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Now that was a debate; contentious, revealing, and filled with acrimonious exchanges between two candidates who could barely conceal their distaste for one another. If this were wrestling, Joe Biden would have concluded the night by beating Paul Ryan senseless with a coconut, a la Rowdy Roddy Piper. Tonight was, in short, everything the Obama-Romney debate wasn’t.

Before we get to the tax issues, a couple of quick thoughts:

  • What a difference it makes to have a moderator that controls the flow of the discourse and asks the questions the public wants to hear. Great job by Martha Raddatz.
  • While Obama’s campaign advisors may well have urged him to remain “Presidential,” they were apparently more than happy to take the reins off Joe Biden. Biden attacked everything we expected Obama to address: Romney’s infamous “47 percent” comment, his 13% effective tax rate, and his continued protection of the preferential tax rates afforded “carried interests” — often in an aggressive, accusing manner.  (For more on carried interests, click here).
  • While Biden’s candor was refreshing, his decorum was decidedly less so. Kudos to Paul Ryan for not getting angrier than he did with Biden’s constant laughing and gesticulating while Ryan was speaking. Ryan did strike a blow with that “I think the vice president very well knows that sometimes the words don’t come out of your mouth the right way” shot, but for whatever reason, it came off more as over-rehearsed and ill-timed than a memorable one-liner.
  • Regardless of your political leanings, it’s hard to argue that Biden didn’t have the response of the night when he replied to Ryan’s criticism of the President’s stimulus spending by pointing out that Ryan had written him letters on two occasions imploring Biden to send stimulus money to Ryan’s home state of Wisconsin. To be fair, Ryan had to know Biden’s response was coming, but he was obligated to address the Obama administration’s rampant spending.

Now, on to the tax issues addressed throughout the debate; specifically, what did voters learn about the future of tax policy?

Joe Biden and the $500 Billion Tax Cut for the Wealthy

Tax policy made its first appearance earlier than anticipated, during a discussion on unemployment. Shortly after an impassioned rant about what he perceived to be Romney and Ryan’s apathy towards 47% of Americans, Biden added:

“They’re pushing the continuation of a tax cut that will give an additional $500 billion in tax cuts to 120,000 families. And they’re holding hostage the middle class tax cut because they say we won’t pass — we won’t continue the middle class tax cut unless you give the tax cut for the super wealthy.”

Unfortunately, debates don’t come complete with citations, so the viewing public was likely left struggling to make sense of the genesis of Biden’s statistics. Lucky for you, I’ve got a winning combination of an abundance of free time and a very understanding wife, so I’ve gone ahead and done the legwork for you.

As I discussed in detail here, the Bush tax cuts are set to expire on December 31, 2012. Should that occur, the top individual tax rate will rise from 35% to 39.6%, the next highest rate will jump from 33% to 36%, and each lower bracket will experience an increase as well.

Currently, the primary point of contention between Republicans and Democrats is what to do with those top two tax rates. The President wants to allow those two highest rates to reset to 36% and 39.6%, respectively, while preserving the reduced tax rates from the Bush-era for all of the lower tax brackets. Effectively, this would raise taxes in 2013 on only those taxpayers earning in excess of $200,000 ($250,000 if married filing jointly).

Republicans, on the other hand, have refused to allow an extension of the lower tax rates unless the two highest tax brackets are extended along with them.

So where does the $500 billion come in?

According to the President’s budget for the period 2013-2022, continuing the Bush tax cuts for those earning in excess of the $200,000 threshold — approximately 2% of the population — would cost the government $968 billion in revenue. Click the image below to enlarge the chart taken from the Budget proposal.

A separate study published by the Tax Policy Center indicated that 55% of the total benefit enjoyed by those top 2% of taxpayers that would be impacted by the expiration of the 33% and 35% brackets would inure to the top 0.1% of the population. The TPC then added that the top 0.1% of the population consists of approximately 120,000 taxpayers.

From there, Biden just does some basic math. $968 billion total benefit for the top 2% x 55% enjoyed by the top 0.1% = $532 billion benefit for the top 0.1%, or 120,000 families — if the Bush tax cuts are extended for all taxpayers.

This would be a statistic repeated several times throughout the night, and it served as the foundation for the ensuing argument, in which Biden accused Ryan and Romney of holding the middle class hostage by refusing to extend the Bush tax cuts for the lower brackets, while Ryan responded by claiming that the additional $968 billion in revenue generated by allowing the cuts to expire for the top 2% wouldn’t put a dent in the deficit.

So who’s right?

Quite frankly, they both are.

There really is no compelling need to extend the Bush cuts for the top 2%, unless you are a firm believer that a lower rate will stimulate economic growth, and many are. The idea fronted by blowhards like Bill O’Reilly that if you tax “the achievers,” they’ll simply stop achieving, is spurious and laughable. Rates have been as high as 70% under the Eisenhower administration, and best I can tell, no leading minds of that era put down their pencils and said “To hell with this… I was going to invent the Atari 2600, but a 70% tax rate? Forget it. I’ll just go back to bed.”

But Ryan is also dead on in his analysis: $968 billion — assuming that number is accurate — would not make a dent in our ever-growing deficit. If the Obama administration is serious about reducing the deficit, there would have to be significant spending cuts to make up for the fact that the top 2% simply isn’t big enough to foot the additional tax bill necessary to eat away at our mounting debt.

Of course, arguing that since the $968 billion of additional revenue wouldn’t make a dent, we needn’t bother to collect it isn’t the soundest fiscal argument either, but I get Ryan’s point.  A recent study by the Tax Foundation suggested that simply by cutting the top tax rate to 28%, you could grow the GDP by 7.4% over a 5-10 year window, so perhaps Romney’s plan to cut rates and recover revenue through economic growth has merit. The problems that come with this proposal, as we’ll discuss shortly, lay in its implementation.

But here’s the real oddity of this portion of the debate: Romney’s tax plan does not involve extending the Bush tax cuts for the rich. It involves extending the tax cuts for all taxpayers, then reducing the Bush-era tax rates by an additional 20% across the board. As President Obama referenced several times during the presidential debate, this is expected to cost the government $5 trillion in tax revenue over the next decade, with nearly $2.4 trillion of that benefit going to the wealthiest 2% of taxpayers according to the now-famous Tax Policy Center study. This is a much more meaningful reduction in revenue — and potential corresponding increase to the deficit — then the $500 billion number Biden focused on.

Of course, as we discussed with regards to the previous debate and will do so again below, the Romney campaign promises to pay for any and all lost tax revenue with offsetting reductions or caps to deductions, making the $5 trillion tax cut — in their eyes — no tax cut at all. And while the two candidates did eventually get to discussing this rather important detail, it was through no impetus of their own, but rather the urging of Raddatz. Instead, the voting public had to watch the two candidates debate the merits of a tax plan that is not currently on the table, which likely only served to confuse.

How Do You Define Small Business?

Later in the night, when the discussion formally turned to tax policy, Ryan was asked by Raddatz what portion of the population would pay more, and what portion would pay less, in tax if Romney were elected. Ryan responded:

“Our entire premise of these tax reform plans is to grow the economy and create jobs. It’s a plan that’s estimated to create 7 million jobs. Now, we think that government taking 28 percent of a family and business’s income is enough. President Obama thinks that the government ought to be able to take as much as 44.8 percent of a small business’s income.”

Now, if I were sitting at home (I was) and owned a small business (I don’t), I would take this to mean that my tax rate was about to approach 50%. But there’s an issue of semantics that needs to be addressed:

When Romney and Ryan refer to “small businesses,” they are actually referring to the 36 million taxpayers who report their business income directly on their individual income tax return, and are therefore subject to the individual tax rates at the center of this debate. These business types include sole proprietorships, single-member LLCs, Subchapter S corporations, and partnerships.

What these business types have in common is that they do not pay tax to the government on their own behalf — unlike a Subchapter C corporation, which computes and pays its own tax at the corporate income tax rate — rather, the income of the business “flows through” and is taxed at the individual owner level.

But here’s the issue: of the 36 million taxpayers who own sole proprietorships, single-member LLCs, or an interest in a flow through entity, only 900,000 — or 2.5% — actually pay tax at the two highest tax rates. Stated in another manner, by allowing the Bush tax cuts to expire for those individuals earning more than $200,000, only 2.5% of all “small businesses” would actually pay higher taxes in 2013 than they do today. The other 97.5% of small business owners will pay the same 28% or lower tax rate that they pay today, assuming, of course, the Bush tax cuts are extended for all taxpayers earning less than $250,000.

Don’t believe me? Click to enlarge the chart:

And this is precisely the point Biden should have addressed. With Ryan accusing the President of raising taxes on small business owners, Biden should have been poised to react. And while he did point out that the expiration of the Bush tax cuts for the top 2% would impact only 2.5% of small businesses, he should have added that if the Republicans continue to refuse to extend the Bush tax cuts for the lower brackets, then all small business owners will pay more tax in 2013, as the current rates of 10/15/25/28/33/35% will reset to 15/28/31/36/39.6%.

The Competing Goals of Focused Deduction Elimination and Tax Reform

Soon after the small business conversation, Moderator Raddatz delivered where Jim Lehrer failed miserably in the presidential debate by asking Ryan exactly how Mitt Romney plans to pay for his proposed 20% across-the-board tax cuts. [As a reminder, the reduction in tax rates is expected to cost the government approximately $5 trillion over the next decade, but Romney has promised to offset the lost revenue with additional revenue raisers] Unfortunately, Ryan’s response was nothing more than a vague string of misdirections, devoid of the details tax policy experts — and informed voters — have long coveted:

” Look — look at what Mitt Romney — look at what Ronald Reagan and Tip O’Neill did. They worked together out of a framework to lower tax rates and broaden the base, and they worked together to fix that. What we’re saying is, here’s our framework. Lower tax rates 20 percent. We raised about $1.2 trillion through income taxes. We forego about $1.1 trillion in loopholes and deductions. And so what we’re saying is, deny those loopholes and deductions to higher-income taxpayers so that more of their income is taxed, which has a broader base of taxation..so we can lower tax rates across the board. Now, here’s why I’m saying this. What we’re saying is, here’s the framework…Mitt — what we’re saying is, lower tax rates 20 percent, start with the wealthy, work with Congress to do it…

Now, before I continue, let me remind you that I’m not an Obama guy, I’m not a Romney guy, I’m a tax guy. (in fact, I plan on voting for Kodos) And here’s why you should care about this portion of the debate if you’re a voter.

The vagueness of Romney’s plan is more than frustrating; it is also misleading. For example, a middle-class taxpayer may vote for Romney believing he is voting for a reduction in his top rate from 28% to 22.4% that will leave him with additional after-tax income. However, depending on which deductions are eliminated or capped in order to make the plan revenue neutral, the taxpayer may actually see his federal tax obligation increase, despite the reduced rates.

Because Romney and Ryan have no plan for how they will generate the additional tax revenue necessary to offset the revenue lost to the rate cuts, they can’t possibly promise anyone what the effect of their tax plan will be. They cannot guarantee that those earning in excess of $250,000 won’t see their overall tax share go down, though that hasn’t stopped them from trying. They can’t guarantee that the middle class won’t see their tax obligation increase, though that hasn’t stopped them from trying. They can’t promise any of these things, because they have no idea how the plan will work.

Just one week ago, Romney used the Presidential debate to introduce the idea of capping certain deductions rather than eliminating them, which was taken seriously enough that Bloomberg had yours truly run a bunch of numbers quantifying what a cap would mean to the middle class. Yet tonight, Ryan made no mention of this potential $17,000/$25,000/$50,000 cap, and instead focused again on eliminating deductions. Either Ryan and Romney aren’t on the same page, or, much more concerning, there is no page.

Is it mathematically possible to fully pay for a 20% reduction in tax rates by eliminating deductions? Probably, as we’ve already covered that here. Is it possible without shifting a portion of the tax burden from those earning in excess of $250,000 to those earning less than the threshold? That’s up for debate, but it would require an extreme top-down approach, where the wealthy lost all their deductions first, and even then the result is in question. But the point is, neither Romney nor Ryan can know it’s possible, because they have no plan, only a framework.

And as a voter, you must keep this in mind, because you may be enticed by the promise of a 20% reduction in your tax rate, only to discover in April 2014 that your mortgage interest or state tax deduction is of limited or of no use, and your tax obligation has actually increased over prior years.

What I find most frustrating is that the calendar has turned to October, and I still can’t formulate an opinion as to whose tax plan — Obama’s or Romney’s — I prefer, solely because I don’t know exactly what Romney’s plan entails. Obama’s plan is unappealing to me for a number of reasons — not the least of which are the potentially damaging effect on the deficit and the painful “Obamacare” surcharges — but at least it’s a known quantity.

One final thought for other tax eggheads: the idea that Ryan mentioned this plan and “tax reform” in the same breath is borderline offensive. True tax reform entails removing some of the countless loopholes from the Code for good, leaving the tax law more manageable than it was before.  What Romney and Ryan are promoting is complexity to an unimaginable degree, attempting to cap certain deductions for a certain part of the population, while leaving the deductions in the Code for other taxpayers to enjoy.

On the bright side, it would keep me swimming in business.

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The Obama administration addresses the math behind Mitt Romney’s $1 trillion $5 trillion tax cut. Wait…what?

Nation’s pastors agree to take a Sunday off from decrying same-sex marriage; taunt IRS instead.

From the WSJ: Be advised, the last chance to undo a Roth IRC conversion is October 15, 2012.

Xzibit — of “Pimp My Ride” fame — owes the IRS $130,000 for 2011. Weird, I would have thought that a guy who installs custom fish tanks into Honda Civics would understand the need for conservative spending and sound investment.

Could the U.S. really do away with corporate interest deductions?

Often ignored in the presidential campaigning is the growing problem of violence in the suburbs:

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After we discussed some of the questions surrounding Mitt Romney’s mid-week proposal to achieve the necessary base broadening necessary to pay for his proposed 20% across-the-board tax rate cuts by implementing a $17,000 cap on a taxpayer’s deductions, Bloomberg reached out to me to crunch some numbers in order to determine the impact such a cap would have on a hypothetical family of four.

The Bloomberg article is here, but the full computations are below:

Assumptions:

  • Family income is all ordinary income from wages: $150,000
  • Family has an outstanding 30 year mortgage at 5 percent with a beginning balance in 2012 of $300,000. This gives rise to deductible mortgage interest for 2012 of $13,666.
  • Family lives in Ohio, where it pays real estate taxes on its home of $5,000 annually.
  • Family contributes $4,000 to charity.
  • Family withholds $6,000 in deductible Ohio state tax from wages
  • Family’s taxable income would fall in what is currently the 25% bracket, but would be the 20% bracket under Romney’s proposed 20% across-the-board reductions. The rates would be 8% on the first $17,400 of income, 12% on the next $53,300 of income, and 20% after that.
  • Under proposed Obama rates, (Scenario 2), the rates would be 10%/15%/25%.

Analysis:

Scenario 1: Using Romney’s Projected 2012 Tax Rates; No Cap on Deductions

AGI: $150,000

Itemized deductions: $28,666

Taxable Income: $106,535

Exemptions:   $15,200

Taxable Income: $106,134

Federal Income Tax: $14,874

Scenario 2: Using  Obama’s Projected 2012 Tax Rates; No Cap on Deductions

AGI: $150,000

Itemized deductions: $28,666

Taxable Income: $106,535

Exemptions:   $15,200

Taxable Income: $106,134

Federal Income Tax: $18,783

Scenario 3: Using Romney’s Projected 2012 Tax Rates; $17,000 Cap on Itemized Deductions Only; Personal Exemptions Allowed in Full.

AGI: $150,000

Itemized deductions: $17,000

Taxable Income: $133,000

Exemptions:   $15,200

Taxable Income: $117,800

Federal Income Tax: $17,208

Scenario 4: Using Romney’s Projected 2012 Tax Rates; $17,000 Cap Applies to BOTH Itemized deductions AND Personal Exemptions

AGI: $150,000

Itemized deductions: $17,000

Taxable Income: $133,000

Exemptions:   $0

Taxable Income: $133,000

Federal Income Tax: $20,248

 Summary

As you will see, because of the effect of Romney’s reduction in the tax rates by 20%, even when he caps a taxpayer’s itemized deductions — but only his itemized deductions  — (Scenario 3: Federal Tax of $17,208), our hypothetical family of 4 will stay pay-less under Romney’s plan than it would under that of Obama (Scenario 2: Federal Tax of $18,783).

When comparing Romney’s plan without a cap (which would be nearly impossible if he plans to keep the rate cuts revenue neutral) to that of his plan with a $17,000 cap on itemized deductions, our family of four saw their federal tax increase by $2,333.

Now, if we assume Romney will cap the benefit of BOTH itemized deductions and personal exemptions at $17,000, as his campaign seems to have indicated this week — our family of four would pay more (Scenario 4: Federal Tax of $20,248) than it would under the Obama plan (Scenario 2: Federal Tax of $18,783).   This would also increase our family of four’s taxes by $5,374 when compared to a Romney baseline with no cap, and $1,465 when compared to a Romney baseline where the cap applies only to itemized deductions.

The devil, of course, is in the details, and at this point, they are sorely lacking. On Wednesday night, Romney again referenced the possibility of using a cap to pay for his tax cuts, but this time quoted “$25,000 or $50,000″ as a potential solution, which would obviously change the results dramatically.

Lastly, and perhaps most importantly, the Romney campaign clarified this week that it would not seek to change the current tax-free nature of employer paid health insurance coverage, a change that would have greatly increased the tax burden of the middle class.

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One hundred thousand views in a little over a year. That’s not too shabby. Though a closer inspection of this site’s hits reveals that many of our guests have stopped by unintentionally, and by the looks of it, left considerably disappointed. Below is a list of the Top 6 search terms that have led internet users to Double Taxation since its inception:

Canyonero: 886 (The fact that nearly 1,000 people came here because they were searching for the fictional SUV endorsed by The Simpsons’ Krusty the Clown warms my heart and renews my faith in humanity.)

Power Rangers Porn: 620 (For obvious reasons, this instantly renews my disgust for humanity)

Double Taxation: 606 (Picking a good blog title is key. Search engine optimization!)

Power Ranger Porn: 391 (You should all be ashamed of yourselves. Perverts.)

Tax Law Changes for 2013: 270 (I’m not sure what it says about the content of this site that it took until our fifth search term to yield a result that I actually wrote about.)

Things get slightly more comforting when we look at the most-read posts in our 16-month history:

Tax Planning for the 2013 Law Changes 3,038
IRS Clarifies Interplay Between Luxury Auto Depreciation   Limits and 100% Bonus Depreciation, Long National Nightmare Finally Over   2,403
IRS Issues Luxury Audit Limits, Fails To Acknowledge   Potential Problem 1,873
Power Ranger Porn, Google Rip-Offs, and Homicidal   Accountants: Just Another Day in the Tax Court 1,591
Presidental Candidate Tax Comparison: Update 1,345

Two things can be gleaned from this data:

1. People really seem to care about luxury audit for some reason, and

2. If you want to get page hits, here’s a simple yet full-proof business plan for any blog:

Phase 1: Put “porn” in title

Phase 2: ?????

Phase 3: PROFIT!

On the tax front, in advance of tonight’s presidential debate, Mitt Romney has finally started to cave to continuing pressure to share some details regarding his tax proposals; particularly, how he plans to keep his 20% acr0ss-the-board rate cuts revenue-neutral while not shifting the tax burden away from the rich and towards the middle class. In a speech given this week, Romney indicated that he might cap deductible itemized deductions at $17,000 per individual.

There are still a number of details missing — particularly whether the $17,000 would be doubled for MFJ and how the cap would handle credits — but according to Bloomberg, this cap is just the first in a three-part plan to achieve Romney’s tax goal of a cutting tax rates by 20% while remaining revenue neutral and progressive. From Bloomberg:

A second cap would apply to personal exemptions and a third cap would apply to the health care exclusion. The amount and details of the caps could be changed to meet Romney’s targets for revenue and distribution of the tax burden. The aide emphasized that the three-cap idea is only one option being considered.

While devoid of the details necessary to formulate any meaningful conclusion, it’s hard to see how this is a step in the right direction in achieving progressive, revenue-neutrual tax reform while also cutting rates. A study conducted by the Tax Policy Center earlier this year concluded that Romney would have to eliminate all deductions for those taxpayers earning in excess of $200,000 before limiting those deductions to a lesser extent to those earning below the threshold in order to pay for his tax cuts in a progressive manner. Clearly this proposal does not accomplish those goals, as it allows those earning over $200,000 to retain some of their deductions, while providing the same limitation to those earning below the threshold.

The key, in my mind, is how the third cap would treat excludable health care benefits, as this preference largely benefits the middle class. Do away with the Section 105 exclusion, and you will likely be right back to shifting the burden of tax increases to those taxpayers earning less than $200,000.

What I do like about Romney’s proposal, however, is that he could avoid the morass of trying to eliminate deductions and preferences from the Code, as any attempt to do so would leave special interest groups fighting to the death for their particular provision. By instituting a cap,  you leave the mortgage interest deduction untouched, leave the state and local tax deduction, and leave the charitable contribution deduction in the Code, but cap their benefit. While this doesn’t neceessarily achieve the simplicity one seeks when base broadening, as it leaves those provisions in the Code, as we’ve discussed here before, sweeping Code reform isn’t particularly likely anyway.

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We’ll hit this weekend’s roundup in a moment, but first,  a public service announcement: At the risk of sounding unpopular, with the dawn of a new NFL season, please allow me to remind you that regardless of what you may think, no one — and I mean no one — cares about your fantasy football team.

On to the tax stuff…

As you may have heard, the Democrats threw their once-every-four-year soiree last week, and despite what The Onion might have said, the DNC involved more than just applauding the image of a dead Osama bid Laden for three hours. No, there was some actual tax policy discussion going on, and now that both the Republicans and Democrats have finished their little pep rallies, the interwebs are rife with reaction from tax eggheads:

The Tax Foundation crafted this analysis comparing Romney and Obama’s tax plans to the one devised by the Simpson-Bowles Commission, a bipartisan group established in 2010 and charged with recommending a tax plan that would simplify the Code while reducing the national deficit. The conclusion? While neither plan mirrors that of the Commission, Romney’s proposals — if politically possible to implement — come much closer to meeting the Simpson-Bowles goals of cutting rates and eliminating deductions in a manner that leads to a decreased deficit, economic growth, and a simplified tax code.

Next, Howard Gleckman over at the Tax Policy Center sums up both conventions — and bipartisan politics in general — wonderfully by pointing out that both Romney and Obama spent all of their time taking issue with the other candidate’s plans, neglecting to ever clarify the proposals for tax reform they would enact if elected.

Lastly, David Johnston at Reuters published a scathing column attacking the tax goals of the Romney-Ryan campaign, arguing that the Republican income tax proposals would further enrich the super wealthy while nearly doubling the income tax burden of the middle class, while their push to remove the estate tax would create a nation of dynasties that would have a devestating effect on economic growth.

In non-convention news, Kelly Erb over at Forbes has this tidbit: Hustler Magaizine publisher Woody Harrelson Larry Flynt is offering $1,000,000 cash for the unpublished Romney tax returns. Wonder why he hasn’t just brokered a deal with these guys?

Finally, allow me to send you off into the workweek with this wonderful montage of the slow transformation of Breaking Bad’s Walter White from mild-mannered chemistry teacher to ruthless meth kingpin. [May not be safe for work. Unless you work in a meth lab, in which case it should be fine.)

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Unless you’ve been living under a rock for the past few months, you’ve become aware that there’s quite the political storm brewing around Mitt Romney’s refusal to release his tax returns from prior to 2010. It got so bad recently that Senate Majority Leader Harry Reid quoted an “anonymous source” as telling him that Romney paid no tax for a 10-year period, with Romney responding by promising that he’d paid at least 13% in tax during every year in that span, while conveniently neglecting to clarify whether that 13% was federal income tax, or some combination of payroll, state, and property tax.

Now, I’ve been as big a critic of Mitt Romney’s tax proposals —  largely through the casting  of doubt that it is even remotely politically possible that enough base broadening can be done to render his promised tax rate cuts revenue neutral — as you’ll find on the interwebs. As a result, people have been asking me why I haven’t jumped on board and written about Romney’s refusal to satisfy the cries that he publish his returns. And the reason, quite simply, is because I don’t care. 

Look…I get the interest, I really do. We want to know what the “money man” in our oversimplified view of the upcoming election was hiding prior to 2010. But allow me to remove the suspense: if we could get our hands on prior returns, I’m very confident we’d see signficant (>$25 million) amounts of income, a very low (<10%) effective tax rate, and indications of large amounts of offshore investment (such as disclosure filings under the FATCA program).

The reason we’re going to see these things is…wait for it…because Romney made a ton of money prior to 2010. And people who are rich generally don’t get that way by writing a whole lot of checks. So anything Romney could do within the confines of the law to lower his tax obligation each year was most certainly considered and implemented by his team of high-paid advisors. To expect anything else from a man earning well in excess of $10 million per year is naive and, well, just plain silly.

This is who Mitt Romney is, at least in part: a rich guy with rich guy tax problems and rich guy tax solutions. Romney wasn’t obligated to pay any more tax than the law required, and he very likely didn’t. His refusal to overpay the government shouldn’t be an indictment on his ability to lead a government. As a voting public, we’ve got to be able to compartmentalize Mitt Romney the presidential candidate from Mitt Romney the aggressive taxpayer. As history has proven, you don’t have to be a Boy Scout to be great at your job. Ty Cobb was, by all accounts, a racist and an as*hole, but he sure could hit.

As a result, the burden falls on us, not on Mitt Romney, to make peace with his tax history. If you’re a fan of his principles and a believer in his stated policies, than his history as a rich guy shouldn’t impact your view on whether he can run the country. But if you don’t think he can lead the nation to a new era of prosperity, it shouldn’t have anything to do with his failure to show you his Form 1040.

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On Saturday morning, my neighbor talked me into doing a mountain bike race to the top of the Aspen ski resort. At registration, it looked like there were only 10 other people stupid enough to spend a beautiful morning suffering up 3,400 vertical feet of dirt road, causing me to wonder if I might have a shot at a top-three finish.

As we got set to start however, I looked around at who else was toeing the line: there was Lance Armstrong, the seven-time Tour de France winner turned Aspen local, Neal Beidelman, a local ski-mountaineering legend and Mt. Everest hero, marathon mountain-bike national champion Anne Gonzales, and local freak Max Taam, who was coming off a win the previous weekend at the Steamboat Stinger.

Needless to say, I didn’t sniff the podium. Aspen is not a town that favors the mere mortal.

On to the tax stuff… For those of you who aren’t yet bored with reviewing the tax returns of people who aren’t paying you to do so, on Friday Republican VP candidate released his 2010 and 2011 returns to the public. There was nothing starting about either return. Of course, given the firestorm over his own tax history, Mitt Romney would have been crazy to appoint anyone with any sort of skeletons in their financial closet as his running mate.

Meanwhile, President Obama extended an offer to Romney: publish his five most recent tax returns, and the Obama administration won’t target Romney’s unwillingness to release any additional returns in campaign ads. Note, however, that they didn’t say anything about refraining from implicating Romney of being responsible for some of America’s most sensational unsolved murders.

If you can’t trust large mass producers of cancer sticks to practice sound business ethics, then who can you trust?

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Alright…at this point, I’m spending more time on the Tax Policy Center’s website than I am on JustinBieberMusic.com ESPN.com, and that’s a little unsettling.

Last week, we posted about a Tax Policy Center study that crunched the numbers on Mitt Romney’s tax proposals and determined that meeting his dueling goals of 1) cutting tax rates by 20% across the board, and 2) eliminating deductions in a manner that generates enough additional tax to make the proposal revenue neutral, was not possible without shifting $86 billion of tax burden from those making more than $200,000 to those earning less than that threshold.

The study immediately came under attack, by Romney and others. Romney dismissed the study as “garbage in, garbage out,” blissfully ignoring the fact that the assumptions made by the Center were necessary only because Romney has refused to provide details regarding what deductions would be on the chopping block.

Then, on Monday, this opinion piece was published on the Wall Street Journal’s website taking aim squarely at the study. Foremost among the complaints were two deductions the Center left out of its base broadening computation: the exclusion for interest income on municipal bonds, and the exclusion for the inside build-up on life insurance vehicles. The Center had not considered the impact removing these preferences would have on the potential revenue to be earned from Romney’s proposal because it had concluded that he would not disrupt these tax preferences because they provide incentive for saving and investment.

In response to the criticism, yesterday the Tax Policy Center published a FAQ addressing the various concerns voiced about the initial study. Most importantly, the Center re-ran the numbers with the assumption that Romney could and would eliminate the two preferences discussed above: the tax-free treatment of municipal bonds and the exclusion for the inside build-up on life insurance vehicles.

Eliminating the two exclusions from income — which predominately benefit high-income taxpayers — would raise an additional $45 billion from those earning more than $200,000, and $4 billion from those earning under that threshold. This $45 billion additional tax on the “high-income” group would reduce the shifting of the tax burden to those making less than $200,000 from $86 billion — as proposed in the original study — to $41 billion.

In summary, even with more aggressive base broadening, the study indicates that Romney’s plan would benefit taxpayers earning more than $200,000 by $41 billion, with those earning less than $200,000 picking up the tab.

Now we just sit back and await the inevitable response from both the Republican and Democratic side. President Obama is sure to point to the study as further evidence that Romney’s tax proposals aim to benefit the wealthy. The question is: what will Romney say?

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A few things you may have missed this weekend while asking the perfectly reasonable question: There’s a such thing as men’s field hockey?

In his Bloomberg opinion piece, the author hits the nail on the head: Neither President Obama’s nor Mitt Romney’s tax plans, as currently constructed, are what this country needs right now to reduce the deficit.

Speaking of the Romney plan, more on this later today, but the Tax Policy Center has crunched the numbers again, and it ain’t pretty. If his plan were to be enacted in the revenue neutral model that’s been promised, taxpayers earning over $1,000,000 will see their after-tax income increase by 8.3%, while those earning less than $200,000 will actually walk away with 1.2% LESS cash every year after paying their taxes.

A quick primer on the increasingly-necessary exclusions from cancellation of indebtedness (COD) income.

The war of words regarding Mitt Romney’s refusal to release more than his 2010 and 2011 tax returns has escalated, with Democrats citing an “anonymous source” and claiming that Romney paid no federal income tax for a 10-year period.

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The following email came into Double Taxation HQ today from one of my firm’s high-ranking auditor types, and it seemed befitting of its own post:

Dear Tony,

You look very handsome today; I just thought you should know. Is the below email I had forwarded to me true, or is this just someone that doesn’t understand what they are reading?

HOME SALES TAX

> Have you seen this?

> When does your home become part of your health care?…….. After 2012!

> Your vote counts big time in 2012, make sure you and all  your friends and family know about this!

> HOME SALES TAX

> I thought you might find this interesting, — maybe even SICKENING! The National Association of Realtors is all over this and working to get it repealed, — before it takes effect. But, I am very pleased we aren’t the only ones who know about this ploy to steal billions from unsuspecting homeowners.

How many realtors do you think will vote Democratic in 2012?  Did you know that if you sell your house after 2012 you will pay a 3.8% sales tax on it? That’s $3,800  on a $100,000 home, etc. When did this happen? It’s in the health care bill, — and it goes into effect in 2013. Why 2013? Could it be so that it doesn’t come to light until after the 2012 elections? So, this is a change you can believe in?

> Under the new health care bill all real estate transactions will be subject to a 3.8% sales tax. If you sell a $400,000 home, there will be a $15,200 tax. This bill is set to screw the retiring generation, — who often downsize their homes. Does this make your November,  2012 vote more important?

> Oh, you weren’t aware that this was in the Obama Care bill?  Guess what; you aren’t alone! There are more than a few  members of Congress that weren’t aware of it either.

I hope you forward this to every single person in your address book.

> VOTERS NEED TO KNOW.

Thanks for your help, Tony. Did I mention you look handsome today?

Hugs and Kisses,

 Jeff.

[Ed note: we may have taken some creative liberties with the auditor's email for presentation's sake, but the thrust of the question and the forwarded chain email remains unchanged.]

To answer your question, Jeff: whoever forwarded the email is perfectly right to be confused by the implications of Obamacare. Whoever crafted this email, on the other hand, is an idiot. Not because they misinterpreted the Patient Protection Act — that’s a simple mistake — but because they got so righteously indignant while all the while being grossly misinformed. Unless of course, the chain email was authored by Mitt Romney, in which case, he’s stupid like a fox.

As we’ve previously discussed, starting in 2013 Obama will indeed tack an additional tax of 3.8% on a taxpayers’ net investment income — which would include gain from the sale of a home — but this is an additional income tax, not a sales tax.

The designation is important, because income tax is only paid on realized and recognized gains that are not otherwise excluded from income, while sales tax — as is indicated in the chain email — is paid on the absolute sales price.

Why does this matter? Because assuming the home being sold is a primary residence and otherwise satisfies the requirements of I.R.C. § 121, a married taxpayer can exclude up to $500,000 of gain from the sale of the residence. Thus, even though a taxpayer may recognize a $499,999 gain from the sale of a home, if it is excluded from taxable income under Section 121, there is no taxable gain upon which to assess the 3.8% additional tax.

The originator of the email above would have you believe that the 3.8% tax would be assessed on the purchase price, and that is simply not the case. Since no gain is recognized courtesy of Section 121, no capital gains tax — including the 3.8% addition provided for in Obamacare –is assessed on the sale.

Section 121 takes out much of the sting of the 3.8% tax increase, but there are other limitations to the Obamacare surcharge as well. For example, the tax is only assessed on those with adjusted gross income in excess of $250,000. If your AGI is below the threshold, the 3.8% increase won’t kick in.

Of course, as with all chain emails, there is some truth to be found: if a taxpayer sells a home in 2013 and either 1) the gain exceeds $500,000 or 2) Section 121 doesn’t apply for some other reason, AND the taxpayer has AGI in excess of $250,000, the taxpayer will pay an additional 3.8% tax next year.  However, as noted above, that 3.8% tax will be assessed on the net gain, not the sales price.

Hopefully this clears things up. For more information, consult your local library.

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