Breaking news: Romney’s tax rate only 14.1% … but his all important GBSR is 43%

OK, Romney released his 2011 tax return.

  • In 2011, the Romneys paid $1,935,708 in taxes on $13,696,951 in mostly investment income.
  • The Romneys’ effective tax rate for 2011 was 14.1%.
  • The Romneys donated $4,020,772 to charity in 2011, amounting to nearly 30% of their income.

Holy Buffett, Mitt only paid 14.1% in Federal income taxes … a lower rate than Warren’s secretary.

Scoundrel.

Let’s re-write the tax code.

Not so fast.

Last fall, the Homa Files coined a new metric: the GBSR™ – “Give Back to Society Rate

We defined the GBSR™ as the sum of taxes paid plus charitable contributions – since those are all money that’s supposed to be going to the common good, albeit administered by different organizations – divided by AGI.

In Romney’s case, his release says that he made $13.7 million … paid $1.9 million in taxes … and donated a whopping $4.02 million to charities.

So, his tax rate may sound meager @ 14.1%, but his GBSR™ is about 43% – and that’s not counting state & local income taxes.

My bet: add S&L taxes in and Mitt‘s GBSR™ is way over 45%.

So, it just may be that the tax code is leading fat cats to do the right thing – it’s just that they’re giving much of their dough to private charities instead of the Feds.

Do you blame them?

* * * * *
Romney’s 20 year tax history

According to the Standard ,,,

  • In each year during the entire 20-year period, the Romneys owed both state and federal income taxes.
  • Over the entire 20-year period, the average annual effective federal tax rate was 20.20%.
  • Over the entire 20-year period, the lowest annual effective federal personal tax rate was 13.66%.
  • Over the entire 20-year period, the Romneys gave to charity an average of 13.45% of their adjusted gross income.
  • Over the entire 20-year period, Romney’s GBSR™ the total federal and state taxes owed plus the total charitable donations deducted represented 38.49% of total AGI.

* * * * *
For comparison …

Filers in Obama’s millionaire range ($200,000 to $250,000) donate about 2.5% of their income to charities.

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16 Responses to “Breaking news: Romney’s tax rate only 14.1% … but his all important GBSR is 43%”

  1. Pete Says:

    Great post. I recently referenced your GBSR in a similar post for a somewhat public debate I’ve had with some close, left-leaning friends over the misconceptions of “effective tax rates” (http://blog.petergasca.com/2012/09/no-return-for-tax-return.html). Hopefully, I credited the term properly with the link to your blog. You might experience a massive increase in traffic accordingly … maybe one or two hits … so consider upgrading your service! Thanks again!

  2. Deepak Gupta Says:

    Prof Homa,

    Though GBSR is a good metric, but all of us know most of the charitable contribution are to further one’s political interests. You donate to charities, which are founded by business or political leaders subtly help run your campaigns. P.S: I believe there is nothing wrong with that, but to me it is masked contribution.

    I still remember your teachings from marketing class:

    “Do I care about saving the lives of those few workers who might die from asbestos exposure?” ” Hell No!!, I care about creating marketing ineffeciencies”

    I think charitable contributions are analogos to marketing ineffeciencies.

    Again, to Romney’s defense he paid the fair tax amount to which he was liable for, and I would do the same.

    • Andrew L. Says:

      DG:

      Not to be unkind, but I have to be honest: A little milk came out of my nose when I laughed at this.

      Interesting to watch people try and explain away >$4 MM in personal chartible contributions. Guy gives away 1/3 of his income and the spin is manipulation or personal gain. Reminds me of the old cynical headline, “XXX Cures Cancer, Finally.”

      Sir, you:
      a) Have no, and I mean a ZERO basis, for categorizing this giving to people who “subtly help run your campaigns”. If you do have it, please post it

      b) Have taken the lesson about aligning philanthrophy to corporate causes intended for the business context (i.e. shareholders’ money) and mistakenly applied it to the personal context (i.e. my money)

      Finally, if you view charity as a market inefficiency, you should crack open Adam Smith’s other great book – The Theory of Moral Sentiments – to get an understanding of how values impact Homo Economicus.

  3. TK Says:

    Is it still charity if you get a tax break? Doesn’t seem like it to me. Also, you better do some research before assuming that charity is more efficient than paying taxes. For instance, telemarketers often keep more than 70% of funds raised and many questions have been raised about how the Mormon Church utilizes tithed funds.

    http://www.bloomberg.com/news/2012-09-12/charities-deceive-donors-unaware-money-goes-to-a-telemarketer.html

    • Andrew L. Says:

      Thank you for demonstrating the contortions necessary to somehow twist Gov. Romney’s charitible donations into being a negative thing. Is the argument that he shouldn’t take the deduction (though Senator Reid objects to that as manipulation), or (a la VP Biden) that he shouldn’t make the donations at all? Do tell.

      As for charitible efficiency, is it your argument that the USO and Wounded Warrior Project are somehow less efficient than the Veterans Administration. Again, do tell. Explain to me what USAID does better than Doctors Without Borders. Which Federal agency works better than Feed the Children?

      Looking to the broader picture, Gov. Romney is out of touch with what it means to be middle class and to grow up hard. We get it. Check. President Obama is out of touch with what it means to run a business, grow it, deliver value, and pay back investors. He is clearly out of touch with what it means to create an environment that supports broad prosperity. He is arguably out of touch with math (like virtually every other lawyer I know).

      Of the two, which is a bigger problem? Another four years and we may all be middle class.

  4. TK Says:

    I think it is wonderful to donate money. I disagree with the tax deduction.

    I have no idea what the fundraising policy is of the handful of charities you named. I was shocked to learn how much money is wasted by big name charities. In many cases the charity is comfortable allowing the telemarketing firm to keep more than 70% of the money. They are happy to be receiving their 30%. no matter how well they use the money, this is a disastrous waste of funds.

    If you are GIVING the money, GIVE the money.

  5. Andrew L. Says:

    Solid case to be made for eliminating or reducing that deduction. President Reagan thought so. Democrats opposed. Not really germane, however, since President Obama took the deduction as well, and – as a percentage of AGI – benefitted more from it since his tax rate is higher.

    Certainly some charities waste money. What I can’t understand is why you can get your dander all up about wealthy people getting scammed by faux charities, but somehow $8 million Hawaii conferences for the VA are fine while five vets die in a Marrion, IL ICU because the VA hospital couldn’t “afford” a physician. Last year, NIH spent $175,587 to research how cocaine affected risky sexual behavior in Japanese quails, THE SECOND GRANT.

    You are focusing on the wrong things. Every day 16,000 kids die from hunger, 130,000 U.S. veterans go homeles, and 5 unemployed people fight every 1 job opening. All while resources are being wasted at a burn rate of $4 billion. Understand it? Own it.

    Is the answer really to be found in Gov. Romney’s tax return? Adult table is this -> way.

  6. TK Says:

    I wasn’t trying to bash Romney – was simply responding to the deduction which I think is silly.

    My point on charities is that we often make assumptions about efficiency and capabilities that are untrue. In fact, if you have the chance to read the attached article, these telemarketers pray on our tendency to trust. It has to make you wonder how well the charities are run.

    I think it is criminal that so many live in poverty. Partially as a moral issue, but mostly because it is a waste of resources. I’m not sure the answer is to let the wealthy pick a pet project to direct their money towards in lieu of paying taxes. It seems inevitable the money will be divided in a less equitable fashion. Perhaps if the wealthy were forced to pay un the form of taxes they’d spend more time and energy as stewards of tax funds and improve how they are spent? Or maybe they’d just continue to make donations on top of their taxes. Either way, I think we can do a better job of fighting poverty. And it does not require me to pretend that government is always wrong and the private sector always right. Both mist be watched carefully, because there are greedy people embedded in both.

    Tax rates are a big issue. The next president will need to make important decisions about e ‘fairness’ of our system. It is absurd to ask voters to ignore Romney’s own record of paying taxes. I happen to believe that paying taxes IS an act of patriotism. Otherwise we wouldn’t make fun of the Greeks for their chronic avoidance.

  7. Andrew L. Says:

    Well now you are cooking with gas. Paying taxes is a form of patriotism – the investment in civil society. By that measure, Gov. Romney is 11 times more patriotic than President Obama. Also, how much more patriotic is the Governor because he overpaid his taxes by more than the President actually paid in his taxes?

    That’s right, Governor Romney overpaid his taxes by ~$190k. Guy gave $4 million in charity and OVERPAID his taxes. What, precisely, is the beef? Those are just his personal taxes, by the way, and not the corporate taxes his businesses are responsible for generating.

    On the question of government versus charity, the non-profit organizations reponsible for tracking charitible organizations (charity watch, charity navigator) indicate that 90 percent of charities spend >65 percent or more on programs and 70 percent spend >75 percent.

    Robert L Woodson, Sr. (former NY director of the Urban League) used government data to estimate that the efficiency of government assistance is ~30 percent. Research that has been subsequently validated a large number of times. So, well, asked and answered.

    Government is good. Government is critically important, but if taxes are our patriotic investment in that government, shouldn’t we be weigh our leaders by their use of that investment? Since 2008, has education improved? (SAT reading scores are at an all time low). Do more people have jobs? (Total employment lowest in decades). Do you want a government that actually works, or are you just happy to use them to take money from productive people and use it less efficiently?

    You should want more than you are getting.

  8. TK Says:

    I think most people attacking Romney’s tax situation are angry because they believe the current tax system allows the rich to underpay. If Romney believes his rate is appropriate he should simply make that case. Hiding the returns makes it seem the he is embarrassed by the rate he plays. Fine for a private citizen, but politically difficult if you want to be President. I think this is an appropriate line of questioning for voters.

    I have no interest in defending the government where it is inefficient. I think knee jerk republicans are as dangerous as knee jerk liberals. We should watch all institutions closely rather than blindly defending them.

  9. Andrew L. Says:

    I agree that most people attacking his tax situation believe that they current tax system allows the rich to underpay.

    Of course, that is sort of silly, right? I mean the top 5% of tax payers foot 60% of the bill? Reminds of a great bit from Sam Seaborn from West Wing: “Henry, last fall, every time your boss got on the stump and said, “It’s time for the rich to pay their fair share,” I hid under a couch and changed my name. I left Gage Whitney making $400,000 a year, which means I paid 27 times the national average in income tax. I paid my fair share, and the fair share of 26 other people. And I’m happy to, ’cause that’s the only way it’s gonna work. And it’s in my best interest that everybody be able to go to schools and drive on roads. But I don’t get 27 votes on Election Day. The fire department doesn’t come to my house 27 times faster and the water doesn’t come out of my faucet 27 times hotter. The top one percent of wage earners in this country pay for 22 percent of this country. Let’s not call them names while they’re doing it, is all I’m saying.”

    You want fairness? How about we start with everyone pays something. As you said earlier, if perhaps all Americans were, “were forced to pay un [sic] the form of taxes they’d spend more time and energy as stewards of tax funds and improve how they are spent?”

    They should – government spending has increased from 7 percent of GDP in 1902 to 35 percent of GDP in 2010. 30 percent of government assistance reaches the target. Why would you pay or that?

    I’d pay more. I’d do it happily. You’d have to race me down to the post office if – and this is a big if – I had any confidence that the money would be spent well.

  10. TK Says:

    I think we need to ask your hero Sam if he deserved to make 400k to start. Since management sets its own wages it is not good analysis to look at how much they pay in taxes and ignore how they have increased their own pay.

    The massive credit bubble came partly because workers have lived on credit and depended on pension obligations. As they are forced to deleverage we all need to have a more realistic outlook about what our economy really produces.

    Argue all you want, but the ability to vote taxes higher is an important balance because the Sam’s of the world have become too greedy. If you focus on the original distribution it becomes obvious why we are having a debate about RE-distribution.

    Our executive/mqnagement class has been very greedy. If Mitt believes what he pays is fair he should be willinto stand up tall and defend his tax rate. Instead he is skulking around and hiding his returns. Pitiful.

  11. Andrew L. Says:

    Yeah, wow. So apparently you haven’t seen The West Wing. In the show, Sam Seaborn works in the White House for a democrat President. The character is widely known (though apparently not that widely) to be modeled on George Stephanopolous. That is a liberal’s take on taxing the people who pay for government.

    The rest of your post is sort of a head scratcher for me. It seems that the question comes down to either wanting to make a better country or wanting to punish the wealth creators for taking too big a cut (of the wealth they created).

    Read you loud and clear on wanting the latter. Unfortunately, the road to broad prosperity travels in the other direction. In fact, if you taxed the greedy rich at 100%, you would still be $800 billion in the hole – just for the year.

    You started the post by being incensed that some charities only contribute 30% to their cause, yet you express no care that the government delivers the same ratio. There is a word for that.

    You are consistently focused more on what is taken from 5% of earners than what 300 million Americans get in return. You neglect that every quail sex study pulls money from job training. Every dollar that went to Solyndra came out of a hungry kid’s mouth or a homeless vet’s pocket. Every VA conference in hawaii takes 7 doctors away from patients who were promised better.

    Employment is down, wages are down, quality of life is down, optimism about the future is down. The only things up are the stocks boosted by market intervention and debt – $4 billion every day. Left with no ability to lift people up, your only option is to pull others down.

    That is really, well, sad.

  12. TK Says:

    It is a WEALTHY liberal’s take! What a shock that he feels he is paying plenty in taxes!

    My point is that we have OVER-compensated the executive class for the past 30 years. The numbers are very clear – even if you are choosing to ignore my actual argument. I agree that overcompensation is a larger problem than tax rates, but raising tax rates is one lever voters can use to push back against rising executive pay.

    I think the story about 47% not paying federal tax has been analyzed in completely the wrong fashion. It is not an indication of laziness, but a reflection of our growing wealth disparity. The tax credits and all of the other nonsense that has been tacked onto the tax code made poor and middle class workers feel as though they were doing better, even as wages stalled.

    On the charities – again you seem to be missing the main point. I am not incensed that charities are inefficient. I am incensed that people are too eager to ASSUME they are more efficient than government without researching the issue.

    I was blown away to learn that some of the world’s larges charities were willing to let telemarketers keep as much as 75% of funds raised. These telemarketers are using our assumptions against us to make themselves rich. The numbers you sent about a handful of charities is encouraging, but are those numbers calculated AFTER the cash is inside the organization? Is it still efficient if their 90% usage rate is only on 30% of the total dollars donated?

    It appears to me that the politicians are in cahoots with the business execs, stealing the rest of us blind. I’d like to shine a bright light on ALL of them. Both sides are selling you class warfare and you seem to be an eager buyer. BTW, a little milk shoots out of my nose every time I see “wealth creators” in writing.

    At the end of the day, I agree that we have a long list of problems. I simply disagree that these problems all started in 2008. Given the importance of the consumer in our economy, it is clear that low wages/credit deleveraging will put a crimp in spending. Government should be a spender.

    Providing more money to wealthy and asking them to overpay for investments (my definition of QE) will not help the economy as much as direct investments in infrastructure and payments to states to support public workers and debt modification. These dollars will bolster the economy at a higher ratio that QE.

  13. Andrew L. Says:

    Yes, wealthy liberals are the worst. Wait, didn’t President Obama make twice that last year?

    We certainly agree that business and government work together to fleece the average guy. Explain how the answer to that is more government.

    We agree on QE. It has nefarious intent, wrapped up in dangerous methods, delivering dubious outcomes. It is malpractice.

    You are right on the growing divide between the top and the bottom income brackets. It is a problem today. It will likely soon be a crisis. Still, if you think that government is the answer to, rather than the source of that problem, you’ve been bamboozled, hoodwinked.

    Since 1992, government spending has tripled yet education is failing. Infrastructure is failing. Forty-seven current job training programs are failing. $1 trillion in crony-enriching stimulus is failing. Unemployment is up, but wages are down. Welfare and food stamps are up, but new business starts are down.

    Maybe, just maybe, you should ask yourself if more of the same is really a solution.

    I understand your argument on the charity issue, it is just that you are wrong. People assume that charity is more efficient than government because it is – at least 90% of the time. 2.5 to 3 times better on average. You are using an article focused on .03% to try and tar $300 billion in annual American giving. Even if I grant the point, charity is still more efficient than government 89.97% of the time.

    BTW, “the Sam’s of the world have become too greedy.” Who is the class warrior?

    Wealth creator. Go get yourself a towel.

  14. TK Says:

    Where do i make an argument for more government? My primary concern is the wealth gap. You agree that it is a problem, but my pointing it out makes me a class warrior? Where do you think the gap comes from? Do you think it is unfair to ask if compensation is too high? Am i wrong in thinking that management (directly and through compensation committees) are responsible for rising executive salaries? Why can’t we discuss the issue without it being a class war? How else can we determine whether it is a problem that needs to be solved?

    As you point out, the president is a high wage earner also. You can watch TV until your eyes fall out and we hear, almost exclusively, from wealthhy people on the topic of taxes. I’d submit that most of us feel we ‘deserve’ our salary and the lifestyle it produces. I am suggesting that our own comfort has blinded us to the issue.

    Who do i blame? The politicians and business leaders who continue to profit from partisan bickering that is never meant to get to the heart of the problem and solve it. For the past 30 years we’ve gotten tax credits, pension obligations and a bunch of other garbage that has hidden the problem of income inequality. I think talking about the initial distribution would be much more productive than arguing about redistribution.

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