Mitt Romney’s Taxes
By Randall Holcombe • Tuesday January 24, 2012 9:08 AM PDT • 15 Comments
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.
Tags: Budget and Tax Policy, Economics, Politics, Taxation, The State 
It appears to me that Mr. Romney has paid more than his fair share. He certainly has not received anything close to that in goods and services. Also, you did not mention how much he has donated to charity. That should also be a consideration.
Carolyn Hines | Jan 24, 2012 | Reply
Well what`s for sure is he doesn’t pay what i`d have to pay...No doubt that who ever wrote this is for...... Funny how media can write things to suit themselves.
RGC | Jan 24, 2012 | Reply
I have to take the long view and think that 15% is unfair when I pay nearly 35% and I pay into Social Security and Medicare while Mr. paid into neither by paying taxes on earned income rather than Ordinary income tax that ordinary income tax that if I didn’t pay I would wind up in prison. There is a double standard here one for the wealthiest and one for everyone else.
Manolete' Garcia | Jan 24, 2012 | Reply
I find it a little low what he pays. Since I pay closers to 20-28% of my income into the coffers. The number is higher, but not the percentage.
Ronpaulsupporter | Jan 24, 2012 | Reply
The 2nd plank to The Communist Manifesto is a graduated or progressive Income tax. So if you believe in an Income Tax your a practicing Communist. With that said, the question to ask is not who pays the tax or what method is used to collect that tax? The question to ask is why do we need the government so huge and unwieldy that we have to penalize people for working and investing in order to pay for this monstrosity. The problem is not the taxes paid but the spending. As an aside,most of the money collected in income and payroll taxes doesn’t go to run the government or for government services,but instead, is used to pay the interest owed to the bankers and governments that hold our debt. In other words the IRS is the collection agency for the Federal Reserve bankers and other central banks throughout the world. Central banking,fiat currency based on debt and the Income Tax are all tied together. Is it any wonder that when the Income Tax Amendment was added to the Constitution in 1913 that the Federal Reserve Act was passed at the same time. By the way,most of the above is blatantly un-Constitutional. But such is America today.
Libertarian Jerry | Jan 24, 2012 | Reply
Does anyone out there intentionally overpay on their income taxes? We know that the tax code is unfair. Some people get more money back than they pay in (negative tax rate). Others pay 30% in and get nothing back. But no one can fault Romney for not sending more of his income to the wasteful federal government than the tax code requires.
I think most of us would be happy to overpay if we could be confident that our tax money would be well spent.
Tired of waste | Jan 24, 2012 | Reply
You know your own taxes better than I, but I find it hard to believe you paid anything close to a 35% income tax on total income. Perhaps you are confusing the top marginal rate with the overall rate. I just read that Americans making $100,000 or less pay about a 12% overall rate after deductions, etc. which is obviously less than the capital gains rate. The other thing to keep in mind is that this income has already been taxed at income rates and then risked with no guarantee of ANY return, and then taxed *again* at 15% IF there is a gain. Also, tax law should, in my view, encourage investment since that capital is what businesses use to grow and create jobs which benefit the entire country.
William Layman | Jan 24, 2012 | Reply
Mr Romney appears to have given about as much to charity as to the federal government (mostly but not exclusively his church). However, including state, federal and foreign taxes AND charitable contributions he paid out over 42%.
That leaves him with about 58% to consume or re-invest. I wonder how that compares with others in the political class. As I recall, Joe Biden gave less than four hundred dollars ($400) to charity.
Perhaps, if the focus is to be on notions of social justice or equity, it would be well to look at what is left over after both taxes AND charitable contributions. A consumption tax, even a progressive consumption tax, should perhaps then be considered as an alternative to taxing only income.
Brad | Jan 25, 2012 | Reply
“I just read that Americans making $100,000 or less pay about a 12% overall rate after deductions, etc. which is obviously less than the capital gains rate.”
There’s no way.
Anthony Gregory | Jan 25, 2012 | Reply
“...Americans making $100,000 or less pay about a 12% overall rate...”
Let’s figure it out to see. Let’s take a married couple with two children and $100,000 in income. From IRS Form 1040 they get a $3,700 deduction for each family member, so $3,700 x 4 = $14,800. The standard deduction for a married couple is $11,600. So, just taking the standard deduction the taxable income is $100,000 – $14,800 – $11,600 = $73,600. Then looking at the Tax Table for Form 1040, the federal income tax due is $10,644. So, looking at federal income tax only, this taxpayer pays a 10.644% rate.
The employee’s share of the Social Security and Medicare payroll tax is another 5.65%, so if we include this we’re up to 16.3%. (This will be less if the employee makes pre-tax contributions into a retirement plan, or has other pre-tax deductions from income.)
These figures may be on the high side, because both the 10.644% rate and the 16.3% rate don’t take into account any additional deductions, credits, etc., that taxpayers can take; they only take into account the deductions that absolutely everybody can take.
It appears that if we are talking about federal income taxes, William Layman’s 12% estimate is, if anything, high.
Randall Holcombe | Jan 25, 2012 | Reply
There is simply no objective way to determine whether or not Romney overpaid or underpaid for the goods and services he received. One could contrive support for either case.
The only way we can determine whether he (or anyone) is getting his money’s worth is for goods and services to be offered (and their prices determined)on a voluntary basis, on a bona fide free market. As long as there is coercion involved in the setting of prices and the determination of the “services” provided, economic calculation is undermined.
D. Saul Weiner | Jan 25, 2012 | Reply
“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?” Is there any way you could of asked a more biased question? Taxes are one of several means of redistributing income in a country. Call it a “penalty” if you like, but all evidence suggests that the more equitable a society is, the higher the welfare (example: health).
You Americans live in a bubble. There is no-one in the world, certainly not in Canada, Europe or Japan, that would trade their more equitable societies with your broken society. The fact that you see taxes in such a narrow, individualistic perspective proves my point.
Alex | Jan 25, 2012 | Reply
Alex...Your assuming that taxes in America are what we pay for an “equitable” society. Most of the taxes collected,at least on a Federal Level,is wasted on corruption,graft,stupid wars,the military industrial complex,interest on debt,and people who refuse to produce anything but choose to live off the labors of the productive. Add in a giant useless bureaucracy,a suffocating debt and you have a recipe for disaster. When the average American has to work 8 out of 12 months to pay all their taxes;Federal,State.local,hidden plus the tax of inflation,giving your hard earned money to government is like handing your car keys and a bottle of liquor to an irresponsible teenager. In other words; Why should I pay my “fair share” when the more I pay the worst off I am?
Libertarian Jerry | Jan 26, 2012 | Reply
Economist Fred Foldvary has another take on Mitt Romney’s tax releases: Releasing Income Taxes. Warning: you will probably smirk.
The Crackshot Crackpot | Jan 27, 2012 | Reply
Mr. Romney’s taxes were paid on dividend income and capital gains, not earnings. He had already paid taxes on his earnings before he was able to invest in vehicles that could earn him the capital gains and dividends on which he could then be taxed again. Unfortunately for the rest of us, his $3 million tax bill won’t even cover the cost of President Obama’s last $4 million family vacation!
Chuck | Jan 30, 2012 | Reply