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Taxes, taxes, taxes

In the republican debate last night,  between questions about Newt Gingrich's marriage and Peter King forgetting that Ron Paul was a participant, the candidates were asked whether they would or would not release their tax returns prior to the South Carolina primary.

Why do people care about these returns? The issue seems to be that people want to know whether any of the candidates pay a lower tax rate than they do. The problem? As David Leonhardt points out, many Americans don't know what their tax rate is and therefore wrongfully assume that if Romney pays 15% they must pay more.
The truth is that most households probably pay a lower rate than Mr. Romney. It is impossible to know for sure, given that he has yet to release his tax return. What is clear, though, is that a large majority of American households — about two out of three — pays less than 15 percent of income to the federal government, through either income taxes or payroll taxes.
The article makes some interesting points. Specifically, it notes that although many Americans feel over-taxed, our tax rates are the lowest they have been at almost any other point in the last forty years. In fact, they are lower than the tax rate in most other rich nations.

As King noted at the debate, Romney's father released twelve years of his own tax returns when he was running for office. So how does his rate compare to his son's?
The elder Mr. Romney, who died in 1995, paid an average federal tax rate of 37 percent in the 12 years for which he released his tax returns, according to an analysis by Joseph J. Thorndike, a columnist for Tax Notes magazine. Mitt Romney’s tax rate has been far lower, thanks mostly to the decline in taxes on stocks and other investments. The top marginal tax rate on ordinary income has also fallen sharply.
And George Romney paid a lower tax rate than most affluent Americans in the 1950s and ’60s, mainly because of deductions for his large donations to the Mormon Church. Then, a typical household near the very top of the income distribution would have paid almost 50 percent of its income in direct federal taxes, research by the economists Emmanuel Saez and Thomas Piketty has shown.
Comparisons aside. It all seems a bit silly to me. The income of a politician or other public figure is vastly more complicated than the average Joe. Most people have one source of income. Public figures get income from tons of different sources and they know how to move that money around to pay favorable rates. If anything, all of this just illustrates how wacky the tax system is.

So I guess what I am saying is, I am not looking forward to tax season.

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  1. I think an important thing to consider is that Romney most likely makes a great deal of money from capital gains, which is taxed at a different rate than regular income tax, so it's a little bit of an apples to oranges comparison.

    Something else to consider is that most of the Republican candidates want to either significantly decrease the tax rate on capital gains, or eliminate it altogether.

    Something else to consider, the lower and to a lesse extent the middle class generally do not have the money to invest to make any significant capital gains. Trickle down economics baby. worked so well the first time around.

  2. Yeah, he notes that as being one reason Romney differs from his dad:

    "Mitt Romney’s tax rate has been far lower, thanks mostly to the decline in taxes on stocks and other investments."

    Papa Romney also reduced his rate through charitable contributions.

    People who make money are usually pretty smart and savvy about how to hang on to that money and moving it around is a pretty easy way to accomplish that goal.