I think we've heard enough by now about how much Mitt Romney pays in taxes and comparing that to the rate the rest of us have to pay. Along the way, we're sure to have heard about the 50 percent of all Americans who supposedly pay no income tax whatsoever.
Garbage in; garbage out. What follows is the definitive word on the subject:
Setting aside a partial tax holiday, every dollar anyone earns in this country up to $110,100 per year is taxed for Social Security and Medicare purposes at 15.3 percent. The check for one half is essentially written by the employee, and the check for the other half is written by the employer, but the entire cost is borne by the employee.
For anyone challenging that assertion, here's a simple acid test: The next time an employer suggests that you can work as an independent contractor for convenience purposes and that he or she will pay exactly the same amount you have been receiving, you're foolish if you don't insist on a pay raise to cover what you will now be paying as the employer's share of payroll taxes. Otherwise you just took a 7.65 percent cut in pay.
So, right out of the blocks, most of us are paying the same percent that Mitt pays before we pay a dime of income tax. For lower incomes, there are earned income tax credits that many people, especially those with children, receive when their incomes are down in the $10,000 to $40,000 range, so it's true that a lot of people (about half the population) don't pay anything in income taxes after credits, exemptions, and itemized deductions -- but they've already paid 15.3 percent in payroll taxes on every earned dollar, so we can cut them some slack.
Meanwhile, the median-family income in the country is around $75,000, so half of all families above that level are beyond the sanctuary of tax credits and are in the realm of high marginal income tax brackets. At an adjusted gross income of $69,000, the tax rate for a family taxes everything beyond that figure at 25 percent. For single taxpayers, by the way, the 25 percent marginal tax starts at just $34,500.
For all of us who are in states with income taxes, we get hit at yet another level. For a family with $75,000 of income in California, the state tax works out to be about $5,000. Many of the "one tenth of 1 percent," however, maintain residency in one of the seven states like Texas, Florida and Nevada where there are no state income taxes.
New Hampshire, which some reports show as Romney's official residence, has no tax on earned income, but does tax dividends and interest income. Much of Romney's income escapes New Hampshire's tax system because, as capital gains, it is taxed at 15 percent thanks to a fluke called "carried interest" -- a tax-code fluke that treats what should be regular income as capital gains income -- a loophole enjoyed by private equity firms.
So, when you add it all up, the average American family paying payroll taxes, state income taxes and, finally, federal income taxes is keeping this country afloat with an all-in effective rate somewhere north of 25 to 30 percent. Normally, when we say, "This is not about money," it is about money.
This time around, I would say that it's not about money. It's about what's fair and what makes good business sense as a country.
Large fortunes owe their existence to a well-educated population and the infrastructure that supports it -- both of which require an effective government with enough resources to get the work done. To expect people enjoying those fortunes to pay taxes at a rate comparable to that of the typical American family doesn't seem so unreasonable to me.