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By his own admission, Mitt Romney pays a lower tax rate than many Americans. But, President Barack Obama says Romney’s rate would be far lower under a plan proposed by the presumptive Republican nominee’s new running mate.
Obama took aim at Romney and his running mate, U.S. Rep. Paul Ryan, last week in a speech at Windham High School in New Hampshire.
"His new running mate, Congressman Ryan, put forward a plan that would let Governor Romney pay less than 1 percent in taxes each year," Obama told the cheering crowd during the August 18 speech. "And here’s the kicker, he expects you to pick up the tab."
Much has been made of Romney’s taxes in recent months, as the millionaire former Massachusetts governor has declined to release most of his returns. But saying he would pay next to nothing in taxes each year under Ryan’s plan is a new one.
We decided to crunch the numbers.
Over eight terms in Congress, Ryan has introduced a number of budget plans with a range of tax reforms. So, to figure out which plan the president was referring to, we approached the Obama campaign, which pointed us to Ryan’s first proposal, A Roadmap for America’s Future.
Ryan first introduced this plan in 2010, before he became chairman of the House Budget Committee. He proposed at the time to do away with taxes on interest, dividends and long-term capital gains, among other reforms.
The plan stalled in committee and never reached the House floor for a vote. And Ryan and other House Republicans moved away from the tenets of the original plan with their later budget proposals, which included taxes on interest, dividends and capital gains.
ABC News noted recently that Romney himself criticized a similar proposal during a January debate. The plan, introduced by Republican challenger and former House Speaker Newt Gingrich, also proposed to do away with capital gains taxes.
"Under that plan, I'd have paid no taxes in the last two years," Romney told Gingrich, according to the debate transcript.
But, several major publications, along with Obama, place the number at closer to 1 percent.
Both Roll Call and the Atlantic have published stories in recent weeks reporting Ryan’s plan would have left Romney paying a tax rate of 1 percent or less. Each story based its calculations on Romney’s 2010 tax return-- the most recent one released.
In his 2010 return, Romney reported $21.6 million in income. But, of that total, none of it came from wages or salary, according to federal tax documents. Instead, most of Romney’s income came from capital gains ($12.5 million), dividends ($4.9 million), and taxable interest ($3.3 million), among other sources that would no longer be taxed under Ryan’s plan.
On top of those figures, the Roadmap plan proposed to eliminate the Alternative Minimum Tax, on which Romney paid nearly $233,000 in 2010, and it would have cut the top marginal tax rate from 35 to 25 percent on income over $100,000. This would have reduced the taxes Romney paid that year on his business income, about $594,000, much of which came from book and speaking fees.
In his Roll Call story, Steven T. Dennis didn’t identify an exact tax rate, but he reported that these new deductions would amount to 95 percent of Romney’s income that would no longer be taxed under Ryan’s plan.
"It's not certain exactly how low Romney's tax bill would go, but his income from other sources amounts to about $1 million," Dennis wrote in the Aug. 11 story. "Romney's total tax bill would have dropped from the $3 million that he paid to a few hundred thousand dollars if Ryan's plan had been in effect."
In his Atlantic piece, reporter Matthew O’Brien takes his calculations a step further, totaling the amount Romney would have paid under the Ryan plan at just north of $175,000.
That number reflects the elimination of interest, dividends and capital gain taxes, as well as the Alternative Minimum tax, O’Brien wrote in an email to PolitiFact. It considers the lower top marginal rate proposed under the plan, and it maintains the self-employment taxes that Romney paid in 2010, he wrote.
"Now, Romney would still owe self-employment taxes on his author and speaking fees, but that only amounts to $29,151," O’Brien wrote in the Atlantic article. "Add it all up, and Romney would have paid $177,650 out of a taxable income of $21,661,344, for a cool effective rate of 0.82 percent."
Tax analysts across the country haven’t repeated O’Brien’s math exactly, but, looking at Ryan’s plan, they feel the numbers are right on.
"The rough calculation by Matt O’Brien strikes me as reasonable. … The bottom line is that given that we know the vast majority of Gov. Romney’s income falls into the categories of interest, dividends, and capital gains, he would no doubt pay a far lower rate …," said Joseph Rosenberg, a research analyst with the Tax Policy Center, in an email.
The policy center is a joint venture between the Urban Institute and the Brookings Institution.
"Very little of (Romney’s) income is from ordinary working or business income," added Roberton Williams, a senior fellow at center. "Given the amount of itemized deductions he had, at least on the 2010 return, that would wipe out close to all of them. … When you’re Mitt Romney, that’s a very good deal."
It’s important to note that Ryan’s most recent budget proposal does not eliminate taxes on interest, dividends and long-term capital gains. Obama is correct, however, to suggest that Ryan at one point put forward a plan that would have eliminated them.
It’s hard to say how that budget proposal would have affected Romney’s tax rate for "each year." Romney hasn’t released his tax returns before 2010, and his 2011 documents aren’t finalized yet. But, looking at the snapshot of his 2010 return, it’s safe to say his tax rate would have taken a nose dive.
More than $20 million of Romney's $21.6 million income that year came from interest, dividends and capital gains -- items that would no longer be taxed under Ryan’s plan. Factor in a reduction in the top marginal tax rate and the elimination of the Alternative Minimum Tax, and Romney’s tax rate would have fallen dramatically, almost surely reaching below 1 percent, according to media reports and tax analyses.
We rate this claim Mostly True.
President Barack Obama, speech at Windham High School, August 15, 2012
House Budget Committee Republicans, A Roadmap for America’s Future: Tax Reforms, 2010
Washington Post, Mitt Romney’s 2010 Tax Return, January 24, 2012
ABC News, POTUS to Say in NH: Under Ryan Plan, Romney Would Have Paid Less Than 1 Percent in Taxes -- Is It True?, August 18, 2012
Council on Foreign Relations, Republican Debate Transcript, Tampa, Florida, January 2012,January 23, 2012
Roll Call, Paul Ryan’s Tax Plan Would Slash Mitt Romney’s Tax Rate to 1 Percent, August 11, 2012
The Atlantic, Mitt Romney Would Pay 0.82 Percent in Taxes Under Paul Ryan’s Plan, August 11, 2012
Interview with Roberton Williams, senior fellow at the Tax Policy Center, August 21, 2012
Interview with Joseph Rosenberg, research analyst at the Tax Policy Center, August 22, 2012
Email interview with Matthew O’Brien, reporter at the Atlantic, August 22, 2012
Email interview with Steven Dennis, reporter at Roll Call, August, 23, 2012
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