Saturday, August 18, 2012

Mitt Romney's Taxes or... Barack Can't Run on His Record

There is all this talk about Mitt Romney's taxes.  Demands that he release his tax returns, to prove that he paid taxes.  Make no mistake, everyone demanding his taxes be released knows he paid taxes.  They just want everyone to see how much he made and how he took advantage of different deductions, adjustments and credits.  I guess we're supposed to begrudge Mitt Romney for being smart and successful.  I find it funny that it is coming from the guy who fought tooth and nail to avoid releasing his birth certificate and still hasn't released his college transcripts.

This is just more class warfare tactics.  If Romney's taxes were questionable, the IRS would have been all over.  That's what they do.  So, if Romney's taxes were legal and let's say he paid $0 in taxes, what does that mean?  Did he break the law?  Is it illegal? Is it wrong?  Does it make him "stingy?"  Actually no.

In order for Mitt Romney to have a low tax rate, he would have to take advantage of certain deductions, adjustments and credits on his taxes.  These "loopholes" are ways for the government to steer our behavior to get what government wants, and reward us with lower taxes.  We are basically, helping the government and cutting government out as the middle man.  Why should the government subsidize something when they can just encourage us to buy it?  The government wants us to drive more fuel efficient cars?  Boom.  There's a loophole for that.  Government wants us give to charity?  Boom.  There's a loophole for that.  Solar panels on your house?  Simply buying a house?  Loopholes for those as well.

So why don't the rest of us get these?  Short answer: we do.  These loopholes are available to us all.  The lesson you learn real quick is that the amount you need to donate to charity to max out that loophole is A LOT.  The amount of medical expenses you need to rack up to max out that deduction is A LOT.  Hybrids are more expensive.  Solar panels are expensive.  Buying a house is expensive.  Student loans are expensive.  If you were to legally take every loophole you could, you'd go broke.

Think about this.  If I want to deduct healthcare expenses.  In order to deduct that it has to be more than 7.5% of my AGI (it goes up to 10% as part of Barack's, "no middle class tax increases" line.  Make no mistake, this is a tax increase on the middle class).  If my AGI is $40,000 that means I have to have $3,001 in medical expenses to qualify.  So let's say I rack up $6,001 in medical expenses.  What does this loophole yield?  $750.  That's it.  If I was just going for the loophole I spent $6,001 to get out of $750 in taxes.  If I didn't need medical care, I'd just prefer to keep the six grand and pay the $750 in taxes.

At the end of the day, this issue has already been addressed.

From Judge Learned Hand, "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury.  There is not even a patriotic duty to increase one's taxes.  Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

And from the Supreme Court in Gregory v. Helvering, "The legal right of a taxpayer to decrease the amount of what otherwise would be his [or her] taxes, or altogether avoid them, by means which the law permits, cannot be doubted."

In other words, it is completely legal and OK to not pay taxes if you do so legally.

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