Romney’s tax rate reveals some interesting information

All over the American press there have been reports that Romney has paid “at least 13% income tax” over the past 10 years. The New York Times has suggested that this is a “higher effective rate than most people pay.” At first, the NYT statement might seem completely crazy, but in reality, it isn’t that low compared to what most people in the US pay. For example, government after government has worked to reduce the tax rate, making the US one of the lowest tax countries, as successive governments try to win elections. As a result, 46% of Americans did not pay income taxes in 2011. Obama has cited this as an achievement, but it isn’t.

First, this is mainly because people’s incomes have fallen in the recession. As people lose their jobs or take a pay cut, this reduces their income and takes them out of the tax brackets, therefore, they pay less tax. This means that the people who have a lower effective tax rate compared to Romney will increase. For example, the number of people who receive food stamps has doubled since Obama came to power, to over 40 million. Therefore, although it might seem that the NYT statement is strange at first, there are other issues involved.

Second, the United States is currently running a massive budget deficit, and with it, a growing mountain of debt. With 46% of Americans not paying income tax, this means that just over half of the people are having to pay for the other half. With the deficit and growing demands for government spending, mainly due to health care, this arrangement is simply not sustainable.  The whole system needs changing so that at the very least, more people are paying tax and just over half of Americans are not made to pay for the other half.

Romney’s rate itself is also difficult to compare. This is because Romney used to work at Bain Capital, a venture capital firm. When he was there, he would have made deals and investments that he is still making money off today, even if he did leave the company many years ago. This means that he only pays capital gains tax, much lower than traditional income tax. Although of course effective tax rates can still be compared, and many will claim that only paying 13% of your income is unfair, it isn’t that far off European tax rates. This is because it also doesn’t include state or sales taxes, which will again increase his effective tax rate. Healthcare coverage would also have to be paid for by Romney, and that in itself is incredibly expensive, and would certainly push Romney’s tax rate to European levels if it was to be included. Romney also refuses to release his full tax returns, so the exact figures cannot be calculated.

Relating this to the election, there have been constant calls for Romney to release these tax returns. This shows a difference between the two candidates. Romney has been attacking Obama on political issues, such as the economy or healthcare. However, Obama constantly attacks Romney over personal issues, over things such as the family pets or that he apparently “killed a woman.” A very unique and interesting situation.

It is clear from one figure alone, the US has various problems. From a huge proportion of people not paying any tax, creating a unsustainable problem adding to the already unsustainable problem that the US has, in the form of the deficit and huge levels of debt. It can also be related to the election, and although the argument over Romney’s tax returns will carry on, I doubt he will release them, and I seriously doubt that it will have an effect on the election. American voters find other issues, such as jobs and the economy far more important this time around. A few years ago, and at the next election, the issue will be more important, but for the time being, it’s time to get over it and debate the real issues.