(Photo: Reuters/Jonathan Ernst)
Former Massachusetts Gov. Mitt Romney relented to pressure and released two years of tax returns today, an action that an expert on investing and entrepreneurship believes can be used as a "teaching moment" to educate voters on the nation's complicated tax structure.
The Romneys 2010 tax return shows the couple paid 13.9 percent in taxes, and an estimate of their 2011 return shows an estimated 15.4 percent tax rate. With both years combined, this amounts to about $6.2 million in taxes on about $42.4 million of income. The returns are more than 500 pages and can be found here .
The couple gave around $4.1 million to The Church of Jesus Christ of Latter-day Saints, also known as the Mormon Church, over a two-year period ($2.6 million in 2011 and $1.5 million in 2010). They also contributed to The Tyler Foundation, making their charitable contributions well above 10 percent.
One reason Romney may have been hesitant to release his tax returns is due to the complex nature of the return, which takes more than a 30-second sound byte to explain.
For example, the vast majority of the couple's income has already been taxed, thus underestimating the Romneys total tax burden on the same dollar.
According to John Berlau of the Center for Investors and Entrepreneurs, Romney is in essence paying more than double the tax compared to the average taxpayer who pays just under 15 percent in federal taxes.
"Our tax code layers taxation of dividends and capital gains on top of a top corporate tax rate of 35 percent – which even President Obama acknowledges is one of the highest in the world," Berlau wrote in an op-ed in Tuesday's Wall Street Journal.
"In other words, after the combined top tax rates hit $100 of corporate income, $55.25 remains for the investor. And this figure doesn't even include various state and local taxes or even the death tax."
Berlau was even more direct in a separate conversation with The Christian Post, saying that when state, local and death taxes are factored in, the effective tax rate could increase to over 64 percent.
"I think the candidates should use the release of their tax returns as a teaching moment," Berlau suggested. "Most people may not get to see a tax return of this magnitude, so it could give them a better understanding to how complicated and convoluted our tax code is."
During last Thursday's CNN debate in Charleston, S.C., former speaker of the House Newt Gingrich and his wife, Callista, released their 2010 tax return showing they paid $994,708 in taxes on an adjusted gross amount of slightly more than $3.1 million, or 31.6 percent in taxes. The couple also contributed $81,000 to charity, or 2.5 percent of their income.
Why the difference in Romney's and Gingrich's effective tax rate? It all comes down to the difference between ordinary tax rates, which start at 10 percent and goes as high as 35 percent. Although some of Gingrich's income was taxed at lower rates, anything in excess of $373,650 is taxed at the 35 percent rate.
By comparison, most of the Romney's income is taxed at the 15 percent base rate on investment income; again, most of which was already taxed earlier.
"The question remains, would you rather have the Mitt Romney's of the world investing their money in companies that create wealth or the government investing it into things like Solyndra?" said Berlau. "Just as people don't begrudge Steve Jobs for getting rich, we shouldn't punish others, even those who run for office."
Berlau also sees a disconnect in how some Democrats view taxes on the wealthy.
"Even most Democrats, including Sen. Bernie Sanders (I-Vt.), voted to increase the conforming loan limit for mortgages backed by Fannie Mae and Freddie Mac to as high as $729,750," Berlau said. "It's amusing that even liberals want to choose who to increase taxes on and then turn around and give breaks to their friends when the average mortgage is $212,700."
Neither of the other two GOP hopefuls, former Pennsylvania Sen. Rick Santorum or Texas Rep. Ron Paul, have released their tax return, although Santorum has indicated his is forthcoming. Paul says he has no plans to release his.