Democrats: Political slant marks Romney tax return

[September 22, 2012]  WASHINGTON (AP) -- Democrats say Mitt Romney manipulated his deductions to keep his overall 2011 federal income tax rate below a certain level for political purposes. The Republican presidential nominee is certain to face new questions about his finances.

Romney and his wife, Ann, donated roughly $4 million to charities last year, but they only claimed a deduction of $2.25 million on their tax return, filed with the Internal Revenue Service on Friday.

Romney made $13.7 million last year and paid $1.94 million in federal income taxes, giving him an effective tax rate of 14.1 percent. That was a bit above the 13.9 percent rate paid on 2010 income.

More precisely, the returns showed that the couple paid $1,935,708 in taxes on income of $13,696,951.

Democrats quickly leaped on the documents, saying Romney had claimed fewer deductions than he was entitled to just to keep his rate at such a level. Romney told reporters in August he had never paid below 13 percent in taxes in any given year over the past 20. Had he taken the full charitable deduction, it would have pushed his tax liability below 13 percent.

"The information released today reveals that Mitt Romney manipulated one of the only two years of tax returns he's seen fit to show the American people -- and then only to `conform' with his public statements. That raises the question: What else in those returns has Romney manipulated?" said Senate Majority Leader Harry Reid, D-Nev.

Stephanie Cutter, deputy campaign manager for President Barack Obama, said the release of Romney's 2011 tax returns "confirms what we already knew -- that people like Mitt Romney pay a lower tax rate than many middle-class families because of a set of complex loopholes and tax shelters only available to those at the top. Yet, Mitt Romney still wants to give multimillionaires an additional $250,000 tax cut at the expense of middle-class taxpayers who will see their taxes go up."

Romney, one of the wealthiest candidates ever to seek the presidency, paid taxes at a rate lower than taxpayers whose income was mostly from wages, which can be taxed at higher rates.

Romney's taxes have emerged as a key issue during the 2012 presidential race. He released his 2010 returns in January, but he continues to decline to disclose returns from previous years -- including those while he worked at Bain Capital, the private equity firm he co-founded.

The Obama campaign and other Democrats have pushed for fuller disclosures, reminding the Republican candidate that his father, George Romney, released a dozen years of returns when he ran for president.

Overall, the Romneys' main tax return and separate forms for blind trusts totaled more than 800 pages. The blind-trust income came from hedge funds and other complex investment vehicles. The couple also reported $3.5 million in income "from sources outside the United States," citing "various countries." Their forms included filings on holdings in Switzerland, Ireland, Germany and the Cayman Islands.

The Obama campaign accused Romney anew of profiting from millions invested overseas and "loopholes and tax shelters only available to those at the top."

Apparently hoping to resolve basic questions voters might have, the Romney campaign released a letter from his accountants saying that in the 20 years prior to 2010 the Romneys paid an average annual effective rate of 20.2 percent, never lower than 13.66 percent. On average, middle-income families -- those making from $50,000 to $75,000 a year -- pay 12.8 percent of their income in federal taxes, according to Congress' Joint Committee on Taxation. But many pay a higher rate.

The former Massachusetts governor, whose wealth is estimated as high as $250 million, is aggressively competing with Obama for the support of middle-class voters.

Obama's own tax return for last year showed that he and his wife, Michelle, paid $162,074 in federal taxes on $789,674 in adjusted gross income, an effective tax rate of 20.5 percent. Their income plunged from $1.7 million in 2010, with declining sales of the president's books. In 2009, the Obamas reported income of $5.5 million, fueled by the best-selling books.

The Romneys' tax bill could have been lower. They gave $2.6 million in cash to the Church of Jesus Christ of Latter-day Saints, the documents show. They gave just over $2 million in non-cash charitable contributions -- including donations of stock holdings in Domino's Pizza, Dunkin Donuts and Warner Chilcott -- to a family trust.

They could have claimed more in deductions, said Brad Malt, the trustee of Romney's blind trust, but the couple "limited their deductions of charitable contributions to conform to the governor's statement in August, based on the January estimate of income, that he paid at least 13 percent in income taxes in each of the last 10 years."

Romney seemed to be painted into a corner by that statement, which came in reaction to Senate Democratic leader Reid's claim to have heard that the Republican had paid no taxes in some years.

Romney will surely be reminded by the Democrats that he also said in August, defending his right to pay no more taxes than he owed: "I don't pay more than are legally due, and frankly if I had paid more than are legally due, I don't think I'd be qualified to become president."

The decision of Romney's trustee to limit his use of charitable deductions in 2011 in order to keep to the candidate's claim that he paid no less than 13 percent taxes in any year over the last decade raised the eyebrows of several tax law experts. They noted that the trustee's use of numerous tax strategies gives Romney the rare ability to loosen or limit his tax payments at will.

"It's interesting he didn't take the full charitable deduction," said Victor Fleischer, a University of Colorado law professor who has testified before Congress urging tightened oversight of private equity firms. "You're in a pretty lucky position when you can pay more tax" to get up to a 13 percent rate. Fleischer and several others said it was doubtful Romney could later take any unclaimed deductions in future years.

He appears to be physically qualified by any measure.

The campaign released a separate report Friday -- by Romney's longtime physician, Dr. Randall Gaz of Massachusetts General Hospital -- that said he is healthy and ready to meet the rigorous demands of the presidency.

The report said Romney's heart appears healthy, and he takes a baby aspirin and medicine to treat high cholesterol to help keep it that way. He doesn't smoke or drink. And his resting heart rate is a low 40 beats per minute, in the range of well-trained athletes and reminiscent of President George W. Bush, who also had a low resting rate.

Romney is 6 feet 1 1/2 inches tall and weighs 184 pounds.

As for his taxes, the Romneys had obtained a filing extension beyond the usual April 15 tax deadline.

Most of their income is from investments held in a blind trust, and campaign aides have stressed that he makes no decisions on how his money is invested. Capital gains and dividend interest is now generally taxed at 15 percent whereas the top marginal rate for income from wages is 35 percent.

The Romneys reported $6.8 million in capital gains, such as from the sale of stocks and other securities, and $6.37 million from dividends and taxable interest.

Romney's vast fortune and his long association with Bain Capital have been much discussed this year.

Several tax law experts said Friday that his newly released tax returns would not be much help in resolving critics' questions about his sprawling finances -- whether he used aggressive tax-deferral strategies, what might be the specifics and tax advantages of his numerous offshore investments, what was the source of his massive retirement account and what are the details behind his now-closed $3 million Swiss bank account.

Analysts said details about his investments could emerge only if Romney provided far more of his tax returns -- including files dating back to his years at Bain, the private firm he left in 2001. Romney, who initially refused to disclose any tax returns, has drawn the line at providing those from the past two years.

"All the important compliance and policy questions relating to Romney's personal tax matters relate to the past," said Edward D. Kleinbard, a law professor at the University of Southern California and former chief of staff of Congress' Joint Committee on Taxation. "The issue has never been Romney's 2011 tax return -- in fact, it is a distraction to the real issues."

Only multiple returns would provide details about Romney's $100 million retirement account and how it grew, Kleinbard said. He also said earlier returns would be crucial in knowing how often he paid gift tax on family trusts.

Joseph Bankman, a Stanford University law school professor and expert on tax law, said, "It's the Bain years we'd really need to know to have a full assessment of his tax strategies." Bankman said that the 2010 and 2011 returns "only raised these questions, but they can't provide real answers."

The Romneys applied a $1.5 million tax refund to their 2012 estimated tax payments.

The couple reported $190,350 in book royalties and speaking fees. And Romney also reported $260,390 in income last year from serving on various boards of directors.

The Republican vice presidential nominee, Rep. Paul Ryan of Wisconsin, and his wife, Janna, whose returns were also released Friday by the Romney campaign, paid $64,764 in taxes on $323,416 of adjusted gross income in 2011, for an effective rate of 20 percent.

Just over half of their income came from Ryan's congressional salary. Other income flowed from rental real estate and other investments, including a trust inherited by Janna Ryan. They donated $12,991 to charity, including to the Boy Scouts of America

[Associated Press; By TOM RAUM]

Associated Press writers Stephen Braun, Steve Peoples, Stephen Ohlemacher, Kasie Hunt and Philip Elliott contributed to this report.

Follow Tom Raum on Twitter: http://twitter.com/tomraum.

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