Taxes, Charity and the Civic Commitment of Romney and Obama

Romney Obama

August 17, 2012; Source: Los Angeles Times

It looks like Mitt Romney hasn’t yet learned a lesson that has been imparted to nonprofits within the pages of Nonprofit Quarterly many times. Since the primaries, Romney has been dodging a forthright release of all of his tax returns, allowing critics such as Sen. Harry Reid (D-Nev.) to have a field day with hypotheses of exactly how little Romney might have forked over in tax payments. The lesson is, of course, the longer you delay requests for legitimate disclosure, the more the public thinks you have something illegitimate to hide.

While Romney searches for his 2011 return, Los Angeles Times politics columnist James Rainey ran a little calculation on Romney’s 2010 taxes—taking Romney up on his invitation for an analysis of his federal taxes plus charitable donations. In explaining his 13.9 percent tax rate, (a rate much lower than most of us who don’t make more than $20 million a year), Romney told reporters to remember that he and his wife Ann also make generous charitable contributions for a combined tax-plus-charity total of more than 20 percent of his income.

Pretty good? Rainey’s “Tax-N-Charity” calculation for Romney and his opponent, Barack Obama, is actually quite revealing. For the combination of tax years 2010 and 2011, Mitt and Ann Romney paid an estimated (estimated because he hasn’t yet released his 2011 returns) $6.2 million on $42.6 million in taxes for a tax rate of 14.5 percent over two years. Adding in their 2010 and estimated 2011 charitable donations of $13.2 million, the Romneys’ Tax-N-Charity two-year total was 31 percent of their income. How do the Obamas stack up? It appears that their Tax-N-Charity calculation is 42 percent of their income.

Both families are generous charitable donors, with the Romneys giving away 16 percent of their much larger income and the Obamas giving 22 percent from a smaller income pool. Both families are at a significantly higher charitable contribution level than most taxpayers. But Romney should be careful not to get carried away with the large absolute dollar value of his donations; rather, he should remember that while few people can match the Romney family totals, many are more charitably generous in terms of percentage of income.

Remember one more thing. Romney’s 13 percent in taxes in 2010 and presumably 2011 is his effective tax rate. His actual tax bracket at a $20 million income level is the top tax rate, twice his effective tax rate. According to a chart from The Economist, in 2009, taxpayers with $1 million to $10 million in income paid an effective rate of about 26 percent, while taxpayers with $10 million to $100 million in income paid about 24 percent. The Romneys are among the very wealthiest of American taxpayers, but he pays taxes at a lower rate than his top income peers. Again for 2009, according to a report from the Tax Foundation, the nation’s top one percent of taxpayers with positive adjusted gross incomes paid at an average tax rate of 24.01 percent and the top five percent paid at 20.46 percent. Some observers, even those without a partisan political stake in the presidential election, might find the Romneys’ 13 percent tax rate indefensible.

Nonetheless, Romney would be better served by simply releasing all of his returns, standing by the real numbers, and explaining how a $20 million dollar family should pay taxes at such a low effective tax rate (lower, it would seem, than many middle income families that would be hard pressed to earn that amount in their entire lifetimes). Transparency and accountability are good practices for nonprofits, and also for presidential candidates. —Rick Cohen

  • Sue

    I’d like to think Romney is stalling with his tax releases to allow time for all the ‘speculators’ to make enough negative assumptions that, when released, it makes the speculators all look like idiots. Kind of like what Obama did with the birther movement – once those docs were released Trump had no other option but to walk away (thank goodness). So maybe this is just a way to ‘clean house’ a bit and get rid of some of the riff-raff that has climbed their way into politics.

  • Jeff Rockwell

    Boy, there was no editorial bias in THIS article… Glad to see that you are nothing but charitably minded and non partisan…Why was it OK for McCain to only release two years worth of his taxes, and why is it bad for Romney to only pay 15% when that is what the tax code calls for? Your envy is as obvious as Obama’s.

  • rick cohen

    Dear Jeff: Thanks for your response. Romney’s tax rate was 13.9 percent, not 15. I’m pretty sure that many/most NPQ readers pay at that level, certainly as the charts showed, his income peers pay at a higher rate–and certainly what a $20m income ought to pay. Romney’s inclusion of charitable giving to round out his payment at a higher level is seriously flawed conceptually. Taxes are taxes. The taxpayer isn’t supposed to say, gee, my real tax rate is a lot higher if you include my charitable giving in the mix. And Romney’s charitable giving, if you recall, is connected to his tithing to the Mormon Church. Romney could and should be more straight up about so many issues, his taxes, his core feelings about some of the social issues that have been thrust on him, his position on health reform given his history in Massachusetts, etc. The nation deserves a robust debate about so many issues, taxes and health care among them. Romney ought to be able to do that.

    Oh, our envy? Oh gee, I guess most of us here at NPQ won’t see a year or two of Romney’s income in our entire lifetimes. But then again, we wouldn’t see many people’s incomes in our lifetimes. It’s not envy. It’s what a friend of some affluence reminded me today, from the New Testament: To whomever much is given, of him will much be required. It’s not envy. It’s expectation of what Mitt Romney should be able to deliver to our political debates.

    Thanks for your comments!

  • Mike

    You might want to look at Obama’s charitable contributions before he became president and had everyone looking at them…the numbers from previous years is is telling…

    When then-presidential candidate Obama released his tax returns during the 2008 campaign, it was revealed that he began making significant gifts to charity after he started making serious money from his books — and after he decided to run for president.
    Here’s what the numbers look like:
    2005: $77,315 to charity out of income of $1.66 million (4.6 percent)
    2004: $2,500 out of $207,647 (1.2 percent)
    2003: $3,400 out of $238,327 (1.4 percent)
    2002: $1,050 out of $259,394 (0.4 percent)