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Comparing the Tax Bite With Obama and Romney
By JAMES B. STEWART
What federal tax rate would you pay if Mitt Romney were elected president? And what would it be if Barack Obama were re-elected, assuming Congress goes along with the candidates’ proposals?
Would you pay more or less in tax? And how would that stack up against the richest Americans like Warren Buffett, who’s currently paying a lower rate than his secretary?
Considering how central these issues have been to the campaign, it’s curious how hard it is to come up with answers, perhaps because both candidates want voters to believe that someone’s else’s taxes may have to rise, but not theirs. Whether Mr. Romney’s math adds up and whether taxing the rich would make a dent in the deficit might make an interesting public policy debate, but those issues further obscure the most basic question, which is what effect the proposals will have on each of us.
I’m not saying voters should simply vote their pocketbooks. But I would at least like to know how much I’m being asked to pay and what I might expect in return. This has been especially true since I discovered this year that I paid a rate in federal income tax that’s nearly twice as high as Mr. Romney’s. As I said then, I’m not faulting Mr. Romney for taking advantage of the existing tax code, but that disparity continues to rankle.
Tax reform and the related issue of economic growth have been major themes in the campaign that will end on Tuesday. The economy has taken center stage, and both candidates have been making much of tax platforms that aim to spur growth and job creation while promoting fairness. Mr. Romney has been the more ambitious, calling for sweeping tax reform that would lower rates while broadening the base by limiting unspecified deductions and loopholes. “Tax policy shapes almost everything individuals and enterprises do as they participate in the economy,” he says on his “Mitt Romney for President” Web site.
President Obama has called for a return to the top rates that prevailed in the Clinton administration and higher rates on capital gains and dividends. “We can’t get this done unless we also ask the wealthiest households to pay higher taxes on their incomes above $250,000 — pay the same rate we had when Bill Clinton was president,” Mr. Obama said last month while campaigning in New Hampshire. “We created 23 million new jobs, and we went from a deficit to surplus. That’s how you do it.”
So what would the impact of their tax proposals be? After consulting several tax experts, I did the calculations both on my own returns for 2009 and 2011 as well as for the wealthiest 400 taxpayers.
For the Romney plan, I took the proposals from his Web site that apply to taxpayers with adjusted gross incomes over $200,000: a 20 percent cut in the top rate (to 28 percent from 35 percent); dividends and capital gains taxed at the existing preferential rate of 15 percent; and the abolition of the alternative minimum tax. Mr. Romney hasn’t said what itemized deductions he would abolish or limit, but he has said he might cap or eliminate those deductions for high-income taxpayers.
Mr. Romney has mentioned a cap on deductions of $17,000, and has also said: “One way, for instance, would be to have a single number. Make up a number, $25,000, $50,000. Anybody can have deductions up to that amount And then that number disappears for high-income people,” meaning high-income people would be allowed no itemized deductions.
So in the spirit of Mr. Romney’s comments, I eliminated all itemized deductions. I retained the self-employed health insurance deduction and the deduction for contributions to a qualifying retirement plan. So far as I can tell, Mr. Romney hasn’t proposed abolishing those.
I took Mr. Obama’s tax proposals from his proposed budget and subsequent campaign statements, in which he has called for a return to Clinton era rates of 36 percent (for single taxpayers in roughly the $200,000 to $400,000 bracket) and 39.6 percent for those earning over $400,000 for both ordinary and dividend income and a 20 percent rate on capital gains. While Mr. Obama has talked about repealing the A.M.T., he hasn’t actually proposed doing so and has only suggested indexing it to inflation, so I retained the A.M.T. in the Obama calculations.
I assumed the Obama proposals would raise my rate and the Romney plan would lower it. But the Romney plan actually increased my rate to 25.5 percent from 22.2 percent in 2011, and to 27.6 percent from 26.7 percent in 2009. The Obama plan raised it even more substantially, to 30.6 percent in 2011 and 29.3 percent in 2009.
Including the minimum tax in the Obama plan had a significant impact. If Mr. Obama abolished it, my rate under his plan fell to 29.7 percent in 2011 and to 26.7 percent in 2009 — lower than the Romney plan, in fact, in 2009. If Mr. Romney allowed me the $17,000 in itemized deductions he has mentioned, it would have only a negligible impact, lowering my rates 0.5 percent.
It’s hard to generalize from one return. Since I live in New York, I have high state and local tax deductions, to some extent recaptured by the A.M.T. So I benefited from Mr. Obama’s retention of most deductions (although he has talked of some limitations on higher-income taxpayers). I had some capital gains in 2011 (and benefited from Mr. Romney’s lower rate) while, like many people, I had a net loss in 2009.
Still, the results suggest that Mr. Romney’s plan, far from being a tax cut, would raise my taxes. Mr. Obama’s proposals impose an even steeper increase, assuming he doesn’t repeal the minimum tax. That’s not surprising, since he hasn’t masked his intention to make higher-earning taxpayers pay more. And my results for Mr. Obama don’t include the 3.8 percent surcharge on investment income scheduled to go into effect as part of his health care legislation.
What about the fairness issue that set off my interest in the first place? I did the same calculations for the ultrarich who represent the top 400 taxpayers, using 2009 data, the most recent available, and 2007, a more representative year since incomes were depressed during the financial crisis.
Contrary to some attacks on Mr. Romney’s plan, his proposals don’t appear to disproportionately benefit the ultrarich. In 2009, they paid an average 20.6 percent in federal tax on adjusted gross income of nearly $81 million; in 2007 it was 17 percent on an average $138 million. Mr. Romney’s plan would yield a 20.4 percent rate in 2009, a slight reduction, and 18.5 percent in 2007, which is 1.5 percentage points higher.
Still, Mr. Romney’s plan doesn’t affect the ultrarich much at all, since they derive so much of their income (as he does) from capital gains, and he has pledged to maintain the existing low capital gains rate. In both 2009 and 2007, the ultrarich paid a much lower rate than I would under Mr. Romney’s plan.
Under Mr. Obama’s proposals, rates on the top 400 would rise to 30.6 percent in 2009 (significantly higher than my rate for that year) and 32 percent in 2007. Mr. Obama’s plan goes a long way toward resolving the fairness issue, at least in my case, even if it does raise my taxes.
I shared the outcome with both campaigns, and neither campaign directly responded to my question. Adam Fletcher, a spokesman for the Obama campaign, said, “The bottom line is that you simply cannot check Romney’s math without knowing more details about his plan, which he refuses to release.” He added that the highest-earning taxpayers would benefit from the Romney plan, while middle-class families with children shoulder more of the burden.
In its statement, the Romney campaign said, “Governor Romney’s plan will ease the tax burden on middle-income families and help small businesses grow and create jobs.”
William Gale, co-director of the Tax Policy Center at the Brookings Institution and the author of a much-debated report on Mr. Romney’s math, said my results bore out his point that “you can’t pay for the Romney tax rate cuts without raising taxes on the middle class,” adding: “That’s not to say tax reform is useless. You could do a 1986, Reagan kind of reform. You increase the tax on capital gains and bring down the rates. But that’s something Romney has explicitly sworn off.”
The paradox is that many Republicans and Democrats support tax reform along those lines, but no one would know that from the campaign rhetoric. “President Reagan didn’t really want to raise capital gains taxes,” Professor Leonard E. Burman, a tax expert at Syracuse University and a member of the Bipartisan Policy Center’s Debt Reduction Task Force said. “But he did because it was the only way to cut rates without shifting the tax to middle-income people. Unfortunately, the campaign hasn’t clarified the issue much. There’s been a tremendous amount of obfuscation.”
Still, a few things emerge from my exercise: President Obama’s plan would impose higher rates on higher-income taxpayers, especially at the very top. My rate, although higher than I pay now, would be lower than that paid by the ultrarich. I’d pay higher rates under Mr. Romney’s plan than I do now but lower than under Mr. Obama’s. Still, they’d be significantly higher than the ultrarich pay, which leaves the fairness issue unaddressed.
Voters may disagree about who’s right, but the choice seems clear. And now I have some idea what the tab will be.
http://www.nytimes.com/2012/11/03/bu...gewanted=print
By JAMES B. STEWART
What federal tax rate would you pay if Mitt Romney were elected president? And what would it be if Barack Obama were re-elected, assuming Congress goes along with the candidates’ proposals?
Would you pay more or less in tax? And how would that stack up against the richest Americans like Warren Buffett, who’s currently paying a lower rate than his secretary?
Considering how central these issues have been to the campaign, it’s curious how hard it is to come up with answers, perhaps because both candidates want voters to believe that someone’s else’s taxes may have to rise, but not theirs. Whether Mr. Romney’s math adds up and whether taxing the rich would make a dent in the deficit might make an interesting public policy debate, but those issues further obscure the most basic question, which is what effect the proposals will have on each of us.
I’m not saying voters should simply vote their pocketbooks. But I would at least like to know how much I’m being asked to pay and what I might expect in return. This has been especially true since I discovered this year that I paid a rate in federal income tax that’s nearly twice as high as Mr. Romney’s. As I said then, I’m not faulting Mr. Romney for taking advantage of the existing tax code, but that disparity continues to rankle.
Tax reform and the related issue of economic growth have been major themes in the campaign that will end on Tuesday. The economy has taken center stage, and both candidates have been making much of tax platforms that aim to spur growth and job creation while promoting fairness. Mr. Romney has been the more ambitious, calling for sweeping tax reform that would lower rates while broadening the base by limiting unspecified deductions and loopholes. “Tax policy shapes almost everything individuals and enterprises do as they participate in the economy,” he says on his “Mitt Romney for President” Web site.
President Obama has called for a return to the top rates that prevailed in the Clinton administration and higher rates on capital gains and dividends. “We can’t get this done unless we also ask the wealthiest households to pay higher taxes on their incomes above $250,000 — pay the same rate we had when Bill Clinton was president,” Mr. Obama said last month while campaigning in New Hampshire. “We created 23 million new jobs, and we went from a deficit to surplus. That’s how you do it.”
So what would the impact of their tax proposals be? After consulting several tax experts, I did the calculations both on my own returns for 2009 and 2011 as well as for the wealthiest 400 taxpayers.
For the Romney plan, I took the proposals from his Web site that apply to taxpayers with adjusted gross incomes over $200,000: a 20 percent cut in the top rate (to 28 percent from 35 percent); dividends and capital gains taxed at the existing preferential rate of 15 percent; and the abolition of the alternative minimum tax. Mr. Romney hasn’t said what itemized deductions he would abolish or limit, but he has said he might cap or eliminate those deductions for high-income taxpayers.
Mr. Romney has mentioned a cap on deductions of $17,000, and has also said: “One way, for instance, would be to have a single number. Make up a number, $25,000, $50,000. Anybody can have deductions up to that amount And then that number disappears for high-income people,” meaning high-income people would be allowed no itemized deductions.
So in the spirit of Mr. Romney’s comments, I eliminated all itemized deductions. I retained the self-employed health insurance deduction and the deduction for contributions to a qualifying retirement plan. So far as I can tell, Mr. Romney hasn’t proposed abolishing those.
I took Mr. Obama’s tax proposals from his proposed budget and subsequent campaign statements, in which he has called for a return to Clinton era rates of 36 percent (for single taxpayers in roughly the $200,000 to $400,000 bracket) and 39.6 percent for those earning over $400,000 for both ordinary and dividend income and a 20 percent rate on capital gains. While Mr. Obama has talked about repealing the A.M.T., he hasn’t actually proposed doing so and has only suggested indexing it to inflation, so I retained the A.M.T. in the Obama calculations.
I assumed the Obama proposals would raise my rate and the Romney plan would lower it. But the Romney plan actually increased my rate to 25.5 percent from 22.2 percent in 2011, and to 27.6 percent from 26.7 percent in 2009. The Obama plan raised it even more substantially, to 30.6 percent in 2011 and 29.3 percent in 2009.
Including the minimum tax in the Obama plan had a significant impact. If Mr. Obama abolished it, my rate under his plan fell to 29.7 percent in 2011 and to 26.7 percent in 2009 — lower than the Romney plan, in fact, in 2009. If Mr. Romney allowed me the $17,000 in itemized deductions he has mentioned, it would have only a negligible impact, lowering my rates 0.5 percent.
It’s hard to generalize from one return. Since I live in New York, I have high state and local tax deductions, to some extent recaptured by the A.M.T. So I benefited from Mr. Obama’s retention of most deductions (although he has talked of some limitations on higher-income taxpayers). I had some capital gains in 2011 (and benefited from Mr. Romney’s lower rate) while, like many people, I had a net loss in 2009.
Still, the results suggest that Mr. Romney’s plan, far from being a tax cut, would raise my taxes. Mr. Obama’s proposals impose an even steeper increase, assuming he doesn’t repeal the minimum tax. That’s not surprising, since he hasn’t masked his intention to make higher-earning taxpayers pay more. And my results for Mr. Obama don’t include the 3.8 percent surcharge on investment income scheduled to go into effect as part of his health care legislation.
What about the fairness issue that set off my interest in the first place? I did the same calculations for the ultrarich who represent the top 400 taxpayers, using 2009 data, the most recent available, and 2007, a more representative year since incomes were depressed during the financial crisis.
Contrary to some attacks on Mr. Romney’s plan, his proposals don’t appear to disproportionately benefit the ultrarich. In 2009, they paid an average 20.6 percent in federal tax on adjusted gross income of nearly $81 million; in 2007 it was 17 percent on an average $138 million. Mr. Romney’s plan would yield a 20.4 percent rate in 2009, a slight reduction, and 18.5 percent in 2007, which is 1.5 percentage points higher.
Still, Mr. Romney’s plan doesn’t affect the ultrarich much at all, since they derive so much of their income (as he does) from capital gains, and he has pledged to maintain the existing low capital gains rate. In both 2009 and 2007, the ultrarich paid a much lower rate than I would under Mr. Romney’s plan.
Under Mr. Obama’s proposals, rates on the top 400 would rise to 30.6 percent in 2009 (significantly higher than my rate for that year) and 32 percent in 2007. Mr. Obama’s plan goes a long way toward resolving the fairness issue, at least in my case, even if it does raise my taxes.
I shared the outcome with both campaigns, and neither campaign directly responded to my question. Adam Fletcher, a spokesman for the Obama campaign, said, “The bottom line is that you simply cannot check Romney’s math without knowing more details about his plan, which he refuses to release.” He added that the highest-earning taxpayers would benefit from the Romney plan, while middle-class families with children shoulder more of the burden.
In its statement, the Romney campaign said, “Governor Romney’s plan will ease the tax burden on middle-income families and help small businesses grow and create jobs.”
William Gale, co-director of the Tax Policy Center at the Brookings Institution and the author of a much-debated report on Mr. Romney’s math, said my results bore out his point that “you can’t pay for the Romney tax rate cuts without raising taxes on the middle class,” adding: “That’s not to say tax reform is useless. You could do a 1986, Reagan kind of reform. You increase the tax on capital gains and bring down the rates. But that’s something Romney has explicitly sworn off.”
The paradox is that many Republicans and Democrats support tax reform along those lines, but no one would know that from the campaign rhetoric. “President Reagan didn’t really want to raise capital gains taxes,” Professor Leonard E. Burman, a tax expert at Syracuse University and a member of the Bipartisan Policy Center’s Debt Reduction Task Force said. “But he did because it was the only way to cut rates without shifting the tax to middle-income people. Unfortunately, the campaign hasn’t clarified the issue much. There’s been a tremendous amount of obfuscation.”
Still, a few things emerge from my exercise: President Obama’s plan would impose higher rates on higher-income taxpayers, especially at the very top. My rate, although higher than I pay now, would be lower than that paid by the ultrarich. I’d pay higher rates under Mr. Romney’s plan than I do now but lower than under Mr. Obama’s. Still, they’d be significantly higher than the ultrarich pay, which leaves the fairness issue unaddressed.
Voters may disagree about who’s right, but the choice seems clear. And now I have some idea what the tab will be.
http://www.nytimes.com/2012/11/03/bu...gewanted=print