Why Does Mitt Romney Pay a Lower Percent in Income Tax?

mitt romneyI've always been fascinated by politics and the people who choose to run for office. So, if you aren't much into politics, I still hope you stay tuned as I try and explain a topic that I've just recently learned more about. (They tell you in blogging school not to delve into politics and religion – but I'm ignoring conventional wisdom here and diving right in.)

Every presidential season, as time gets nearer to pick a party candidate, the scrutiny gets more and more severe for all front-runners. The media, opposing parties, start digging into a candidates personal life in hopes of finding a “scoop” or something that might (in the case of the opposition) make their hopeful look more – well – hopeful.

And so, we find ourselves right smack in the middle of it. With GOP candidate Mitt Romney running neck in neck with Newt Gingrich – the hunting into personal matters has grown intense.

Today (Tuesday), Romney released his tax records for the past couple years, showing that he made about $42 million in 2010 and 2011 (est.) And, the “effective” tax rate for those years was about 14%.

Now according to Reuters, the average high-buck maker like Romney pays about 35% in personal taxes yearly.

So, is there a problem here?

Well, not really. According to my high school level research, Romney uses a legal “loophole” in the tax system which is related to something called carried interest. In essence, it allows people to receive lots of moola working at a private equity firm and then only pay the taxes based on a captial gains tax rate – which is a lot lower than the personal income tax rate.

So, it seems to me that Romney really hasn't been working (in the sense of a 9-5 job like most of us) these past few years – but has been living on monies received through these investments of his. This is why he's paying a capital gains rate (of or around 15%).

I hope you learned something and are more educated about this now (as I am). I'm not advocating any one candidate over another right now – just trying to sort this out as we go along and not try and get swayed so much about what I hear in the media.

Do you think it's right that a wealthy American like Romney pay so little in taxes – as a percentage?

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  1. Thanks for helping us sort this all out. What I find interesting is that voters (or at least the media) seem to count it as a liability that Romney is so wealthy. They paint it all as though he is so rich, money doesn’t matter to him and he is out of touch with the “real America”. At the same time, it could be seen as an asset that he has so much wealth: obviously the man can manage his finances well and with the national budget as it is, I don’t think that is such a terrible skill to have. Maybe that’s just me…

    • Good point. Sometimes us voters get too caught up in trying to find someone “like us” – when we ought to be trying to find someone who is well qualified to handle the enormous responsibility of leading a country our size.

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