Posts Tagged ‘GBSR’

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

September 21, 2012

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?

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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.

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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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Buffett, Romney & the Give Back to Society Rate

January 30, 2012

The cameo by Buffett’s secretary at last night’s SOTU address, and Mitt’s released tax returns have re-elevated the issue “coddling the rich” with low tax rates (compared to their secretaries).

Last fall, when we dissected Buffett’s taxes, we coined a  measure: 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.

We crunched the numbers and concluded that Buffett pays about $7 million in Federal taxes, about $3 million in state taxes, and about $20 million to charities … for a total of $30 million … which dived by his $63 million AGI … gives a GBSR™ of almost 50% (47.6% to be precise).

We concluded that Buffett may not be the piker that he claims to be.  And, maybe he should stop causing trouble for other folks by constantly whining about the tax code.

In Romney’s case, his release says that he made $21 million … paid $3 million in taxes … and donated $3.7 million to charities.  So, his tax rate may sound meager @ 14%, but his GBSR™ is almost 32% – and that’s not counting state & local income taxes.  My bet: add S&L taxes in and Mitt ‘s GBSR™ is way over 40%, too.

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?

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Here’s the original HomaFIles post:

Squeezing Buffett’s numbers … Part 5 (and done !)
Homa Files 10/21/2011

OK, today should about do it.

After a recap, I’ll drop my conclusion on you … my very surprising conclusion

First. a recap to get everybody on the same page.

In Part 1, we looked hard at Buffett’s effective income tax rate (17.4%), and showed how he could get to that low rate by offsetting practically all of his ordinary income with $23 million in deductions.

This conclusion debunks the popular pundit point that he gets to the rate by having practically all of his income in capital gains and dividends.

In Part 2, we showed that about $20 million of the deductions are probably charitable contributions – a device that rich folks use to (1) do good things and (2) to manage down their tax liabilities.

Better to give to a cause that you believe in, right? Why give it to the government and have it waste the money?

In Part 3, we agreed that Buffett’s tax rate as a percentage of his taxable income is probably less than his secretary’s – partially due to his capital gains being taxed at a comparatively low rate, but mostly because he shelters his ordinary income with charitable deductions.

And, we showed how ordinary earners can get to a rate lower than Warren’s … just by donating a huge chunk of their income to charity. Not realistic, but mathematically possible.

In Part 4, we showed that Buffett’s tax rate as a percentage of AGI is only 11% …. about half of the estimated rate for our hypothetical secretary surrogates.

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Now, my first reaction when I stared at the taxes to AGI rate was “Wow, Buffett’s right – he’s nothing but a coddled piker.”

But now, I’m not so sure.

On one hand, his paying a rate (to taxable income) that’s 5 points less than his secretary doesn’t seem fair. Especially since he gets to the rate by exploiting some dreaded tax loopholes, aka. “deductions”.

The situation seems even worse when you consider his taxes to AGI rate – a mere 11% – less than half of his secretary’s rate (I suspect).

Gotta jack up taxes, right?

Not so fast.

Let’s construct another measure: the GBSR™ – “Give Back to Society Rate

Since I’m coining the measure, I’ll define 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.

OK, so what’s Buffett’s GBSR?

Well, based on my estimates, Buffett pays about $7 million in Federal taxes, about $3 million in state taxes, and about $20 million to charities … for a total of $30 million … which dived by his $63 million AGI … gives a GBSR™ rate of almost 50% (47.6% to be precise).

Now, let’s pretend that Buffett’s secretary profiles like our $100,000 ordinary earner above. Her charitable deductions would be at most $5,700. Otherwise she wouldn’t be taking the standard deduction, she’d itemize.

So, her GBSR™ @ $100,000 AGI is 27.5% ($5,700 + $21,709 = 27,409 / $100,0000 = 27.5%).

That means that Buffett’s GBSR™ is almost twice his secretary’s.

Hmmm.

Maybe he’s not such a bad guy and I should stop ranting about him.

And, maybe he should stop causing trouble for other folks by constantly whining about the tax code.

It just may be that the tax code is leading to the right answer.

Just have to look around the trees to see the forest.

AMEN

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Tech point re: charitable contributions …

October 24, 2011

I know that I said that Part 5 of my Buffett tax analysis would be my last. but …

First, I got input from a loyal reader that my analysis was wrong because “only 5% of charitable contributions can be deducted in 1040s”

That sent me back to the tax code.  Specifically to Publication 526 : Charitable Donations.

Keeping in mind that HomaFiles doesn’t offer tax or investing advice, here’s the law:

The amount of your deduction for charitable contributions is limited to 50% of your adjusted gross income, and may be limited to 30% or 20% of your adjusted gross income depending on the type of property you give and the type of organization you give it to.

Here’s the English translation.

In general, for all typical charities,e.g. churches, schools, hospitals, disease-causes, a taxpayer can deduct 100% of his charitable … but there’s a ceiling …. the total amount of charitable deductions is limited to 50% of the taxpayer’s AGI.

So, if a taxpayer had $100,000 AGI, he can write $50,000 in  checks to qualified charities and deduct all $50,000.  If he writes checks for $60,000 … he can deduct only $50,000.

The major exception: donating appreciated assets (think “stocks).  A taxpayer can claim a charitable deduction for the fair market value of the asset, pay no capital gains, and deduct up to 30% of his AGI.

Things get a bit trickier if there are both cash donations and appreciated assets in the mix.

The general  takeaway: up to a total of 50% AGI, all charitable contributions can be deducted ,,, slightly less if the donations are stock not cash.

That said, the Buffett analysis survives intact.

We estimated charitable contributions at $20 million …about 1/3 of Buffett’s $63 million AGI … so, based on our anlysis, he can deduct all of his charitable deductions, sheltering all or most of his ordinary income.

Whew.

* * * * *

Separately, I got a few emails and replies commenting on the HomaFiles-coined GBSR™ – “Give Back to Society Rate” … the sum of fed & state taxes, and charitable contributions divided by AGI.

Some of the emails said “you’re on to something”, so I’ve trademarked the metric by adding the legal “TM” super-script.

Gotta protect your intellectual property, right?

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