Mitt Romney’s Taxes

Mitt Romney’s just-released tax return for 2010 shows he paid $3 million in income taxes on an income of $21.6 million. What should we make of that fact?

People tend to view taxes in one of two ways. One way is to think of taxes as the price we pay for government goods and services. The other is that taxes are a penalty that the government levies on people for earning income or having wealth.

If we take the first view, that taxes are the price we pay for government goods and services, then we should ask whether $3 million is a fair price for Mr. Romney to pay for the government goods and services he receives. It seems like a stretch to argue that Mr. Romney received anything close to $3 million in government goods and services, so taking this line of reasoning it would appear that Mr. Romney pays more than his fair share of taxes.

If we take the second view, that taxes are a penalty the government levies on people for earning income or having wealth, then it is reasonable to ask whether $3 million is an appropriately large penalty to levy on Mr. Romney for making $21.6 million in income in 2010. I don’t have a good answer for that, but lots of commentary suggests that $3 million is an unfairly low tax burden for Mr. Romney. (The median prison sentence for aggravated assault is three years, but I don’t have a good answer for whether that is a fair penalty either.)

Are taxes the price we pay for government goods and services, or are taxes a penalty government levies on people for earning income or having wealth? How we answer that question takes us a long way toward how we should evaluate Mitt Romney’s $3 million income tax payment.