WOW...Gillespie just said that Romney's 13.9% was on ADJUSTED GROSS

[Laura PourMeADrink]

INCOME. (in interview with Chris Wallace)


I am no tax expert, but when you are trying to calculate "effective tax rate" aren't you supposed to match what you paid against your gross income?


First Gillespie said "gross income" then he said "adjusted gross income"

HUGE DIFFERENCE !!

[corkhead]

1. I'm not a tax expert either, but in my case as someone who owns a retail store,

my gross income at first glance looks relatively large, but it includes all of my store's sales without the "cost of goods sold" subtracted which is part of what happens to give me an "adjusted gross income"

[Warren Stupidity]

2. Yes fine but mitt Romney is theoretically not a business.

His gross income is exactly what his tax rate ought to be measured against.

[Sedona]

3. "Corporations

are people my friends"

[mzmolly]

33. "People" who don't have to pay

taxes...

[yardwork]

22. I think that's what Romney's been calling his hundreds of millions in income - "costs"

I think that Romney used every trick in the book (and probably some illegal ones as well) to claim that all his income was actually a business expense. He effectively got his income down to zero and paid taxes on that.

[mzmolly]

32. Regardless, I presume you pay more than 13%

on your adjusted gross income?

[corkhead]

35. yes I do. don't read too much into my original response.

[underpants]

4. Accounting degree here - Your tax is calculated per your Adjusted Gross

the number that carries over to page 2 minus tax credits is then multiplied by your rate.

I personally always compare the actual tax vs. what our gross income was and we normally pay 11-13% but then we are middle middle middle class. Rich folks are supposed to pay more....but I didn't have to get an accounting degree to know why that doesn't happen.


BTW - I hate tax in school.

[SlimJimmy]

5. Correct. Why is this even a question? We all pay taxes based on our adjusted income,

not our gross income.

Your tax is calculated per your Adjusted Gross

[Jeff In Milwaukee]

13. I think the question is...

What was his Total Income (Line 22) of the return before adjustments. And while we're at it, what was his non-taxable income and how much was deferred? He paid 13.9% on the income that was taxable, which doesn't reflect his tax based on his total income.

I know that's not how taxes are calculated -- I'm an Enrolled Agent with the IRS -- but what will be enlightening is to see just how much of Mitten's fortune is exempt from taxes. The tax code is massively skewed in favor of the wealthy and large corporations, and so Romney's tax return might provide with a very good example of how to bring some fairness back to the system.

[renate]

16. so... could someone like Romney have a huge amount in nontaxable income

... and just a small amount in taxable income? How would income from Bain be handled? Or perhaps I should ask how should income from Bain be handled?

[onenote]

23. A lot of "tax exempt" income is never included in "total" income.

If you look at Form 1040, the first section is "Income" and it includes such items as wages, taxable interest, ordinary dividends, tax refunds, business income/loss, capital gains/loss, IRA distributions, pensions/annuities, rental income and royalties, and social security benefits. Those items (and a few more) equal "Total Income". (Tax exempt interest is not included.

The adjustments to get to adjusted gross income are fairly limited for most people. They include such things as Health Savings Account Deduction, IRA deduction, the deductible part of self-employment tax paid, domestic production activities deduction, moving expenses, alimony paid, educator expenses, SEP contributions.

Those deductions result in Adjusted Gross Income. A number of other deductions (such as itemized deductions for mortgage interest, charitable contributions, deduction for taxes paid to states, medical expense deduction, certain business deductions) are taken after AGI is calculated and result in "Taxable Income." The amount of tax actually due may then be reduced by various credits.

[Jeff In Milwaukee]

34. And then there's the exotic stuff....

If Romney collects speakers fees though his own LLC (which I suspect he would), the LLC could then "invest" those speakers fees in things like real estate, which could turn out to be one of Mitt's several houses, and so a good deal of that income might never be on the table for tax purposes.

[joeglow3]

41. The income from the speaking fees would still flow out on a k-1 and be taxable

[Jeff In Milwaukee]

49. What if the K-1 shows expenses?

I don't do a lot of the "exotic stuff" myself, but would think that if the LLC has expenses, that those expenses would come off. And I was under the impression that LLC's can retain earnings and not have them taxed in the current year.

[joeglow3]

55. You CAN have expenses

Of course, the IRS does have strict rules around that and he would have to prove them.

Regarding LLC's, they are technically a "check-the-box" entity. Essentially, they can elect to be taxed as a partnership, s-corp or c corp. Very rarely do you see them elect to be treated as a c corp, as that subjects you to double taxation. I would say about 95-99% elect to be treated as a partnership, which flows the net income out on a k-1 every year.

[Laura PourMeADrink]

17. Exactly...what I was getting at is that "effective" is based on what you pay bottom line related to

gross. So, I think R is being totally ingenuous and deceptive to the American people when he says he is paying 13.9%. It makes people think that he paid 13.9 on his millions and millions of total income.

[SickOfTheOnePct]

52. Per Turbo Tax, effective rate is based on Adjusted Gross Income, not gross income n/t

[oldhippie]

21. Actually, no we don't ....

We pay taxes based on our TAXABLE income, which is after we take our deductions, exemptions and some other items off of our Adjusted Gross Income.

[SlimJimmy]

37. That's right, and is what I meant to say. But I guess my point is that we all pay taxes

based on something less than our gross income - no matter who we are. Why would we seem to think that Romney should declare the 13% on his gross income?

[BlueStreak]

28. The point is that it is the above-the-line adjustments that are crucial

Actually I don't see how it is possible to pay less than 15% on adjusted gross income -- the cap gains rate.

It is certainly possible to pay less than 15% of your gross income when you have deductions, credits, loss carry-forwards and so on. But those things (I guess except for some of the credits maybe) go into the adjusted gross. That's why it is called ADJUSTED for cryin' out loud.

Saying you pay at least 13% of AGI is like saying you breathe at least 20% oxygen. Yeah, duh. If you breathe, then you breathe at least 20% oxygen because that's what air is.

[joeglow3]

42. MANY deductions are below the line (i.e. the entire Schedule A).

[Warren Stupidity]

9. yes your tax is calculated on your AGI

but that simply misses the point when discussing one's effective tax rate. Taxes on AGI is how huge highly profitable corporations end up paying less in taxes than they pay in compensation to their CEOs. The fact that the 0.01% can shelter all sorts of income from any taxes at all (for example rMoney's mystery 100 million dollar IRA) is exactly why we need to look at Gross Income vs taxes paid.

The middle class gets slammed with the AMT while the 0.01% laughs all the way to their offshore accounts.

[onenote]

24. Actually, very few of the adjustments in the AGI would be available to a CEO

Take a look at Form 1040. Much more significant are categories of income that are tax-exempt and not even included in "Total income" and deductions and credits which are taken after AGI is calculated.

[Laura PourMeADrink]

25. what I don't get is his capital gains income was taxed at 15%, right? So, what was it that

brought his rate (not "effective&quot down to 13.6. It mean he had enough "regular" that was tavef at a much lower rate to drive the rate down from 15%?

[BlueStreak]

29. That is my question too.

How is it possible to pay a rate less than 15%?

[onenote]

36. tax credits; itemized deductions

Lots of ways.

[BlueStreak]

38. Itemized deductions come in above the AGI line, don't they?

Tax credits, yes, maybe, but it would be interesting to know what credits he might be claiming.

[joeglow3]

43. Schedule A is below the line.

[BlueStreak]

46. But you don't pay income tax on it. You only pay cap gains tax, correct?

[joeglow3]

48. I am confused with the question

Page one the return has all your income items and certain "above the line" deductions (student loan interest, alimony payments (which are taxable to the other party), etc.). The total of page one, which carries over to the top of page 2 is "adjusted gross income." From this, you subtract personal exemptions and the standard/itemized deductions (schedule A). This gives you taxable income, which is what your taxes are based on. It is entirely possible for someone to make $200,000 and have medical expenses in excess of that. Thus, they are paying 0% on an AGI of $200,000.

However, one point (maybe you were alluding to this) is that deductions reduce ordinary income first and then eat into capital gains income).

[BlueStreak]

50. Let me try to rephrase it

The original point of contention is that Romney claimed it always paid "at least 13%". That was later clarified to be "at least 13% of AGI".

But the reality is that multi-millionaires are able to launder most of their income to be treated as capital gains instead of earned income. I believe that the "at least 13% of AGI" certainly excludes any sheltered income (IRAs and such), and may not include the majority of his income, which is stated in the form of capital gains. The reason I ask the question is because, in my way of thinking (which may be wrong) "AGI" is for regular income tax, not capital gains.

[joeglow3]

54. AGI includes income subject to capital gains

To the extent he has income in a traditional IRA, that is deferred and is NOT included in AGI. However, withdrawals from an IRA are taxed at ordinary rates (there may be some exotic tax planning around this, but I am not aware of any - the majority of tax work I did for high wealth individuals were treating most of their income as ordinary income (most was not "earned" though)).

However, capital gains (and qualified dividends) are included on page 1 of your return. Instead of simply looking at a chart like you and I do to determine what we owe, there is a schedule within in the 1040 instructions that go through taxing the capital gains at their reduced rate.

Hope this is closer to what you are asking.

[SickOfTheOnePct]

53. Taxes due are based on taxable income, not AGI

Effective rates are calculated based on AGI.

[unblock]

6. it's normal to talk about it as a % of adjusted gross income, but you're right, that leaves out huge

undisclosed, non-taxable income.

for most of us, the difference is just a few, limited items, such as retirement account contributions. unrealized gains also don't show up, but again, this is small for most of us.

for rmoney, it his overseas income wouldn't show up at all, and his retirement account gains and unrealized gains are likely staggeringly huge.


so while it's normal to talk about your effective tax rate as a percentage of your adjusted gross income, much of the real question in rmoney's case is, how much income is he avoiding taxes on entirely, and therefore not part of his adjusted gross income (and in fact not something that would show up on his tax returns at all).

[BlueStreak]

39. This is EXACTLY the point. Thank you.

[ibegurpard]

7. Did Romney finally release his returns?

Or is he responding to Romney's claims? Don't go there unless the returns are actually released.

[Laura PourMeADrink]

26. that part was funny too. No, hasn't released for 2011. Gillespie said he would. So Chris

said, "Well when? The IRS deadline for an extension is 10-15....are you gonna dump a tax return
out a couple weeks before the election? :

Gillespie is dippy. He seems really dim-witted and out-of-the mix.

[Stinky The Clown]

8. Bigger question: How does chinless Gillispie know how much Rmoney paid?

[hughee99]

11. Perhaps he knows a Bain investor? n/t

[Laura PourMeADrink]

18. LOL....If you saw the interview...you could tell that he didn't even understand anything

about taxes in general. He first said "gross". I think this got slipped over. Have to hand to to Chris Wallace, he interjected "Gross Income? what about all the offshore accounts? " That's when Gillespie changed to "net income"

[madokie]

10. mittens is a tax cheat,

voter fraudster and should be in a jail cell somewhere until they sort it all out

[oldhippie]

12. I asked this same question in another thread ...

.. and some there said that "effective federal income tax rate" was calculated from TAXABLE INCOME,
i.e. Line 44 (TAX) divided by line 43 (TAXABLE INCOME)
which leaves out all the deductions and legal shenanigans.

http://www.democraticunderground.com/10021144788

I think we all have different ideas as to the definitions. Not good for trying to discuss comparisons.

[Laura PourMeADrink]

20. you are right. just learned that the term "effective" rate has a wide variety of definitions and

interpretations.

wiki...
The term effective tax rate has significantly different meanings when used in different contexts or by different sources. Generally it means some amount of tax divided by some amount of income or other tax base.


from congressional budget office - says what I have been saying "taxes/"comprehensive income"
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456

[Motown_Johnny]

14. Income Taxes are always on adjusted gross.

http://en.wikipedia.org/wiki/Tax_rate#Effective

^snip^


The term effective tax rate has significantly different meanings when used in different contexts or by different sources. Generally it means some amount of tax divided by some amount of income or other tax base. In International Accounting Standard 12,[2] it is defined as income tax expense or benefit for accounting purposes divided by accounting profit. In Generally Accepted Accounting Principles (United States), the term is used in official guidance only with respect to determining income tax expense for interim (e.g., quarterly) periods by multiplying accounting income by an "estimated annual effective tax rate," the definition of which rate varies depending on the reporting entity's circumstances.[3] In U.S. income tax law, the term is used in relation to determining whether a foreign income tax on specific types of income exceeds a certain percentage of U.S. tax that would apply on such income if U.S. tax had been applicable to the income.[4] The popular press, Congressional Budget Office, and various think tanks have used the term to mean varying measures of tax divided by varying measures of income, with little consistency in definition.[5] An effective tax rate may incorporate econometric, estimated, or assumed adjustments to actual data, or may be based entirely on assumptions or simulations.[6]

[Laura PourMeADrink]

19. true....but we're talking about his "effective" rate. tax paid/gross income

[BlueStreak]

30. Cam gains are not on the AGI. They are on items that showed a gain.

And that is one of the keys to tax avoidance by billionaires. Structure as much of your income such that you don't have to realize ANYTHING on it (i.e shelter it). And structure the rest so that it hits you personally as cap gains.

And that latter point is why CEOs usually get the vast majority of their pay as stock options. These stock options are easily manipulated (i.e stating fraudulent strike terms) such that the executive is assured of a large payday with virtually no risk -- but the money is transacted as a stock gain rather than a payroll check.

[joeglow3]

44. Not the case.

ALL proceeds received as an employee are taxed as earned income.

Second, CEO's are paid in stock options because the IRS effectively requires it. A company cannot deduct compensation to the 4 highest paid individuals in excess of a million dollars a year, unless it is performance based. Thus, the company has to have a detailed plan, approved by an external payroll committee and only payout if those metrics are met.

[BlueStreak]

45. No, that is simply not true.

As a hi-tech middle manager for a Silicon Valley company in the 90s, I received about 1/3 of my income through stock options. But these were bogus. There was absolutely no risk. Whenever the share price went down, the board revised the program to put everybody back in the money. You were as good as guaranteed that income, but it was structured as cap gains because that was only 20% tax at the time (15% now and zero percent under President Ryan). The only reason I was in the program was because the IRS rules required broad-based participation. The execs got the MAJORITY of their income as options.

It is a huge scam -- a massive welfare program for the most affluent -- and you don't have to make a million bucks a year to get in on this scam.

[joeglow3]

47. As a tax CPA who has practiced for 15 years, I can say it is true today

I don't know what the rules were in the 1990's, but would not be surprised if they changed since then, given obvious abuses (which you seem to highlight).

[vanlassie]

15. All the more reason to show us

the tax returns. His spin is clearly confusing the matter.

[Warpy]

27. My dad was tax phobic

and he set up the portfolio to take advantage of every loophole he could. My own "gross adjusted income" falls laughably short of my gross income and you can bet that Romney could afford much better tax planners than my little fish dad could.

If he paid taxes on more than a quarter of his actual income, his tax lawyer is a fool.

That's what he doesn't want anybody to know. The rich play by completely different rules from the average person whose whole paycheck is subject to taxes.

[DonRedwood]

31. taxes to the top, people!

k & r

[ProSense]

40. Kick! Mitt,

what are you hiding?

Trust Mitt: Releasing his tax returns would be "damaging" and policy details would be "suicidal"
http://www.democraticunderground.com/10021151118

[samsingh]

51. i think the 13.9 % is on a portion of his income and we'll find out that he paid nothing

on most of it.