So Julia and I did our 2011 taxes last night. We came out pretty well all things considered. Not nearly as well as some presidential candidates, but well enough to have no real complaints. Speaking of presidential candidates, however, despite our miniscule income compared to Mitt Romney, we still paid a higher percentage of our income in taxes than he did. Which is, dare I say, a patently ridiculous outcome.
Considering state and federal income taxes, as well as Social Security and Medicare taxes, we had an effective tax rate of 16.5%. Mitt Romney, on the other hand, had an effective tax rate of 13.9% on over $20 million of income in 2010, as has been widely reported. The news reports I have seen do not include information on whether Social Security or Medicare taxes are included in that total; however, since Social Security taxes are capped on the first $100,000 or so of income and Medicare taxes are 1.45% of your income, including those taxes in his amount would still put it below our effective rate. His “estimated” tax rate of 15.4% in 2011 is also below our rate. If you include the employer portions of Social Security and Medicare taxes in both our income and tax burden, as many economists are wont to do, then the total tax burden on us is a hair under 20%, which is a bit more lopsided. Again, due to caps, Romney’s total tax burden with this calculation would increase no more than three percentage points, and I’m not even sure that carried interest income is subject to Medicare taxes.
A couple of observations on this. First, either a 16.5% or 20% effective tax rate does not seem “onerous” or “job-killing” or any other descriptors that some people use for income taxes. Sure, I’m not including the sales tax rate, gas taxes, or any other excise or property taxes, but all the same, the end result not that we’re working so the government can take half of our income. Second, our income tax burden was reduced by some middle-class tax perks, such as the deduction of student loan interest payments and tuition. Perks that I don’t happen to agree with, but they are the law and so it is what it is.
Third, it is wrong to pay a higher tax rate on money you get from going into work five days a week than money you get in a big pile that’s sitting around. If you are a cop, teacher, office worker, even a doctor or lawyer, you pay a higher tax rate than if you draw an income on a huge pile of money, as Mitt Romney does. This is not right.
I’m actually no more in favor of the Buffet Rule than I am other tax code complications: it makes taxes harder, not easier, to calculate. As I’ve said before, I prefer a drastically simplified, progressive income tax, without most deductions, loopholes, Alternative Minimum Taxes, and the like. Even so, something definitely needs to be fixed in our tax code. I’d like it if Romney boosted his contribution to something over ours.