Romney's tax prep blunder
Republican presidential nominee Mitt Romney and President Barack Obama talks after the first presidential debate at the University of Denver, Wednesday, Oct. 3, 2012, in Denver. / AP Photo/Charlie Neibergal
Commentary:
(MoneyWatch) Mitt Romney's strong performance during last week's presidential debate has given his campaign new life. But that may only intensify certain questions regarding the Republican nominee as the race heads into the home stretch.
Questions, as Romney's critics have repeatedly noted, like what voters should make of his modest federal income tax rate. The attractive 14.1 percent Romney paid out on his $13.7 million adjusted gross income in 2011 bolsters the critique that he is comfortable with middle-class Americans paying higher rates than the rich. By some estimates, Romney's rate would have been 12 percent had he chosen not to take $1.8 million in deductions he was entitled to claim.
Obama, on the other hand, earned nearly $790,000 last year and paid $162,074 in federal taxes, a rate of 20.5 percent. Put another way, Romney missed a golden opportunity to save himself taxes while simultaneously having the same tax rate as Obama.
This tax blunder was pointed out to me by Gregg Polsky, a tax professor at the University of North Carolina School of Law. He notes that Romney could have used a technique called a Roth IRA conversion to be taxed at a higher rate in 2011, while saving himself money in later years.
Here's how it would have worked. Money contributed to a traditional IRA is tax-deductible for the year the contribution is made. The taxes are not payable until the money is withdrawn. Another option all IRA holders have is to convert some or all of the IRA money to a Roth IRA. Taxes must be paid in the year the IRA is converted, but from then on this money and all of its growth is forever tax free.
While I use this Roth conversion tactic myself, I don't have an IRA valued at $20.7 million to $101.6 million, as Romney has disclosed. Had Romney converted only $5.9 million, he would not only have paid the same 20.5 percent rate as Obama, but also wouldn't have needed to pay taxes on that sum and income from that money again. He also could have converted an extra $1.8 million free by just taking the $1.8 million in deductions he skipped in 2011, possibly to bump up his tax rate for voters.
Under current law, In five years Romney will be forced to start taking out his IRA money, so these taxes would have to be paid pretty soon, anyway. And the tax rate then could possibly be much higher.
Romney could have easily put himself in a tax rate as high, or even higher than Obama and saved himself taxes in the long run. It could have made him look like he was paying his fair share of taxes, under anyone's definition, while saving himself from a larger tax bill in the future. That's a huge tax blunder in my book.
I tried reaching the Romney campaign for comment, but they did not respond. When I asked Polsky if he would be available to give Romney personal tax counsel in the future, he responded "Sure, it looks like he'd be able to afford my hourly rate."
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Like every Republican, Romney wants to protect the rich and preserve every possible tax break and loophole that benefits him and the other robber barons. Their trickle-down philosophy has been refuted repeatedly yet they continue beating the dead horse myth that they are the "job creators." Ordinary Americans with money in their pockets and disposable income create jobs, not the super-rich parasites like Mitt and Ann. Wake up America, before these oligarchs destroy any chance for ordinary people to make any real progress.
How is the Weeper of the House going to cry himself out of this one? Republicans failed! Now go somewhere and cry. Krugman said it best: "the Republican electoral strategy is, in effect, a gigantic con game: It depends on convincing voters that the bad economy is the result of big-spending policies that President Barrack Obama hasn't followed (in large part because the GOP wouldn't let him), and that our woes can be cured by pursuing more of the same policies that have already failed.
Please... Conservatives and Republicans are the biggest fakes the world has ever known. Republicans don't really care about spending. Republicans only care about money that we spend on education and healthcare (things that actually improve society).....but spending three trillion dollars we borrow from China on unnecessary war in Iraq.....Halliburton and Karl Marx approved! 4500 dead Americans and 100,000+ innocent Iraqi civilians' deaths later and now Republicans care about "life"? I think not.....
They might be able to rouse the bigots and some religious zealots telling others who they can't marry but the Republican policies of lowering taxes and deregulating have unequivocally failed all but maybe 5% of Americans. Republicans don't actually stand for anything, and funny thing is, no one asks them to. Especially their hacks in the payola media, and the people who vote for them. It's time America votes in the Democrats to send the Republicans a message; it's time to get real.
Barrack Obama isn't perfect, but he is a thousand times the man Romney will ever be. This time around, Obama and Democrats get my vote, the choice is simple. For the love of country and all people; register to vote and vote as much as you can!
Here is a link to the report through that bastion of liberal media, the Wall Street Journal.
http://online.wsj.com/public/resources/documents/r42729_0917.pdf
This is one of Romney's principle points in the tax laws that he would work to change. The uncertain tax rate and structure. This uncertainty is what is causing small and medium size businesses to stop hiring and expanding until some measure of stability in the tax structure is achieved. It's hard enough to flesh out a business plan without the uncertainty of the tax policy the way it is. Include that item and it is almost impossible. Suppose Romney did as you suggest and two or three years down the road, Congress in their revenue hungry wisdom decided to tax the Roth plans above a certain balance (in FAIRNESS) in the account? There you'd be with your nest egg being cracked and scrambled by a thief with the power of law behind it. (The U S Congress) Don't suppose that could happen? Tell that to folks like me that are having their Social Security taxed because their pension puts them over some arbitrary limit. Tell that to folks, again like me, that have to withdraw some funds from their Ira/401k and have to pay more for their medicare part D because of some arbitrary income number. The way the Congress acts about taxes is to change them (with the weather it seems) and seek to confiscate more and more revenue from the U S economy. Need to waste more? Just take a bigger bite of the pie. Any tax cuts are temporary and considered spending. How does that work? If you or I have a reduction in earnings, it's called a pay cut and we adjust our budget and stop spending so much to create a balance in our finances. Finally, perhaps that is why Romney and his high paid tax advisors opted not to follow your proposal; the uncertainty of a money hungry tax and spend U S Congress!