Romney’s Tax Highlights

September 24, 2012 | 17 comments
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Okay, I took a quick look through the Romneys’ 2011 tax return. There’s plenty that could be said (it is, after all, a 300+ page document), but I only want to highlight a couple things. Note that my explanations are based on reading his returns; to the extent I ascribe motive to the Romneys, it’s not because I know their hearts, but because that’s what the tax returns look like. And, with that caveat, here goes:

First things first: how can I trust you? How do I know you’re not a shill for [Romney/Obama/Ron Paul/Kodos]?

This is a Mormon-themed blog. For me, that means I’m not trying to convince you to vote one way or the other. I’m clearly not an undecided voter and you can probably figure out my politics if you know where to look.1 But, for purposes of T&S, I’m more interested in exploiting the fortunate confluence of tax and Mormonism in the news to leverage my eventual takeover of the blog.2

Okay, let’s start with the most important question: is Romney a full tithe-payer?

No idea.

Okay, yeah, I get it. His tax return doesn’t separate out tithing from fast offerings from missionary fund from Book of Mormon fund. But you know what I mean: did Romney contribute 10-12% of his income to the Church?

No idea. I went into the problem of his tithing base when I discussed his 2010 return.3

But, on top of that, his 2011 returns give us a whole new set of problems. Not only do we still not know what Romney uses as his tithing base, we don’t know how much he contributed to the Church. His tax returns tell us that he donated $1.1 million in cash to the Church. He also donated $214,000 cash to his charitable Tyler Foundation, and made noncash donations of $912,000 to the Tyler Foundation. In 2010, Romney made about half of his donations to the Church directly and about half through the Tyler Foundation. But the Tyler Foundation hasn’t released its returns yet.

But wait, there’s more. Brad Malt says that the Romneys actually donated just over $4 million to charity, though they only deducted about $2.5 million.

Wait—you can do that?

Yes. Anyway, his tax returns don’t list donations he didn’t deduct, so we have no idea where his undeducted $1.5 million went.

I’m still trying to get my head around this: Malt says that he donated 30% of his income to charity in 2011. What possible reason could he have for not deducting the whole thing?

BuzzFeed’s Zeke Miller says he emailed the Romney campaign, and they responded that Romney “was in the unique position of having made a commitment to the public that his tax rate would be above 13%. In order to be consistent with that statement, the Romneys limited their deduction of charitable contributions.” My back-of-the-envelope calculation says that, had he deducted the full amount, he would have paid about 12.2% of his adjusted gross income in taxes in 2011.

The cynic in me has to know: won’t he just file an amended return and deduct the rest later?

He could. Like anybody else, he has three years from the date he filed his original return to file an amended return.

But will he? If he wins his presidential bid, I imagine he won’t. Presidents generally release their redacted tax returns every year of their presidency, and I don’t see any reason that he wouldn’t. And I imagine, in light of the controversies that have dogged his reticence to release returns, that he wouldn’t want to deal with that firestorm. If he loses, though, I can’t imagine a reason for him not to file an amended return.4

Which, speaking of, I notice that his return is dated 9/17/2012. Correct me if I’m wrong, but I had to file by April 15. Is this another of those benefits that accrue to the rich and are unavailable to the rest of us?

Nope. You, too, can file an application for an automatic extension of time to file. If you file for an extension, your tax return isn’t due until October 15. The form is on the second page of Romney’s return.

Awesome. No more April 15 for me!

One thing about that, though: even if you get an extension for filing, your taxes are still due April 15.

Huh?

Did you notice that, notwithstanding his having a tax due of $1.9 million, Romney actually got a refund for 2011? It turns out, per line 73, that he paid estimated tax of $3.4 million earlier in the year.

So he didn’t know how much he made?

Unlike me (and, probably, you), Romney doesn’t make a lot of wage income.5 Most of his income comes from partnerships, which send out K-1s6 to partners to tell the partners their share of partnership income. But remember how Romney could get an extension on his tax return? So can partnerships; IIRC, with the extension, they don’t need to provide K-1s until September. But, until he gets his K-1s, Romney doesn’t know how much income he had for the year.7 So the best he can do is file an estimated return, and hope he doesn’t significantly over- or underpay what he owes.

 

 

Show 7 footnotes

  1. That place is not here. And this seems like as good a place as any to say: this thread is not for attacking anybody, including politicians who will never become aware of, much less read, T&S. So please comment, but please keep that in mind as you comment.
  2. Note to other permabloggers: unless there’s something wrong with that, in which case, ignore that last clause.
  3. Quick recap: he’s invested in partnerships; a partnership is not a taxable entity, but partners have to pay taxes on their share of partnership income during the year the partnership earns that income, whether or not the partnership distributes the income to partners. But there’s no reason to think that Romney would—or should—pay tithing on income that hasn’t been distributed to him. The pass-through for tax purposes happens essentially because partners avoid the second level of taxation they would face if they invested in a corporation. But corporations don’t pay tithing, so the dynamic is totally different.
  4. Maybe this is a good time to remind you that I’m not an intimate of Romney or his attorneys or accountants, so I could totally be wrong.
  5. Relative to his other income, I mean. As an absolute matter, he makes a lot from speaking ($190,000 in 2011) and sitting on board(s) of directors ($260,000).
  6. Information returns, kind of like the 1099s you get from your bank telling you how much interest you earned, or from your mutual funds telling you how much income you had from your mutual fund investments.
  7. Remember fn3 above? He doesn’t necessarily get the cash in hand, unlike you and me and our wages.

17 Responses to Romney’s Tax Highlights

  1. jader3rd on September 24, 2012 at 11:47 pm

    While this obviously isn’t of the same magnitude or importance, I know that small business owners will struggle with the issue of “how much they made”, and then pay tithing onto it. Since their personal wealth is tied up into a business that they’re trying to get off the ground, they don’t usually even issue themselves a paycheck. Everything they make goes into the business, except for some necessities to keep themselves housed and fed.

  2. Cameron N. on September 25, 2012 at 1:02 am

    This explanation is just a good indicator of how convoluted the tax code is. Don’t want to put you out of a job Sam, but I think we could simplify, even if only marginally.

  3. Sam Brunson on September 25, 2012 at 8:57 am

    jader3rd, I agree. The 10% part of tithing is easy; the “of what” part is not always so easy.

    And Cameron, I appreciate your not wanting to put me out of a job. I agree that, in many cases, simplification would be a good thing, though it would always involve tradeoffs, so I wouldn’t be willing to say that any simplifying legislation is inherently a good thing.

  4. Naismith on September 25, 2012 at 9:42 am

    Thanks for this thoughtful analysis.

  5. TaxesAreGood on September 25, 2012 at 1:04 pm

    If corporations are truly “people” would that change the way they are taxed?

  6. Julia on September 25, 2012 at 1:55 pm

    I haven’t ever heard of tithing being paid to anyone but the bishop. How does it work to give part of it to someone else? Is this basically something rich members do to have all of it be tax deductible or something? I am more confused now.

  7. Sam Brunson on September 25, 2012 at 2:08 pm

    Julia, I’m afraid I don’t understand your question: I’m saying that his tax returns don’t let us know how much he contributed to the Church. Even less do they tell us how he contributed that money to the Church. (My guess would be that he paid by wire directly to Salt Lake—I guess you could, but a check for $1.1 million (or for $90,000 a month for 12 months) seems pretty implausible to me, but I suppose that’s also possible.)

    Or are you talking the donations thing in general? Because you and I can write a check and designate some portion of it as tithing, some as fast offerings, and some to certain other designated categories. Again, our tax returns don’t split out the way we categorize our donations, just that they were made.

  8. Julia on September 25, 2012 at 3:07 pm

    “But, on top of that, his 2011 returns give us a whole new set of problems. Not only do we still not know what Romney uses as his tithing base, we don’t know how much he contributed to the Church. His tax returns tell us that he donated $1.1 million in cash to the Church. He also donated $214,000 cash to his charitable Tyler Foundation, and made noncash donations of $912,000 to the Tyler Foundation. In 2010, Romney made about half of his donations to the Church directly and about half through the Tyler Foundation. But the Tyler Foundation hasn’t released its returns yet.”

    This paragraph is what I was referring to. Maybe I just misunderstood.

  9. Sam Brunson on September 25, 2012 at 5:09 pm

    Ah. Okay, I can explain that: the Tyler Foundation is a private foundation, funded and controlled by Romney. It exists essentially to make charitable donations (and, presumably, for estate planning purposes). So Romney can donate property to the Tyler Foundation and take a charitable deduction for that donation. He can then direct the Foundation to donate to, inter alia, the Church, the Red Cross, Harvard, or any other charitable organization he wants to support. He has his reasons for paying some tithing through the Tyler Foundation (probably because private foundations have to donate some percentage of their assets annually in order to keep their tax exemptions). But ultimately, whether he pays it directly or from the assets of the Tyler Foundation, money donated to the Church is handed either to his bishop (if that’s how he does it) or is sent directly to Church headquarters (which, I suspect, is more likely). But simply putting money or property into the Tyler Foundation would not count as paying tithing (which is why, without seeing the Foundation’s returns, we can’t know how much of the money he contributed to the Tyler Foundation ultimately went to the Church).

  10. Cameron N on September 25, 2012 at 5:17 pm

    By the way Sam, I love your sense of humor in this post in answering these anticipated questions. Thanks for being informative and brightening my day.

  11. Julia on September 25, 2012 at 5:27 pm

    So how is donating it to a foundation that donates it to the church different than writing a check to my bishop? It seems that using tithing as a way to keep 501(c)3 status, seems to me a way around the laws on charitable donations. I have worked at several nonprofits, and we didn’t take donations that came with strings attached. On its face, that explanation of how it works raises a lot more questions that it answers, but I haven’t done taxes for anyone besides our personal and small business taxes, which have always been fairly simple.

  12. Sam Brunson on September 25, 2012 at 7:17 pm

    Thanks, Cameron.

    Julia, functionally, there’s no difference. If Romney wants to donate $1.1 million to the Church, the Church is indifferent to whether the check is signed W. Mitt Romney or The Tyler Foundation. For those of us without private foundations, maybe an analogy (significantly flawed, of course, but nonetheless somewhat analogous) is that the Church is indifferent as to whether we pay our tithing in cash, in a check from our Chase account, or in a check from our Citi account. Or, if you’re a small business owner, whether you pay with a personal or corporate check. The choice may matter immensely to you, for whatever reason, but the Church (like pretty much any charitable organization, I’d assume) doesn’t really care.

  13. Julia on September 26, 2012 at 12:17 am

    So what does having a private foundation do for someone?

  14. Julia on September 26, 2012 at 5:46 am

    Sam- I think I have forgotten to say thank you. I really do appreciate you sharing your expertise. I hope my questions don’t come across as impertinent, I truly am curious about how this works, and other than a discussion on NPR, (which did not answer all of my questions) this has focused simply on understanding something that is political, without turning into an intellectual shouting match. :-)

  15. Sam Brunson on September 26, 2012 at 9:34 am

    Julia, no problem, and no impertinence at all. As for why a person would have a private foundation, I don’t know entirely. In some cases, they’re set up for very specific purposes—the Bill and Melinda Gates Foundation, which focuses on education and health, is probably one of the biggest—but I’m not entirely sure the advantage of a foundation over direct giving.

  16. N. on September 28, 2012 at 2:44 pm

    re: foundation vs. direct giving

    I can only think of one reason from what I’ve read (and I am *not* qualified to expound any more on this subject): giving to individuals.

    If you’re “direct giving” $40,000 to someone else’s kid to send him to school, you can’t take a direct giving deduction for charitable giving. You’re not donating to a 501c3, a foundation, or a charitable trust, so it’s not “charity.” You’re just handing over your money.

    If your private foundation decides that it gives funds to kids for school as part of its description/mission/whathaveyou, you deduct the $40,000 for giving to the foundation, and the foundation hands the money over to the kid’s school.

    That is, if I understood what I read.

  17. Sam Brunson on September 29, 2012 at 3:30 pm

    N., that’s a good point: in some cases, a private foundation may be able to transform a nondeductible expenditure into a deductible one. Heck, the Gates Foundation’s work making grants to support developing cures would probably not be deductible (at least, not in every case) if Bill Gates paid those amounts directly. But there must be other reasons, because foundations that support public radio, or that pay money to other 501(c)(3) exempt orgs, don’t need to transform it. I think part of the purpose is to creating a lasting vehicle for funding a charitable purpose.