Mitt Romney says he paid a tax rate of at least 13 percent over the past decade, meaning the millionaire Republican presidential candidate probably paid a lower rate than the average U.S. household.
The BGOV Barometer shows the typical household paid a 17.4 percent federal tax rate in 2009, according to the nonpartisan Congressional Budget Office. That includes all federal levies, such as the Social Security payroll tax, while Romney’s 13 percent only includes income taxes.
Once other federal taxes are included, Romney’s effective rate is unlikely to top the U.S. average, said Edward Kleinbard, a tax law professor at the University of Southern California.
The main reason for Romney’s low relative tax rate is that he derives so much of his income from investments, which are taxed at a lower rate than ordinary income, Kleinbard said. The top income tax rate is 35 percent while capital gains are taxed at 15 percent.
“It is surprising to me that we countenance a tax system in which a private-equity specialist with $20 million in income pays about the same tax rate as an average working family,” Kleinbard said.
Andrea Saul, a Romney spokeswoman, didn’t respond to a request for comment.
Under pressure from Democrats to release more information about his personal finances, Romney said Aug. 16 that he has reviewed his tax returns “and over the past 10 years I never paid less than 13 percent.”
“Every year, I’ve paid at least 13 percent, and if you add, in addition, the amount that goes to charity, why, the number gets well above 20 percent,” he told reporters in a question-and-answer session in Greer, South Carolina.
Romney has released his 2010 tax return, which shows he paid an effective tax rate of 13.9 percent on more than $21 million in income. He has said he will release his 2011 return when it is completed, while rejecting calls from Democrats and some Republicans that he release returns for additional years.
Romney’s financial disclosure statements have estimated his wealth to be as much as $250 million.
President Barack Obama paid 20.5 percent in federal taxes on $789,674 in adjusted gross income for 2011, he reported earlier this year. U.S. Representative Paul Ryan of Wisconsin, Romney’s choice for vice president, on Aug. 17 released information showing he paid a 20 percent effective tax rate on adjusted gross income of $323,416 for 2011.
Tax rates vary widely because of the progressivity of the U.S. tax system, Congressional Budget Office data shows. In 2009, the bottom 20 percent of taxpayers had an average 1 percent rate, largely because they didn’t earn enough to pay income taxes though they paid payroll levies. The next quintile paid 6.8 percent, according to a July report.
The middle quintile, which earned an average of about $64,000, paid 11.1 percent. The next cohort paid 15.1 percent. The highest quintile, with average income of about $224,000, paid 23.2 percent and the top 1 percent, who earned an average $1.2 million, paid 28.9 percent.
Many people overestimate how much they pay in taxes because they confuse marginal rates with the percentage of their income paid in taxes, said George Yin, a former staff director of the congressional Joint Committee on Taxation. The highest marginal rate, for example, applies only to annual income topping about $400,000, while income below that is taxed at lower rates. The effective tax rate is the total share of income paid in taxes.
“That’s a very common mistake,” said Yin, now a law professor at the University of Virginia. “People tend to focus a little too much on the marginal rates.”