Category Archives: Pedantry

Bickering about tax fairness is dumb

Listening to the radio earlier today, somebody was ridiculing Mitt Romney for claiming in a Univision interview that he had given back nearly 50% back to the community, and that his last two years of taxes indicated this. There were a few points made by the radio host that break down as follows:

  • He didn’t really release two years of his taxes because he hasn’t filed for 2011 yet and only released an estimate for that tax year.
  • His net personal tax rate for 2010 was 13.9%.
  • His charitable contributions were “over 15%.”
  • At one point in the interview he said he gave back about 40% back to the community, based on 13.9% plus 15%. That’s only 29.9% total.
  • His claim that the corporate tax rate of 35% is the reason capital gains taxes are lower than income taxes is spurious.
  • Counting the corporate tax rate of 35% he figures he gave back about 50% of his profits on average for the past two years.

Well, each of those points has some degree of merit and certain degree of bullshit. Clearly the point about giving back about 40% was him confusing some numbers. Romney would have to have been taking something else into account to get to that number. As for the 50% business, let’s take a look at two fairly naive theoretical situations:

In one case, Romney is a sole proprietor of a business, in the other Romney is a shareholder in a corporation. In one case all his profits are income, in the other case his profits are capital gains. For the sake of argument, let’s pretend that the corporation really pays 35% in taxes:

Romney-as-income Romney-as-corporation
Total Profit $100,000 $100,000
Tithe $(10,000) $(10,000)
Personal Income Tax $(18,824) –
Social Security $(12,400) –
Corporate Income Tax – $(35,000)
Capital Gains Tax – $(8,250)
Total Tax Paid $(31,224) $(43,250)
Cash Remaining $58,776 $46,750

That’s a naive breakdown, as it doesn’t take into account several thousand pages of tax code, personal exemptions and deductions aside from a 10% tithe to the Church of Latter Day Saints. Personal income tax is at a lower rate than corporate income tax. Social security tax (which you have to double-up on if self-employed because normally your employer has to match what you see on your pay stub) is lower than the capital gains tax, but capital gains is taxed on dividends and such, which are after taxes so it’s 15% of the 65% post-tax corporate income.

At the $100,000 scale, corporate taxes don’t look quite so drastically unfair, do they? The same dollar value of goods or services were sold, and the liability-limiting corporate setup ostensibly pays more in taxes. And yeah, it works out to about 50%. That’s what I think of as the theoretical tax rate that Romney’s accountant starts with, and that guy’s job is to game it down in his client’s favor.

Ramp that scale up to, say, $20,000,000 instead and it’s a bit different. At the personal level Social Security tops off a little over the $100,000 mark, whereas the capital gains and corporate tax rates have no cap. Several thousand pages of tax codes and subsidies and other shenanigans render hypothetical situations like this moot anyway.

“How much did you give back?” is a loaded question that can take into account a lot of things. Does the questioner mean just Federal Income Tax? All federal taxes? Does that count park fees? Taxes on airfare? On your phone bill? Does it count state taxes? If so, is it just state income tax, or do property and parcel taxes count? Or minimum usage fees from municipal utilities? There are dozens of variations built into that seemingly-simple question. Playing “gotcha” about the specific number Romney cites about how much of his money he kicks back to society-at-large (as opposed to simply spending on himself, his friends, and his family) serves little purpose in illuminating the public about important political decisions in the next few months.

Rewarding Behavior

This past week I had the pleasure of spending two days at the lovely Northstar at Tahoe ski resort. This is a place I have fond memories of, and given recent family events a nostalgic run or two down Logger’s Loop seemed appropriate. Skiing is best done for the intrinsic pleasures of the activity; the beauty of the environment, the bite of the wind on your cheeks, the roll of the hill under your feet, the chats with strangers on a lift. It’s all good. Expensive, but good.

Normally when you go to the mountain, you purchase a lift ticket in the form of a sticker or cardboard print-out that you hang from your jacket or pants. The lift operators know you paid and let you right on by. This year, the first time I’ve been to Northstar in a while, they handed me a RFID card with my name and a numeric code printed on it. “Just put it in your pocket and we’ll scan it for you,” I was assured. Indeed, there were dedicated staff posted at the gondola with scanner guns of some sort, ready to process the guests like we were in some winter wonderland of the Cyberpunk dark future. OK, fine, that makes sense. Then there were more at the first proper lifts at mid-mountain. OK, just making sure I wasn’t sneaking a ski day when all I might have paid for was a Gondola ride. Then there were more scanners at the Comstock lift (up the hill from the mid-mountain lodge), and again at both of the backside lifts. What the heck?

When I got back home, I checked out the website referenced on the RFID card and discovered that lo, I was participating in an alpine Foursquare of sorts. Each time I rode a lift, my card was scanned and they knew how many vertical feet I’d ski by the time I hit another lift and was scanned again. They even had pins, just like XBox Live and Steam achievements. I was surprised to learn that in one morning I’d traveled the equivalent of the Golden Gate Bridge in vertical feet, that midway through my second day I’d traveled over five miles in vertical feet, and midway through my last run I had descended the equivalent of the full height of Mt. Everest. I’d also earned a Festivus pin and a “brown bagging” pin for having skiied on December 23rd and during lunch hour respectively. What an odd way to encourage people to do things they already wanted to do.

This system is available at several resorts scattered about, some of them in Tahoe, others elsewhere, and allows folks to share all their little victories via outside social networks and set up ladder competitions. I suppose in an age where people habitually post hog many miles they jog each day, this was inevitable.