In a year when a sputtering economy might be expected to give him the upper hand in the presidential race, Mitt Romney finds himself on the hot seat on income taxes, fighting perceptions over whether he’s paid enough and how much he’d tilt future rates to benefit the rich.
Democrats again hammered the former Massachusetts governor Friday over his steadfast refusal to release more than one completed and one draft tax return. They also hit him over his disclosures that he and his wife, Ann, paid an average 14.6 percent of their $42.5 million in income to the U.S. Treasury in 2010 and 2011.
More than half of Romney’s income during that time came from capital gains, which are taxed at a lower rate than income.
Their taxes over the last two years exceed the 12.8 percent tax rate for the average American, as cited in a Congressional Budget Office study.
However, they lag far behind the 24 percent average federal taxes paid in 2009 by others among the 1 percent of Americans with the highest incomes, according to the Internal Revenue Service.
They were also below the 20.5 percent in federal taxes paid in 2011 by President Barack Obama and his wife.
The soon-to-be Republican nominee had attempted to silence critics on Thursday by branding them as “small minded” for fixating on his tax returns at the expense of bigger economic issues. Romney declared that he hasn’t paid taxes of less than 13 percent of his income in any year over the last decade and that, “if you add in . . . the amount that goes to charity, why the number gets well above 20 percent.”
Those comments quickly boomeranged into front page headlines, emphasizing Romney’s inability to shake the issue and raising the specter that his affluence could work against him with middle-income voters in the aftermath of the worst U.S. recession in 80 years.
Joe Rosenberg, a research associate for the Tax Policy Center, sponsored jointly by the Brookings Institution and the Urban Institute, said that “it’s not legitimate” for Romney to try to deflect the controversy over his tax rate by counting $7 million in donations to his preferred charities as if they were taxes. Much of that money went to the Mormon church, where he is a member.
“I do think he has sort of painted himself into a corner in terms of what he has promised, which is to further reduce tax rates that disproportionately benefit very high income people,” Rosenberg said.
On Friday, Obama campaign manager Jim Messina said in a note to his Romney campaign counterpart, Matt Rhoades, that his side would end its calls for more tax disclosure if the GOP challenger would release returns for five additional years.
"In the governor’s case, a five-year release would appropriately span all the years that he has been a candidate for president," Messina wrote. "It would also help answer outstanding questions raised by the one return he has released to date, such as the range in the effective rates paid, the foreign accounts maintained, the foreign investments made and the types of tax shelters used."
A White House spokesman later took a separate jab, asserting that Romney’s refusal contrasts with Obama’s emphasis on transparency and reflects a broader attitude in which he seeks to “shower benefits on millionaires and billionaires.”
"In fact, we’re just asking him to live up to the standard of previous major party candidates for president, a standard that was established by his father when he ran for president in 1968," said White House spokesman Josh Earnest, referring to former Michigan Gov. George Romney.
Rhoades, however, quickly extinguished much hope of a further release.
"It is clear that President Obama wants nothing more than to talk about Governor Romney’s tax returns instead of the issues that matter to voters, like putting Americans back to work, fixing the economy and reining in spending," he said in a reply to Messina.
The Tax Policy Center has estimated that Romney’s proposal to extend Bush-era tax cuts that are scheduled to expire at year’s end, and to slash the marginal rate in every tax bracket by 20 percent, would cost the federal treasury $4.8 trillion in the decade beginning in 2015.
Romney has said that he can offset much of those tax reductions by eliminating tax loopholes, credits and exemptions, but he has offered no details of how he’d accomplish that.
“It appears that with everything he’s laid out, something will have to give,” Rosenberg said. “Either his plan will increase the deficit and he’ll need to find more spending cuts to offset it, he will have to not reduce rates as much as he says he will, or he needs to rethink some of the treatment of capital income when he looks to pay for what he has already specified.”
A central reason that Romney’s personal tax rate has been lower is that much of his income in recent years has come from capital gains – profits on investments on which he’s paid a 15 percent tax rate, and from so-called carried interest from his share of the Bain Capital private equity fund. For example, in 2010 he reported capital gains of nearly $12.6 million.
Both Romney and his newly anointed running mate, Wisconsin Rep. Paul Ryan, have advanced policies that would further reduce Romney’s tax liabilities.
Romney – as have members of Congress from both parties – has proposed eliminating the Alternative Minimum Tax, a nearly flat tax on higher-income individuals, while Ryan has proposed altogether eliminating the 15 percent tax on capital gains, a change that would have reduced Romney’s taxes by more than $3 million over the last two years. Romney says he would leave the 15 percent rate intact.