shocked that the line of people outside Congress and the White House would exceed the dollar amount we pay to the government. Here is a quote from Henry Ford in early 1900. "It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a REVOLUTION before tomorrow morning".

    41. steve h says:

      This seems like a pretty ridiculous argument from your Heritage scholar. Sure the intial money has been taxed at one point, but when you make more money, that gets taxed. Are you saying gambling profits should not be taxed, since the individual is using money he once earned? Or cororate profits should not be taxed if their initial investments were made with income earned that has already been taxed?

      If it's new profits from investments, then those profits have never been taxed. This is such an absurd argument you are making – it really is mind blowing.

    42. I LOVE this sentence!!!
      Instead of eating the rich and burning down their mansions, Congress should find ways to make it easier for Americans to keep their money, invest it, and become more prosperous.

    43. KC-NM says:

      The real issue is not how much the rich pay but the fact that nearly half of the country does not pay anything. The flat tax is the real answer – no exclusions, no deductions, everyone who is working in America pays. This hurts IRS and all the tax consultants and attorneys but too bad! Just think – take your income (no adjustments) and multiply it by 10 or 15 % to get an example of what you would pay for the year. For most of us, it is less. The overall amount gained by the government would be more because everyone is paying and the rich no longer have the loop holes.

    44. John Mullins says:

      I'll tell you simply…..If Romney gets the GOP nomination …we will have another term of Obama……the Washington insiders are trying to pick a canidate that will give them the Senate and keep the House.To them its about controling the MONEY just like it is to the Dem's…..MOST of the Conservatives in this country will NOT vote for another Liberal Republican….we did that last time and you can see where that got us….I will not sell out to another Liberal Republican…..I will write in Ron Pauls name when vote……..AND I will never vote for another Republican for the rest of my Life…they are no different than the Dem's…..I can see that your organization is controled by those very insiders…..You guys at the Heritage Foundation are NOT part of the solution but are part of the problem….to many FAT CATS trying to start that New World Order
      Bush Talked about 23 years ago…..

    45. rkgering says:

      Interesting information. NOW can you explain why Obama only paid $69,000+ on the $146,000,000 he received from the Nobel Peace Prize in 2008-2009 and that was paid in 2011?! according to the calculations above he should have paid nine times that amount! HOWEVER, since it was not a "corporate" income but a "capital gain" income, he should have paid 60% in taxes, or TEN TIMES MORE THAN THE AMOUNT OF $69,000 FOR TAXES! Why is it that those in power continue to talk the walk but not walk the walk?!

    46. shove says:

      What a terrible article. Regardless of your beliefs about how income should be taxed, you need to realize that this article selectively applies concepts, oversimplifies how investments are taxed and makes absurd assumptions about Romney's investments to justify what are obviously the author's preconceived notions about hoe the tax law should work. First, the article states that Romney's 15% rate results from the tax rate on dividends. This rate applies to "qualified dividends", not on "ordinary dividends." Romey's income is not from qualified dividends. On page one of his return, he lists 3.2 million of interest income, 4.9 million from "ordinary dividends" .6 million from business activity, and 12.5 million from capital gains. The article then discusses double taxation on dividends because the author clearly hates double taxation. The author ignores Romney's 3.8 million from interest and business income because these are not subject to double taxation, and thus don's support his argument. And while the author at least mentions his capital gains, it is wrong on the double tax effect. A capital gain is a tax on the sale of something at a profit. Basically you buy something for 10 dollars, sell it for 20, your gain is 10. It occurs because someone will pay more for something than you bought it for, and has nothing to do with double taxation.

      Personally, I agree with the author that there should not be a corporate income tax. However, I do not agree with the author's selective use of facts to support that argument.

    47. shove says:

      What a terrible article. Regardless of your beliefs about how income should be taxed, you need to realize that this article selectively applies concepts, oversimplifies how investments are taxed and makes absurd assumptions about Romney's investments to justify what are obviously the author's preconceived notions about hoe the tax law should work. First, the article states that Romney's 15% rate results from the tax rate on dividends. This rate applies to "qualified dividends", not on "ordinary dividends." Romey's income is not from qualified dividends. On page one of his return, he lists 3.2 million of interest income, 4.9 million from "ordinary dividends" .6 million from business activity, and 12.5 million from capital gains. The article then discusses double taxation on dividends because the author clearly hates double taxation. The author ignores Romney's 3.8 million from interest and business income because these are not subject to double taxation, and thus don's support his argument. And while the author at least mentions his capital gains, it is wrong on the double tax effect. A capital gain is a tax on the sale of something at a profit. Basically you buy something for 10 dollars, sell it for 20, your gain is 10. It occurs because someone will pay more for something than you bought it for, and has nothing to do with double taxation.

    48. John says:

      The BIG PROBLEM with the Fair Tax is it does away with all the game playing with the tax code that has made many wealthy and corrupt. No more witholdings,April 15, tax planning,tax record keeping and cheating. Nor can the IRS seize property or jail people because it is gone. Florida and Texas have no income tax yet they seem to manage. And it is fair to everyone. Can't have that so lets just continue to tinker with the tax code and in a few more years no one will understand it!!!

    49. Doug Guidotti says:

      I understand the tax math but that is not the point. Everyone knows it is legal, but the real question is – is it right? Shouldn't the playing field be the same for everyone? Doesn't the use of tax advantages, not available to the general population, run counter to this objective? What message does that send? Isn't the President supposed to represent all Americans? Make no mistake I am not for taxing the rich or redistribution of wealth, and I think the current administration's track record has been terrible, but I do know the difference between common sense and overthinking something. I don't think most Americans want a text book explanation of the ins and outs of our tax system. Instead all they want is something that is simple to understand, and that is fair to everyone. A flat tax that applies the same for everyone is what we should be talking about as our benchmark. We should be articulating a consistent and crystal clear message that differentiates us as fiscal conservatives – that all current tax loopholes need to be abolished. We should certainly not be defending them as is the case with Governor Romney's tax reccords. There is an election coming up. Do we want to win it?

    50. Wayne, La says:

      The tax system does need to be reformed. The 9-9-9 tax plan promoted by Herman Cain is worthy to pursue. The new tax system needs to be simple, equitable and limited. It needs to promote future growth, establish a fair base of taxation and balance the budget.

    51. John Deitchman says:

      This type discussion is critical to the coming election and our economic future. "Facts" like those attributed to the OMB and from the Tax Foundation help immensely to clarify. However, the arguments from multiple levels of tax on the same income seem to be overstated, and in some cases plain wrong.
      While the dividend income may have already been taxed at the corporate level, the average corporate tax rate is not the 35% mentioned. You are using the same specious approach as the other side (i.e. IRS rate categories vs effective tax rates). So your point about double taxation may be true for dividends, but not the resulting effective tax rate.
      The analysis on capital gains seems plain wrong – if I buy a house or stock and later sell it, I will be taxed on the gain between when I invested and when I sold. Only that gain is taxed and this is the first and only time that gain has been realized, reported, and taxed.
      We need to win this debate, and we need to do it with accurate analysis. Let's not create holes for our opponents to attack based on sloppy analysis which can then be used to discredit the rest of the analysis.

    52. Pete says:

      Obama qualifies as one of the 1% as well. He makes well over a million a year since he has been president. Seems that he should be taxed for all the benfits that he recieves. Housing, meals, etc. I am amazed that the government buys his books to distribute so that he gets the benefit as well. Obama should lead by example and give away any income over the $250K or better yet, anything that he makes over the poverty level. I don't see much difference between the wealth of Romney vs Obama except Romney may have made his money the old fashion way. He earned it.

    53. Jack says:

      Close, but cigar for this writer. In my 2011 tax guide there is only one category that is $0. That is $0 tax if you make between $0 and $5 for the year.
      I, myself and my wife are living on $12,600 a year. We are way below poverty level and we have to pay $1264 in taxes. This is the first time in my 62 years I have seen an income tax so high on people living in poverty.
      I barely make it month to month. Only God knows where I will come up with $1,260. Ever!!!

      • Mike says:

        The guide you are looking at is for adjusted gross income. If you made 12,600 you and your wife get a personal exemption and the standard deduction, you will be looking at a negative income and no taxes

    54. R. Kelly says:

      To condemn Mr Romney for paying ~15% on his capital gains and dividend profit on money that he previously paid taxes at the full rate is to also criticize and condemn almost every retired person in this country. All us "old folks" who worked and saved for our retirement are also living off the interest, capital gains and dividends paid on money that has been fully taxed by the Fed, State, municipality, city and any other government that was able to get their hand in our pocket. Of course, thanks to the government – there are no or few ways to earn living funds on our savings since the interest rate has been depressed to almost zero by the Fed, the stock market destroyed by the socialists in the white house and the bond market gutted by the idiots spenders in congress. Wake up retired people and dump Obama
      before you starve to death.

    55. screpublican says:

      Apparently Warren Buffett does not know this. Perhaps he should subscribe to The Heritage Foundation materials and publications. Or he is pandering to the Dems. Or he is intentionally lying. Take your pick.

    56. RennyG says:

      Very good article. How can this information get to the general public to help them to understand the "missleading" information this "guy" is putting out, for these wealthy guys to pay more. "SICK!!"

    57. Jeff Dover says:

      Yeah, that's it: education for one. Many Americans are utterly clueless about basic economics. There's nothing intrinsically difficult to understand about it, but it's not a core course in High School. Why not?

      Then there's the tax code itself which is so tortured and arcane that no matter your education, it's difficult to understand it at all.

      So, fix the education system so that basic economics is a course required prior to graduation and go to a flat tax so that no one need ever again have to worry about who pays taxes. All will pay something.

    58. Blair Franconia, NH says:

      Obama thinks he's President for life. News flash: He's not.

    59. Ray fro Alabama says:

      Let's draw a line down the middle… between those who pay taxes… and those who live off of the taxes we pay…. in the murky world of the "Take-It-Alls"… those who take free food stamps, free rent, free medical care, free everything… when they don't deserve it! (Exclude that 10% of those who really need it… not the rest of them though!) When the "Take-It -Alls"… side gets bigger… we've all had it! Both Sides!

    60. Patsy Two says:

      I would like to see and hear on TV, from an expert in taxes, all the several kinds of proposed taxes, Fair Tax, which was supposed to be taxes on consumption, and it also had some other help in it, when I first heard about it, also the Flat Tax, and we could do away with the Internal Revenue Dept, that has been expanded by Obama. America. There are so many others also. I think Romney, and Gingrich and the others have paid their fair share, like all of us do. My husband and I are on Social Security and have some extra income and we pay way too much in taxes, because we do not have any debt and have few deductibles anymore. Get Rid of the IRS. if we get Fair Tax or Flat Tax. I want to hear the candidates mention getting taxes lower. Our Government officials make way too much money, but you do not hear that, from the candidates do you?

    61. Mike says:

      Romney paid what was due, but how do you excuse the rate by adding what the Corporation paid? The customers of that company paid those taxes, not the investor. Capital GAINS are taxed only on the gain, so the initial purchase was taxed as income but not the gain, dividends are income? No? Our system needs reform, everyone needs to pay, Romney did not get $3 million worth of services, I got more the the $6,000 I paid. We need to determine what is "fair". I would vote for a flat tax on all income mildly progressive.

    62. Eric N says:

      Regarding Warren Buffet, is anyone aware that the crude oil that does not travel through the blocked U.S.-Canada pipeline might end up traveling largely on the BNSF railroad instead? Time to follow the money? Oh yeah, Buffet's Berkshire Hathaway purchased BNSF and took it private recently if you missed that news thread.

    63. Fred Zolg says:


      Some of your verbage in the Jan. 26th Morning Bell (Romey's Taxes and Reform) is as muddy as hell and/or JUST PLAIN WRONG:

      Example 1 from Mr. Foster and Mr. Ture:
      "Income from capital gains and dividends means the income was first earned by businesses, most likely corporations which paid tax at 35 percent. So Romney paid his 15 percent only after the government had taken its 35 percent cut. That leaves Romney with a combined tax of 45 cents on the dollar of corporate earnings."

      Correction: ONLY dividends have already been taxed, as income, to the corporation. The corporation DOES NOT pay capital gains on IT'S OWN STOCK! Do you understand what capital gains are? When you buy a stock for $100 and sell it for $225, you have a capital gain of $125. The corp has ZERO tax effect from you selling your shares of their stock!

      Only dividends are taxed twice, because they're NOT dedeuctible to the corporation. Therefore, the corp pays 35% and the shareholder pays another 15% = 50%.

    64. Fred Zolg says:

      Example 2 from Mr. Foster:
      The article says "Foster explains that Romney's cash was likely subject to taxes on capital income repeatedly in the past. Few investments are one and done; rather, most are earned taxed dividends and capital gains over extended periods that are reinvested and taxed again and again."

      Correction: When you compute Capital Gains, you deduct your "Basis" in the stock (the amount that you invested originally) from the gross proceeds. Thus in the previous example, you pay tax on the $125 gain, NOT on the $225 gross sales proceeds.

      When you invest, then later sell and take gains, then repeat, you DO NOT INCUR "third" or "fourth" levels of taxation. Each of the round is a SEPARATE TRANSACTION. Each transaction gets taxed ONCE, and again, ONLY ON GAINS.

    65. Fred Zolg says:

      You also continually referred Capital Gains and Dividends IN THE SAME SENTENCE, as if there were no difference between them! The ONLY thing they have in common is that they're both currently taxed at the same rate. They're totally different financial events.

      I'm amazed that two scholars could get such basic accounting and finance concepts so muddled.

    66. Marsha Moore says:

      Nice spin. Why is Mitt Romney paying Bain's corporate taxes? At what rate was Bain taxed? And doesn't every American pay taxes year after year?

      You'll have to do better than this to save your Romney Investment.

    67. Ian Fraser says:

      It's the "trickle down" theory of taxation. Keep the rich rich and the poor will get richer by the employment they generate. Unfortunately as we have seen time and time again, it doesn't work. The rich get richer and the poor get poorer. Perfect example: the country I now live in, Brazil, which has massive discrepancies between the earnings of the (very small number of) rich, many of whom do not generate any or very little employment, and the (very large number of) poor. The result, low productivity, irregular employment practises and high crime. It has gotten so bad the socialist government has had to triple the national minimum wage and introduce numerous other handouts just to end starvation. There has to be a happy balance somewhere between "soak the rich" and "a welfare culture".

    68. @taxkilla says:

      the system is corrupt. therefore just and fair taxation cannot exist.
      the solution is simple.
      there is nothing more american than tax resistance!

    69. Dan says:

      What about the alternative minimum tax? Isn't this the very thing it was set-up to stop?

    70. Dan says:

      What about the alternative minimum tax? Isn't this what it was set up to prevent?

    71. Tammy says:

      I believe that everyone should pay the same percentage of tax on what they make, no matter what amount they make…let's see…God says to give him 10 percent…I don't think the Govt. is more important than God, so maybe we should give the govt. 10 percent also…surely no more than 15%. If they need more than that, then maybe we should be trimming down the size of our govt.

    72. F. Hall says:

      Based on your arguments about double taxation it also makes good sense to tax interest income at the 15%capital gains rate as well. Having been burned in the market like so many others I am now more conservative and receive mostly interest income. I paid taxes on that money and then bought bonds and CD's so it is being taxed twice as well but both times at the higher income tax rate. After the second taxation you are actually losing money because of inflation. This is a travesty as most lower income people are receiving interest income instead of capital gains.

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