Mitt Romney's 2009 Tax Burden Likely Even Lower Than 2010, Experts Say
Mitt Romney's 2010 tax return is likely to serve as a flashpoint throughout the presidential campaign for critics who say the 13.9 percent effective tax rate he paid that year is unfairly low.
It appears likely his tax burden was even lower the year before. Tax experts who closely reviewed returns released Tuesday told The Huffington Post that Romney probably did not pay any taxes on his investment income in 2009.
Romney did pay some income tax in 2009. But because a good part of his income comes from a lucrative retirement package from private equity firm Bain Capital taxed at a 15 percent rate, Romney was likely able to offset his Bain income with losses from other parts of his investment portfolio, the experts said.
Ordinary investors can reduce their tax burdens through write-offs too, but those savings don't go as far for a typical middle-class worker with taxable income of $70,000, who would pay taxes at a much higher 25 percent rate.
"You could look at Mitt Romney's deferred compensation as a form of retirement saving," said Gil Manzon, a tax professor at Boston College.
But the "catch," said Manzon, is while Romney pays 15 percent annually on those savings, typical investors drawing from their 401k savings pay taxes at ordinary rates -- whatever they would pay if they earned it at a job.
The revelations about Romney's tax burden come as he is seeking to regain his edge in the Republican presidential contest from Newt Gingrich, who won the South Carolina primary last weekend. They also come amid a larger conversation about the American wealth gap, which has widened to historic levels, and about the privileges enjoyed by the affluent at a time when millions of Americans are barely making enough to cover basic living costs.
Romney's 2010 tax return, released Tuesday after weeks of prodding by his rivals for the Republican presidential nomination, shows that he paid $3 million in federal taxes on $21.7 million in mostly investment income.
Romney's income puts him in the top 0.006 percent of Americans, based on the most recent Internal Revenue Service data cited by the Associated Press, from 2009. That year, only 8,274 filers reported income above $10 million.
If Romney were paying taxes at the highest marginal tax rate of 35 percent, his tax burden would more than double.
The 2010 return shows a $4.8 million capital loss carryover, which means Romney lost money on investments in previous years and is now using the losses to offset gains, according to Joshua Blank, a tax professor at New York University.
But without the 2009 return, which Romney has not released, it's unclear how much that write-off was worth in 2009, or earlier.
Romney receives a share of profits from Bain Capital under a retirement agreement with its partners, said Benjamin Ginsberg, Romney's campaign counsel, on a conference call with reporters Tuesday. That share is taxed at 15 percent. In 2010, Romney received $7.4 million in this so-called carried interest income.
Tax experts said that without his 2009 return, it is impossible to say for sure what Romney's tax burden was for that year. It is possible, though unlikely, that he earned much more in traditional income in 2009 than in the following years, which could boost his tax burden and his tax rate, they said.
Romney's 2010 return shows that he made estimated tax payments of $1,369,095 in 2009 and likely more after a requested extension.
Romney's campaign did not return calls or emails requesting comment for this story.
Joseph Bankman, a tax professor at Stanford University, said that year-by-year swings in the tax rate of wealthy individuals are common and that this type of tax accounting "wouldn't stagger anyone" who prepares tax returns for the very wealthy.
Romney wasn't alone in losing money in 2009. The year was a loser for many investors, noted Michael Gillen, director of the tax group at the Philadelphia law firm Duane Morris. "You can't hit it out of the park every year," he said of individuals who earn their money mostly through investments.
Romney's campaign also released an estimated tax return for 2011, which hasn't yet been filed with the IRS, showing that he had an effective tax rate of 15.4 percent on $20.9 million in adjusted gross income.
Romney paid taxes at a much lower rate than Gingrich, who reported paying federal taxes of $994,708 on an adjusted gross income of $3,142,066, a 31 percent rate, in 2010. Barack and Michelle Obama paid $454,000 in federal taxes on income of $1.8 million in 2010, a 25 percent rate.
"The tax code definitely favors investors," said Barbara Weltman, a tax and business attorney. "That is because investors take a risk. If you get a salary, you get paid no matter what. But investors sometimes make money, sometimes they lose money too."
Catherine New and Alexander Eichler contributed reporting.