Republican Presidential candidate Mitt Romney would save $3.4 million a year — roughly 85 times the total pre-tax income of the average American citizen — if the tax plan he advocates were enacted in the year that he is seeking to be President. In fact, Romney’s policies would not only shrink what he pays to the government, they would also boost his income, and roughly double the amount of money that he can pass along to his children when he dies.
On Tuesday, Romney released his 2010 tax returns and what his accountants expect he will pay to the government in 2011. Romney, whose financial disclosure form puts his net worth as high as $264 million, is one of the wealthiest people ever to run for President. For weeks Romney’s rivals have been calling on the former governor of Massachusetts to release his tax returns in order to prove that he hasn’t used off-shore accounts or other accounting tricks to illegally or unethically lower what he pays the government. TIME asked a number of accountants and tax experts to review the hundreds of pages released by Romney’s campaign pertaining to the candidate’s taxes.
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Romney does have some off-shore accounts, but it didn’t appear that those accounts have significantly lowered his taxes. In fact, all of the tax experts TIME contacted said Romney’s tax filings appeared quite normal in terms of what you would expect for a wealthy individual. None of the experts saw anything in Romney’s financial documents that would amount to a dodge or any maneuver that would be questioned by the IRS.
But what Romney’s tax release did underscore is the fact that these days many wealthy American’s pay a surprisingly low percentage of their income in taxes. What’s more, all of the tax proposals put forth by the Republican candidates, Romney included, would significantly lower what Romney and other wealthy Americans can expect to pay in taxes come 2013. And as a result, all of the plans are likely to significantly add to the national debt as well.
Ironically, it’s Gingrich’s plan that would lower Romney’s personal tax bill the most. “If Romney was really greedy, he would drop out of the race and endorse Newt,” says Bob McIntyre, director of the liberal group Citizens For Tax Justice. Under Gingrich’s proposal, Romney would pay almost no federal income taxes, saving him nearly $6.4 million a year in 2013. Romney would also save money under the tax plan of Rick Santorum, who is also running for the Republican nomination, than under his own plan.
Perhaps unsurprisingly, the tax plan that would be least friendly to Romney’s wallet would be Obama’s. Under the tax plan the President proposed last year, Romney would pay nearly $4 million more in taxes in 2013 than he did in 2010.
The $3.4 million in annual tax savings that Romney gets under his own plan would largely come from his proposal to permanently lower the tax on investment income to 15%. That’s the rate Americans now pay on stock dividends and on gains on investments that have been held for more than a year. And that’s the main reason that Romney, who gets most of his income from investments, was able to legally pay a tax rate of 13.9%, or just over $3 million to the government, and not the top tax rate of 35%, despite the fact that he made $22 million in income in 2010.
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But in 2013 the taxes on stock dividends and so-called long-term capital gains are set to revert to what they were before President George W. Bush took office. Stock dividends would be taxed as income, which would be as high as 39.6% for the wealthiest Americans like Romney. Capital gains taxes would jump to 20%. Keeping capital gains and stock dividend taxes at 15% would, based on his current income, save Romney $2.6 million annually.
But that’s not the only way Romney’s plan would benefit Romney and other wealthy Americans. Romney also wants to repeal a 3.8% tax on investment income on wealthy Americans that is set to go into effect in 2013 as part of the recent health care reform law. Eliminating that tax would save Romney about $800,000 a year. On top of that, Romney hopes to lower the tax rate companies pay to 25% from 35%. Tax experts say most of that savings would go to wealthy Americans as well. Lower taxes would allow companies to produce higher profits and pay larger dividends to shareholders. A 10% drop in the corporate tax rate could boost Romney’s pre-tax income by $300,000.
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But by far the largest tax benefit in the Romney plan for the candidate and his family would come from changes in the estate tax. Starting in 2013, Americans would be able to pass $1 million tax-free to their heirs. Any money above that would be taxed at 50%. Romney wants to repeal the estate tax completely. That move would save Romney’s family, based on his current net worth, as much as $130 million when he dies.
Gingrich’s plan, on the other hand, would give Romney a huge income boost almost immediately. Gingrich also wants to repeal the estate tax and the new health care tax. But Gingrich, unlike Romney, wants to completely eliminate taxes on stock dividends and capital gains. Corporate taxes would drop, too, to 12.5%, which could boost Romney’s income by more than $600,000. And Gingrich would allow all Americans to pay an income tax rate of just 15%. Gingrich would also repeal the alternative minimum tax, which hit Romney for nearly $233,000 in 2010. (Romney keeps the AMT at its current level.) The result: Romney’s tax bill would drop from an estimated $6.4 million in 2013 to just $75,000.
Santorum’s tax plan would lower investment income taxes farther than Romney, but not as low as Gingrich. Under Santorum’s plan, investment income would be taxed at 12%. Santorum would like to create two income tax brackets – 10% for most Americans, and 28% for wealthy Americans. Like the other candidates, Santorum would also get rid of the estate tax, the new health care tax and the alternative minimum tax. Corporate taxes would fall to 17.5% for most companies, but would be eliminated completely for manufacturers. All in, Romney’s tax bill under Santorum would be nearly $2.5 million.
The one candidate for President in 2012 with a plan that would raise taxes on Romney is President Obama. Under Obama’s proposed plan, the taxes for many wealthy Americans would fall from what they are scheduled to be in 2013. But not Romney. That’s because Obama would also close a tax loophole, making Romney’s taxes rise more than most wealthy Americans. Obama, too, would lower the rate wealthy Americans pay on stock dividends to 20% from as high as 39.6% in 2013. Capital gains taxes, as scheduled, would rise to 20%. And Obama would cut the estate tax to 35% for all inherited income above $3.5 million. Income tax rates would return to pre-George W. Bush levels: as high as 39.6% for the wealthiest Americans, up from 35% today.
But the big difference for Romney is that Obama would close the so-called “carried interest” tax loophole, which allows managers of private equity funds and other investment vehicles to pay just 15% on the income they receive from managing their funds. Romney used to head Bain Capital, one of the nation’s largest private equity firms. As such, Romney recorded $7.4 million in “carried interest” in 2010, and another $5.5 million in 2011. Repealing that loophole alone would have boosted Romney’s taxes $1.5 million in 2010. Add in the new health care law, and under President Obama’s plan Romney would pay a total tax bill of just over $6.9 million.
Just another reason Romney will probably be voting Republican in 2012.