So we’ve read that Obamas paid 19.8% tax last year on their almost $478K income (the full return here). During the 2012 election cycle, we’ve heard Romney paying about 13%. Some claim that because most of the money Romney got was taxed before, he actually paid 30%, but that’s obviously false. He didn’t.
Let’s take a look at the differences:
Romney reduced his tax bill by donating about $3M (out of the total $22M income) to charities. That’s about 13.6%. Obamas donated about $71K out of $478K, which makes it about 14.8% of total income. Obama donated more than Romney to charity.
Romney got $3.3M in interest and $4.9M in ordinary dividends, that’s $8.2M out of $22 of income that is taxed at marginal rates – 37%. Obamas had $16K in interest and $88K in royalties which are also taxed at ordinary income rates. The rest is attributed to the President’s salary (which grosses to $400K, taxable about $395K). Which is also taxable as ordinary income. Total 100% ordinary tax rate. Obama didn’t have any special capital gains treatment for his income. Romney had 85.2% of his income having preferential tax treatment.
In fact, Barack and Michelle Obama weren’t as good as Romney with their investments and are carrying forward more than $100K capital losses that they cannot deduct (only $3K of that can be deducted each year).
So what the conclusion?
Obamas have vast majority of their income (~80%) coming from salary. Romney? Capital gains.
Obamas, despite being salaried employees, donated more of their income to charity than Romney.
Obamas, earning almost all of their income by their own work, paid higher marginal and effective tax rate than Romney, whose income mostly came from investments.Obamas are, in fact, a very good example of upper middle class. They’re not really rich (although with $7M net worth they’re definitely not poor), they work for their living and most of their income comes from wages. Yet, they pay higher tax rates, having less deductions (almost $5K of the itemized deductions Obamas reported were disallowed due to phase out).Obama is no Romney, and his tax return is just another proof.
Your Little Advisor
PS: As to Forbes’ claims re Romney paying 30% in reality… That’s not true. Double taxation of dividends exists, but that’s not Romney who’s paying the first tax. It’s the corporation. Which, as Romney himself pointed out, is a person. Separate and distinct from its shareholder. That person, the corporation, decides when to give out dividends and how much to give out. Only when it decides that does Romney get any money that is then becomes his, and is taxed on it.