It’s no surprise that politicians have difficulty relating to their constituents. When Mitt Romney was asked about his finances, he admitted two facts that would sound strange to most listeners.
- Romney considers what he earned from speaking fees in one year, $362,000, as “not that much.”
- Like most individuals who earn most of their income from investments, Romney’s effective tax rate is closer to 15 percent.
For Romney $362,000 may not be that much. His net worth is estimated to be between $85 million and $265 million. The most that income from speaking can increase his net worth each year is by 0.4%. That is a drop in a very large bucket. I can understand why Romney would say that this amount is not that much. For him, it’s practically nothing.
For most people, though, $362,000 is a significant amount of money. This small portion of Romney’s annual income could support ten families or more of four members for one year. “Not that much” is relative.
When President Obama proposed the Buffett Rule, a tax on millionaires to pay a representative share of the tax burden, he had people like Romney in mind. Buffett has pointed out that his effective tax rate is lower than his secretary’s, and this happens when most of an individual’s income comes from investments. Investment income, like dividends, as well as carried interest, is taxed at a 15 percent rate rather than the sliding scale used in the tax brackets for ordinary income. People who earn high enough salaries and wages pay higher tax rates than individuals who make a living off investments.
To compare Romney with his political peers and competitors, Governor Rick Perry has indicated his effective tax rate in 2010 was 23.4 percent, and that rate is closer to what most middle-class Americans might pay in any one year. Rick Perry is the least wealthy of all the presidential hopefuls, with a net worth between $1 million and $2.5 million. President Obama and his family paid an effective tax rate of 25 percent in 2010.
How does your effective tax rate compare to Mitt Romney’s?
Update: ABC News just broke the story that Mitt Romney has made judicious use of an offshore tax haven in the Cayman Islands to shelter his assets from the U.S. Treasury.
Tax experts agree that Romney remains subject to American taxes. But they say the offshore accounts have provided him — and Bain — with other potential financial benefits, such as higher management fees and greater foreign interest, all at the expense of the U.S. Treasury. Rebecca J. Wilkins, a tax policy expert with Citizens for Tax Justice, said the federal government loses an estimated $100 billion a year because of tax havens.