Even if you've been paying absolutely no attention at all to the Republican Primaries (a.k.a. The Race For Who Gets To Lose To Obama), you have surely learned one thing by now: Mitt Romney does not pay enough in taxes. He somehow uses his tricks that all rich people know to pay less than he should on taxes, and that makes him a bad American! I know that you are in this position, because I, as a Ron Paul supporter, have stopped paying attention a long time ago, and yet I still have heard this story over and over again.
So let's delve into it. Mitt's tax rate brings up a lot of interesting questions. Does Mitt not pay enough? How does he sidestep the IRS? What loopholes is he using? Is he a bad American for doing this?
In reverse order: no, obvious ones which everyone knows, he doesn't, and he pays too much, in fact.
You wanted more detail? Well, if you insist.
First of all, Mitt has no obligation to pay more than he does. Congress sets the tax rate, and all of the "loopholes" that Mitt uses, for reasons. Most of it is for a reason. Congress WANTS people doing the activities that lead to deductions. Congress WANTS people to have babies. Congress WANTS people to invest in non-inventory assets, such as the stock market, and to make a profit there. All of the ways to lower your effective tax rate are in fact tiny measures of social engineering in order to budge Americans into doing activities they want them to do. Is it a little perverse? Are some of them horribly thought out? Of course, it's our Congress we are talking about here. In many ways, Mitt is doing what Congress wants him to do.
Furthermore, nobody, not even rich people, have a duty to pay more than they do in taxes. I can't think of anybody that pays more than they have to in taxes. That's the whole reason HR block exists and advertises the fact that they can save you more money than their competitors. Unless everybody who uses such a service is on the edge of survival, everybody could afford giving more to the government.
Actually, ignore that last paragraph. I'll quote somebody much smarter than me, Learned Hand (best name in the history of justice? Yes), "Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."
So then the next question is how does Romney pay so little in taxes. According to multiple sources, Romney pays 13.9% in effective tax rate (basically taxes payed divided by income). Of course, once reading that number, everybody ran to their computers or smartphones or local HR Blocks and looked at THEIR tax rate. Just from listening to people talk about it, most people found something like this: Tax Calculator. They all then gasped, and thought "I am paying somewhere between 10 and 35%! And he's rich, so he should be paying 35%!" That bastard.
Of course, that ignores a lot of things. First of all, that number reported is the marginal tax rate. It does not show what % one is paying in tax, but instead what % they will pay on their next dollar made. All dollars made before that level are still taxed at their lower level. No matter how much somebody made last year, they will only have to give 10% of their first $8,700, 15% for the next howevermany dollars to reach $35,350, etc. As anybody who took pre-calc can now tell you, that means nobody will ever pay 35% as an effective tax rate. They would have to pay an infinite amount of dollars, as their effective tax rate will, at best, approach 35%.
Still, 13.9% is very low. The answer, of course, is that most of Romney's income is made through capital gains. How low capitals gains taxes should be is another debate for another time. Let it just suffice to say that Congress has decided that capital gains should be taxed at 10%, Romney didn't, and almost all of Romney's income came from capital gains last year. To suggest that it is Romney's duty to NOT invest his already-earned money elsewhere, just to avoid capital gains taxes is idiotic.
That brings up another point. Romney does not pay 35% on his current income because it is not actually income. He ALREADY paid the marginal tax rate on his earlier earnings. The fact that he is more-or-less retired now and focusing fully on trying to be President is why his rate is so low. He is basically a non-productive member of society, the country has already wrung what it could from his earlier income. The Wall Street Journal has made the argument that it is a double-tax, and they are right. It's a tax on money after you have already paid tax to get that money in the first place. However we are double-taxed all the time (sales tax is one example), so I really won't focus on that.
Also, every American has a much lower effective tax rate than their tax bracket would suggest. The Tax Foundation, which has every incentive to inflate the number to make taxes seem more burdensome, estimates that the average American pays 11% in effective tax rate. That's because, like I suggested above, every American gets as many deductions as they can think of. Also, many Americans have money invested in stocks and bonds, meaning that they also benefit from the capital gains tax. Considering that Romney is all but retired, the fact that he still pays a 2.9% higher tax rate than the average American is actually higher than I expected.
Just note from a quick search: Obama pays a 26% effective tax rate. Much higher than Romney, sure, but also much lower than the tax bracket, which is what everybody seems to be arguing Romney should pay. Also, I imagine Obama doesn't have to withdraw much of his money from his investments yet, as he gets a lot of money for, you know, being president. And a lot of his expenses are paid for him. Therefore, I would estimate that almost all of Obama's income is, well, income, compared to Romney, where almost none of his income is, well, income. If you understood that sentence, you can understand the tax code.
Finally, we come to the messy point of the Constitution. I could stomach the argument that somebody should pay more in taxes, effectively giving a donation to the government, if the government was within it's Constitutional bounds. However, as the government is instead way too bloated, and any extra money will just be used to bomb whatever Muslim nation is the War-of-the-Day, trying to convince me that somebody should give more money to a machine that eats dollars and spits out waste and bombs is damn near impossible.
Yes, Dane, that last sentence was a challenge.
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