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 U.S. Rep. Paul Ryan in a speech at Windham
High School recently.
"His new running mate, Congressman Ryan, put forward a plan that would
let Gov. Romney pay less than 1 percent in taxes each year," Obama told the
cheering crowd during the Aug. 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.
During his 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 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 criticized a similar proposal during
a January debate. The plan, introduced by Republican challenger Newt Gingrich,
a former House Speaker, 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.
Roll Call and The Atlantic have published stories in recent weeks
reporting that 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 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
gains 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 equation is right on.
"The rough calculation by Matt O'Brien strikes me as reasonable," Joseph
Rosenberg, a research analyst with the Tax Policy Center, wrote in an email.
"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."
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," said Roberton Williams, a senior fellow at the 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."
Our ruling
It's important to note that Ryan's most recent budget proposal doesn't
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 nosedive.
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.
