The media continues to needle multimillionaire Mitt Romney for paying about a 15 percent income tax rate, “much less” than average middle class workers.
One problem – the basic premise is wrong.
Romney, by his own admission, pays approximately 15 percent because most of his current income still derives from investments (capital gains) and past income that was mostly “carried interest” – the commissions he received at Bain Capital. Both of those types of income are taxed at 15 percent.
But the average American family, while falling into a higher tax bracket, pays far less than Romney. In fact, the Congressional Budget Office has calculated that typical families with incomes between about $35,000 and $65,000 pay 3 to 6 percent.
That’s the true, “effective” tax rate after all the exemptions, deductions and credits are taken into account.
If a worker is in the 25 percent tax bracket, that means virtually nothing. That is the rate prior to any deductions. In addition, under our progressive system of marginal tax rates, middle class earners in that bracket pay 25 percent on only a portion of their income.
The head of a household pays 25 percent once income reaches $47,350 – or $70,700 if both spouses work. The rest of the wages/salary is taxed at 10 and 15 percent as annual income accumulates.
On the other hand, if one assumes that Romney is in the vaunted top 1 percent, then a 15 percent rate would be much lower than the average effective rate of about 34 percent for the “1 percenters,” according to the CBO.
As for Newt Gingrich, who has been pushing Romney to release his tax returns, he made his IRS return public Thursday night. It showed that Gingrich earned $3.2 million in 2010 and paid $994,708 in taxes – an effective rate of about 32 percent.
