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Sunday, August 19, 2012


It is a lazy Sunday here in Chapel Hill.  I set out on my morning walk rather late, at 6:44, having slept in, but about the time I was powering alongside the UNC golf course [where, on a good day, I see the resident Blue Heron], it began to rain really hard, and I turned back.  No point in getting totally soaked.  Having some extra time on my hands, I decided to think about Mitt Romney's taxes.  After struggling with Harry Reid's marvelous charge that he has paid no taxes for ten years, Romney finally responded in classic schoolyard fashion:  "I did too pay taxes, so there!"  Indeed, Romney says that he went back and checked, and found that he has paid at least 13.6% in taxes every year.  How do we know this is true?  Because he says it is.

Oddly enough, I suspect he is actually telling the truth, sort of.  Let me explain.  What follows should be obvious, because most Americans pay income taxes, and absolutely all newspaper and television commentators pay income taxes using the long form 1040, so everyone who has ventured an opinion about Romney's taxes knows what I am about to say.  But for some strange reason, when these bloviators mouth off about public affairs, they seem to go into a fugue state in which they forget everything they know about the world.  Perhaps what follows will be of interest to my overseas readers.

Since all politics is local, as Tip O'Neill said [ungrammatically, "politics" being plural], let me explain myself by talking about my own tax returns.  On Page 1 of Form 1040, I list our various sources of income.  Since Susie and I are retired, we do not have wages and salaries, which is for most ordinary people the principal source of taxable income [leaving to one side the dollar a year I am to be paid by Bennett College, if they ever get around to asking me for my social security number.]  Most of the joint income Susie and I report comes from my two pensions [UMass and TIAA-CREF] and our Social Security [only 85% of which is taxable, for some odd reason.]  But we have some interest income from our bank accounts [not much, alas], and Susie has some income from investments that she inherited from her mother, so all of that gets listed on page 1.  In addition, I get royalties from those of my books that are still in print.  Now this is actually listed on Schedule C, where I am permitted to deduct from the total amount a number of business-related expenses.  The net amount, after those deductions, is listed on page 1 of Form 1040.  The total of all these sources of income is our "gross taxable income," and that is reentered at the top of page 2.

Now come the allowable deductions:  two exemptions, for me and for Susie, and then the itemized deductions from Schedule A, including interest on the mortgage on our condo, and the real estate taxes we pay [far too much, since we live in upscale Chapel Hill], charitable donations [but not the rather large amount that we give to political campaigns], and even the excise tax we pay on my 2004 Camry and Susie's 2011 Yaris [a very snappy little red car.] 

When all those deductions have been subtracted from our gross taxable income, we are left with our net taxable income, and that is the figure on which we calculate our taxes.  The tax rates are progressive [though not nearly progressive enough], so we pay different percentages on different components of our net taxable income.  Our top marginal tax rate is 25% [which tells you that Susie and I are quite comfortably well-off], but of course we do not pay that on all of our taxable income, and certainly not on all of our income [which is not at all the same thing], only on the part of our net taxable income that is over $69,000.

The situation for someone like Mitt Romney is structurally the same but in reality vastly different.  I would be willing to bet that he regularly rakes in millions of dollars on which he pays no taxes whatsoever, thanks to a variety of perfectly legal deductions, dodges, finagles, and finesses put into the tax code by earnest Senators and Representatives to benefit their smiling campaign contributors.  Mitt Romney could easily have twenty million dollars in gross income, and yet end up with a small amount of net taxable income on which he actually pays 13.6%.  What proportion of his total income does he pay in taxes?  We shall never know, because he has clearly decided it is in his interest to take the heat rather than release his taxes.

Does any of this matter?  Only politically, which is to say yes.  Mitt Romney's taxes are a perfect symbol of the deep structural unfairness of American society.  They are as perfect a symbol as the Occupy Movement's one percent.  This is the first time in many decades that income and wealth inequality has become a hot button political issue in America.  Socialists like me have been dreaming of this for generations, crying in the wilderness.  I do not know how long the issue will remain alive, and I am virtually certain that regardless of the outcome of the election, there will be no serious effort fundamentally to alter the structure of American capitalism.  But you have to take what you can get in this life and enjoy it while you can, so I plan to groove on Romney's taxes for the time being.


Don Schneier said...

From Robert Reich--'Even Adam Smith, the 18th century guru of free-market conservatives, saw the wisdom of a graduated tax embodying the principle of equal sacrifice. “The rich should contribute to the public expense,” he wrote, “not only in proportion to their revenue, but something more in proportion.”'

GTChristie said...

IRS says 40% of income-earning Americans pay zero in tax. That 40% is almost entirely composed of people at the bottom of the income scale, not the top.

Jerry Fresia said...

Regarding inequality, socialists' points of view, and the current political scene: I wish there were more attention paid to the "surplus." Not long ago, when a snooty American passed through my art gallery in Italy and I mentioned that taxes were relatively high in Italy (as compared to the US), she said, "Well, that's what you get when non-producers take from the producers." In my mind, I thought "exactly." But of course, she was trumpeting the right wing talking point as opposed to the Marxist insight. I can think of nothing more politically valuable at the moment than to explain the Marxian concept of surplus. But here's my question: apparently even left (Marxist?) economists believe that the "labor theory of value" doesn't hold up mathematically; but in my mind, the "surplus" is one thing and the "labor theory of value" is another. Or are the two necessarily one and the same?

Aardvark said...

To GTSChristie: That 40% pay zero in federal income tax. They may, depending on state, pay state and local income taxes, property taxes (either directly, or as part of their rent), if they are employed they pay social security and other payroll taxes, and, in most places, they pay sales tax. The total percentage tax burden, counting everything, is actually pretty flat over the median 90% of the income spectrum.

Kent Schenkel said...

Bob, since you probably know of Harry Frankfurt's little book, you might appreciate this take on Romney's claim:

GTChristie said...

Obviously I was referring to Federal income tax. Professor Wolff's post was mostly about the 1040 forms, exemptions etc, not the general level of taxation, which would be a different discussion.