Mitt Romney's Taxes: Quick Take

Mitt and Ann Romney have released their tax return for 2010 and a detailed estimate of their 2011 taxes. Here's my 30-minute take on a 200-page document (obviously I might have missed a few items).

Their annual Adjusted Gross Income--approximately $20 million--puts them in the same league as top entertainers and athletes.

The Romneys donate over $3 million per year to charity, well above the Biblical standard of the tithe, and also pay a little over $3 million per year in Federal taxes.

More than half their income is derived from long-term capital gains. Long-term status inures to assets held over one year and is subject to a reduced tax rate, the source of recent political controversy. Whatever one's position on capital gains tax rates, there is much to admire in how the Romneys have arranged their financial affairs.

Because of the one-year-or-more holding period requirement, one may well conclude that the Romneys are not short-term traders and recipients of privileged information, unlike other politicians and their staffs. Furthermore, their investments have not been sure things: the gains in 2010 were partially offset by a $4 million capital-loss carryforward, which means that the Romneys suffered significant losses in previous years.

Nearly all of the gains are pass-throughs from family trusts, and more than half of those amounts are in "blind" trusts over which the beneficiaries have no control. The Romneys will therefore not profit directly from information Mitt may obtain or decisions he may make, except for changes in the tax law under a Romney administration.

In 2010 there was a so-called 83(b) election, which is generally used to afford capital gains treatment to investments in startup companies.

I like that the super-wealthy Romneys: 1) continue to make investments subject to real risk (no crony-capitalism guarantees against loss); 2) wall-off the bulk of their investments from a temptation to use political influence; 3) donate a sizable amount to charity.

I'll likely take a closer look if he becomes the Republican nominee.