Politics & Policy

Romney and Our Broken Tax Code

Mitt Romney has tied himself into a minor rhetorical knot by trying to conform with arbitrary standards regarding an issue of the utmost triviality: his personal taxes.

Romney made a quantitative statement — that he has in recent years always paid at least 13 percent in taxes — and a qualitative statement — that if he had intentionally overpaid his taxes he wouldn’t appear to be a very good chief executive — that turned out to be incompatible with one another, and with his 2011 tax liabilities. Romney gave away about 30 percent of his 2011 income in charitable contributions, and, had he taken all of the associated tax benefits for those donations, his rate would have fallen below that 13 percent figure he cited. So, contrary to his earlier statement, he decided not to take all of the deductions, raising his rate to just over 14 percent. Which is to say, in order to insulate himself from accusations of selfishness, Romney intentionally overpaid his taxes rather than account for the millions and millions of dollars he gave away. If you are looking for an example of the shallowness of our political debate and the stupidity of our tax code, look no further.

Harry Reid made a quantitative statement, too: That he had inside information that Mitt Romney paid no taxes at all for ten years. Harry Reid is either a liar or disqualifyingly naïve. In either case, his accusations turn out to be, as expected, entirely false, and he owes Romney an apology.

Because of the complexity of our tax code, there are many ways Romney’s returns could have turned out. Rather than earning his money from investments, Romney could have sought salaried work and paid a top income-tax rate of 35 percent. Conversely, he could have put his hundreds of millions of dollars into municipal bonds and paid no taxes at all on that income. That Romney chose one option instead of the others tells us nothing at all about the desirability of his own tax plan, about his probity as a businessman and taxpayer, or indeed about any public-policy question of any consequence. Some critics will say that the fact that Romney typically pays less than 15 percent in taxes is an indictment of our current tax code. But you know who wants to change that tax code? Mitt Romney.

Romney could have played it differently. In response to criticism over his 2011 taxes, he might have pointed out that he has consistently and for many years given away both more in absolute dollars and more as a share of his income than either Barack Obama or Joe Biden ever thought about doing — and they are wealthy men, too. He might have pointed out that his tax-reform plan includes reducing the number of exemptions and deductions given to high-income taxpayers such as himself. But he felt boxed in by his 13 percent assurance.

The Democrats, no surprise, have proceeded dishonestly throughout the entire episode. They hold up Romney as an example of how the tax code coddles what they insist on calling “millionaires and billionaires,” but in fact their proposed tax increases would start with households and small businesses with incomes of $250,000 or more — not poor people, to be sure, but not millionaires or billionaires, either. The fact is that our deficits under the Obama administration and his congressional enablers have grown so large that we could not eliminate them by raising taxes on the super-wealthy: There simply aren’t enough billionaires to do the trick, even if we taxed them at 100 percent. Similar talk of raising taxes on “corporations” — which is the word Democrats use for “American businesses” when they wish to vilify them — ignores the fact that they already pay the highest top rate in the developed world, and that the favoritism-laden tax code that allows some enterprises to pay very low taxes is the result of precisely the same kind of political management of the economy Democrats propose to expand in areas such as energy and manufacturing.

Mitt Romney complies with the tax code — there has never been any question about that. But it is not a very good tax code, and reforming it is at the center of Romney’s economic agenda. The Democrats have managed to intentionally conflate the personal with the political, assisted as usual by the media. Reforming the tax code is important work for serious minds; the attention given to Romney’s personal taxes by Obama, Reid, and their echo chamber is juvenile.


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