NCPA - National Center for Policy Analysis

Even at 14 Percent, Romney Pays a Higher Rate than 97 Percent of His Fellow Americans

February 2, 2012

Americans following the current GOP brawl witnessed a series of attacks on Mitt Romney for the low effective tax rate he pays on his personal income.  Many are quick to emphasize that with an effective rate of 14 percent, Romney must be a grand exploiter of loopholes and tax shelters.  However, such conclusions are premature, as they confuse marginal and effective rates and fail to account for the fact that Romney's effective rate is still relatively high, says Scott A. Hodge, president of the Tax Foundation.

It is necessary to explain that, because of the United States' progressive tax system, the marginal rate that one pays is not the same as his or her effective rate.  While one may make $120,000 per year (placing that person in the 25 percent tax bracket), that person's effective rate is much lower.  This is because their first $17,000 is taxed at a rate of 10 percent, their next $52,000 is taxed at 15 percent and only their last $51,000 is taxed at 25 percent.  Thus, their effective tax rate would be 18.5 percent.

Following this distinction, and including various deductions and exclusions claimed by most Americans, it is easier to compare Mitt Romney with his fellow taxpayers.

  • Using the aforementioned example of a person making $120,000 and allowing for normal exemptions, credits and deductions, which lower their taxable income to $90,000, their effective rate falls yet again: this time to 12 percent.
  • Millionaires pay an average effective rate of 25 percent, while the average taxpayer who makes less than $100,000 pays an effective rate of 8 percent.
  • A recent Tax Foundation study found that even Americans who make between $100,000 and $200,000 average an effective rate of 12 percent.
  • Given that 97 percent of Americans make less than $200,000, this suggests that Mitt Romney pays a higher effective rate than 97 percent of Americans, on average.

This important comparative analysis underlines the fact that Romney should receive little criticism for his exceptionally low rate, as it remains among the highest paid by all U.S. taxpayers.

Source: Scott A. Hodge, "Even at 14%, Romney Pays a Higher Rate than 97% of His Fellow Americans," Tax Foundation, January 24, 2012.

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