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$362,000 in Income: Not That Much for Mitt Romney

This article was written by in Taxes. 37 comments.

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.

Christian Science Monitor, ABC News

Published or updated January 18, 2012.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 37 comments… read them below or add one }

avatar 1 Anonymous

My effective tax rate is higher. That said, why not lower my taxes to 15% rather than raise Mitt Romney’s taxes to catch up to mine? That sounds like a much better deal.

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avatar 2 Anonymous

I take your comment as tongue in cheek, but I feel that most people actually believe this.

I hope most people aren’t stupid enough to think that bringing down all of our effective tax rates to around 15% is a good idea. Unless, of course, you cut entitlements.

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avatar 3 Anonymous

No – I mean it.

First, I think it’s preposterous to assume that taxes can only go in one direction – up. Secondly, we need both cuts for entitlements (for those under 35, if nothing else) and cuts to military spending in the amount of $500 billion per year.

The US economy is worth $14.5 trillion per year, of which 15% of that is ~$2.17 trillion. That amount should be more than adequate to run the US government, especially after a slight modification to the welfare state, and a massive cut to the warfare state.

Besides, a reduction in the tax rate – especially the corporate tax rate – would create a massive SURGE in capital gains revenues. Who wouldn’t want lower US corporate taxes – all the wholly American businesses in my portfolio would surge in value. Good deal!

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avatar 4 Anonymous

I think we’ve discussed a broad massive cut to military spending before. Bottom line, I thought it was a bad idea as 99% of military spending is domestic and all cuts have to be surgical not broad amputations.

Also, I don’t mean to call you stupid specifically, the point I was trying to make was that a 15% tax rate for everyone, without major entitlement cuts, is impossible to sustain, and you seem to agree. The problem is that a lot of Americans believe we can cut taxes, ONLY cut discretionary spending and still be OK. Some of these people are politicians.

I also completely agree that we need to cut the corporate tax rate.

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avatar 5 Anonymous

If we cut Iraq and Afghanistan that’s like…what, $150 billion per year on a run-rate? That’s $500 for every person in the US, and $1,000 for every taxpayer. That’s a great place to start.

It’s simply unreasonable for the US to spend as much on defense as the rest of the world combined. We earn 25% of the world’s economic output. We spend 50% of the world’s spending on defense. We can and should cut defense spending in half at a minimum.

And yes, entitlements will have to be cut. I’d favor increasing the retirement age for Social Security for people under a certain age. How about we start with people under 35? That’s still enough time to adjust.

avatar 6 qixx

Being under 35 i vote any change in Social Security should not affect people that have started to pay into the plan unless you allow those affected to opt out of any changes. Any other financial accounts are required to allow one to opt-out if they don’t agree to new terms and conditions.

avatar 7 Anonymous

qixx, you can opt out of other financial agreements if the terms and conditions change. However, in the case of things like credit cards, you are generally not allowed to have future participation in the use of the card. I am in that situation now with one of my cards (which will hopefully be paid off by March), where I opted out of a rate increase. I was allowed to keep my rate so long as I didn’t use the card again. It’s not really much of a choice, though, if you want to continue using the service.

avatar 8 Anonymous

Much of the federal government’s revenue doesn’t come from income taxes. I don’t know any of the numbers, but I do know that the federal gov’t doesn’t get 15% of the “economy” in income taxes.

As far as defense spending, sure probably we don’t need to procure as much and perhaps we don’t need as big of a standing army, but defense research produces incredible innovations and inventions and it would be a shame to cut that. If anything, it should be increased to keep the U.S. on the cutting edge of science, technology, and engineering.

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avatar 9 Anonymous

In 2008, 81% of government revenues were from Federal income taxes plus FICA. Less than 10% of all tax receipts were from non-income/FICA/corporate taxes. Those are income taxes by definition, though not Federal Income Taxes.

Anyway, we spend less than $80 billion per year on military research. Cool – pennies on the dollar. So can we start talking about the other 88% of the military budget?

Frankly, it’s pathetic the extent to which so many people hoot and holler about protecting defense spending. Some say it’s a jobs program, and if we accept this to be true, then we should skip the middle man! Why buy the parts, raw materials, and research when we can pay people to do nothing? We could create jobs at a much lower price by paying half of the defense workers to dig ditches and the other half to fill them in!

I really don’t have a problem with spending as much as I have a problem with waste. If nothing else, let’s agree to re-route the $160 billion we waste blowing stuff up in Iraq and Afghanistan on research. Even better – let’s use the money we spend building bridges in Iraq to repair the bridges that are in serious disrepair in the US. How about we use some of the funds to displace taxing (in terms of human resources) regulations that are otherwise net revenue generators for the Federal government? Net gain there, too.

The defense budget is full of waste and inefficiency, it’s just that people are too afraid to say anything for the fear they’ll be labeled unpatriotic.

avatar 10 qixx

I don’t understand why people care what a politician makes (unless they want to go into politics). The important factors should be the decision making of the individual and will they vote how you would vote. Plus doesn’t making or having more mean you are less likely to be “bought” by lobbyists.

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avatar 11 Anonymous

It matters what politicians make because those that are very wealthy have no idea what common people go through in terms of paying the bills, taxes, medical bills. And it seems they don’t do much “market research” to understand what is faced by their constituents. I still remember when GW Bush didn’t have a clue about how much a loaf of bread costs.
But, the Republicans still want to lower taxes for the non-job creating “job creators.” I read an article with interviews of some who own companies. They say their personal tax rate has no bearing on their hiring decisions. If it’s a corporation, the taxes for the executives are totally independent of the companies’ finances.

From an economic perspective, it make more sense to give $100,000 in taxes back to 10 average income families than it does to give that $100,000 to a mega-millionaire. The average families will spend it because they have to whereas the wealthy might or might not invest with it and might or might not spend it.

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avatar 12 qixx

I don’t care if my politicians “understand” me. I just want them to vote the same way i would. If they they vote based on coin flip i don’t care as long as it is how i would vote. Thanks for answering my first point. People care what a politician make because they want politicians to understand their situation. i still don’t see why this matters but i can follow why you’d want to know what they make. Does making $1Million vs $10Million affect how you’d vote or who you’d support for political positions?

As for giving the $100,000 back to 10 average families …
– The article is about politicians’ income levels and effective tax rate. Not about tax cuts.
– 10 average families don’t pay $100,000 in taxes between them. The average tax liability for a family with children last year was $3000-$3500. $3500 * 10 = $35,000. $100,000 would cover the taxes paid by about 30 families.
– Last i counter your point that average families will “spend it because they have to”. While the average family may spend it (recent history suggests that the’ll save some of it) the do not have to spend it. My family currently makes less than the average household in the US. We get by and manage to pay down the debts we have. I would not “have” to spend this extra $10,000 you are suggesting i get.

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avatar 13 Anonymous

If a politician doesn’t understand his/her voters how can he/she represent them appropriately? Only then can they develop policies that help you or make sense for the country since most people are in the 99% camp, not the 0.1% Romney camp. I don’t care what the politician makes but if they grew up in a wealthy family and make millions, then it’s hard to understand.

True it’s about the tax rate but with tax cuts, the rates change so it’s one and the same. I’m saying if the average families saved $10,000 in taxes not taxes based on $10,000 in income. And an average family would most likely spend a higher percentage of the saved taxes than one wealthy family who gets the same amount of saved taxes. Besides, the exact numbers don’t matter. What matters is the economic principles involved.

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avatar 14 Anonymous

You are, of course, aware that our last several presidents have (or had) net worths in excess of $5 million, and some near $100 million. Of course, some of that money comes from post-presidential work, but even Mr. Obama has earned millions WHILE in office through his book royalties.

If you look at net worth in current value, your very first president had a net worth over $500 million.

Say what you like, but very few of your major political leaders are a part of your 99.

avatar 15 Anonymous

Great… yet another dumb soundbite.

Is he paying his taxes? Then who cares what his rate is?

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avatar 16 Anonymous

Our effective tax rate has been lower than 10% for several years now, and we earn less than half what Mr. Romney earns (with two salaries). This is because we have a mortgage, high property taxes, and high daycare bills, and because we give to our church and other charitable organizations.

As for taxing investments…think about the “market correction” when investors are told that they will be taxed at the regular income rate for investment income. And remember, when they increase the investment income tax, all those middle and lower class folks who are paying into a 401(k) or IRA will also pay that higher rate, on top of the deferred income tax rate they will pay when they start taking mandatory payments from them.

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avatar 17 Anonymous

Your last statement is not correct. All withdrawals from deferred savings, whether mandantory or voluntary (after age 59.5) are taxed as ordinary income. We retired folks don’t get the 15% tax on investment income withdrawn unless we’re already in the 15% tax bracket. Many retired folks are in the 0 to 10% bracket even with Minmimum Required Distributions.

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avatar 18 Anonymous

My apologies, Steve DH…you are correct regarding the gains tax on 401(k) and IRA accounts. I have had experience with my folks transferring stock from an IRA to a regular brokerage account, and they were taxed on that account.

However, I will stand behind the statement regarding the market correction that would occur if gains are taxed as ordinary income. I believe you would see many large investors pull out of traditional investments like stocks, which would cause stock prices (which do affect 401(k)s and IRAs) drop significantly.

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avatar 19 Anonymous

Here’s a tax strategy you or your folks may not have read about. I’m retired but my income is below the ceiling of the 15% tax bracket after deductions and exemptions. By withdrawing enough from my Traditional IRA to get to the ceiling, I’m paying 15% taxes on the withdrawal. If I wait until 70.5 when the RMD kicks in it will push me into the 25% tax bracket for at least most of the RMD amount. By paying 15% now I’m saving 10% in additional taxes should I be lucky enough to live that long. As a bonus I’m actually rolling those withdrawals into a ROTH IRA which, once its five years old, its earnings will not be taxed. This strategy was published by a professor at Baylor University but is kind of like rolling the dice as far as taxes which might be saved – i.e you gotta live long enough!!

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avatar 20 Anonymous

The average American household is in the 15% tax bracket. With deductions available, average Joe and his family should have an effective tax rate well below 15%, probably a lot closer to about 10%.

I’m with Big Joe. My effective tax rate for the last few years has been under 10%… Despite what people may say, all politicians make well above the average Joe. Romney is paying, proportionally, more than I am in taxes.

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avatar 21 Anonymous

Our tax rate was around 20%. However, we did not claim much income off of our investments this past year.

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avatar 22 Anonymous

Although my effective tax rate is higher than the 15% rate, I think it is problem. I would like to see a more level playing field. Take out the tax loopholes for coprorations and indiduals. I am not sure what the solution is, but a fairer tax system is needed.

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avatar 23 wylerassociate

to me all this talk about removing tax loopholes is just that: talk to get political bases riled up because nothing is going to happen. While I personally don’t like mitt romney and wouldn’t vote for someone who will say anything, I don’t care that he made most of his money in investments.

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avatar 24 Ceecee

Romney had the advantage of a lower tax rate on capital gains because the wealthy congressmen make the laws for themselves and their wealthy friends. I heard the soundbite and cringed. It came off as if he was belittling that amount of earned money. When people earn over 300,000 for a small amount of work, gratitude would be the better tone.

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avatar 25 Anonymous

Flexo your math is off…$362,000 is at most 4% of his net worth, not 0.04%.

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avatar 26 Anonymous

Jonathan and Flexo…both your math are off…

$362,000 is about 0.42% of his net worth.

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avatar 27 Anonymous

Haha, you’re right…how embarassing. 0.4% then.

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avatar 28 Luke Landes

Thanks to both of you for checking my math. I’ve corrected the article.

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avatar 29 Anonymous

I’m not surprised Mitt Romney’s effective tax rate is around 15%. It’s pretty clear to me he derives most of his income from investments. The guy has been campaigning for president for yearssss. Where would he have the time to make all this earned income?

To answer your question, my effective federal income tax rate for 2011 will be higher than that of Mitt Romney’s. And no, it’s not fair the internal revenue code is structured in such a way that those whose income is generated from investments pay a lower rate than those whose income is generated from active work. The rates should be equal with a healthy exclusion for those in the lower income brackets.

However, I don’t think it’s prudent to cut everyone’s taxes to 15% considering how much debt this nation has. I’m afraid that rate won’t raise enough income to pay our current bills and our past unpaid ones. Even if we drastically cut spending going forward, it probably wouldn’t be adequate.

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avatar 30 Luke Landes

Just added an update to the original article. ABC News has confirmed that Mitt Romney has used the Cayman Islands to shelter his investments.

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avatar 31 Anonymous

Will be interesting to see how he responds to this.

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avatar 32 qixx

The ABC article does state that Romney “has paid all U.S. taxes on income derived from those investments.” Also the $100 Billion it a total estimate for all the US not a number tied to Mitt Romney. This means that none of that $100 Billion is because of Romney.

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avatar 33 Luke Landes

Well, the article says that Romney’s team said that he’s paid all taxes. I don’t think ABC can independently verify that’s true without an audit of some sort. However, the tax avoidance is more due to Bain’s benefits for establishing funds offshore.

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avatar 34 Anonymous

President Obama isn’t exactly making minimum wage either. I’d rather hire a president on how well I believe he would run a country than on the size of his paycheck. President Obama isn’t exactly making minimum wage either.

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avatar 35 shellye

This story is just another example of how out of touch Romney is with reality. I often wonder if he just looks around at his hot wife and beautiful family and gorgeous home and says to himself, “I don’t see what everyone is complaining about, life is great!”

There are many people in this country who think $362k is a lot of money.

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avatar 36 Anonymous

From today’s Wall Street Journal:

“Start with the fact that, like Warren Buffett, Mr. Romney said he makes most of his money from investments, not wages or salary. Thus his income is really taxed twice: once at the corporate tax rate of 35%, then again at a 15% tax rate when it is passed through to him as dividends or via capital gains from the sale of stock.

All income from businesses is eventually passed through to the owners, so to ignore business taxes creates a statistical illusion that makes it appear that the rich pay less than they really do. By this logic, if the corporate tax rate were raised to, say, 60% from today’s 35% and the dividend and capital gains tax were cut to zero, it would appear that business owners were getting away with paying no federal tax at all.”

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avatar 37 Anonymous

A lot of great comments and discussions. From my perspective, his taxable income does not mean anything if he will perform well and help our country. The kicker is that his statement shows a basic lack of empathy and understanding of how many people in our country are truly bad off right now. This out of touch mindset can not be good for our country when all the decisions made by a President are difficult. require insight, tradeoffs and deeper understanding of the issues. This is truly scary when a statement is made that shows complete lack of insight as to where the vast majority of Americans are currently situated.
As far as taxes are concerned, traditionally the tax code was truly progressive; the more you made the more that was taken. Many may not be aware that the highest tax bracket was at one time as high as 91 percent. But the code has been bastardized by piecemeal solutions. Can you say AMT? What a grand mess! This special 5% rate was superimposed on marginal tax brackets that were collapsed and at all time lows already. Is there any wonder we have such a huge deficit? Most of the studies done have stated that the sensible approach is to raise tax rates AND cut spending. But not sure that will ever happen with the type of thinkers we have running this country and the current logjam in Washington.

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