Mitt Romney's income tax returns: Are the rich paying their fair share?

The Obama campaign has made a serious attempt to define Mitt Romney, with some success. The marquis peace of their campaign is the issue of taxes and their push for the "Rich" to pay their fair share. The centre piece of that argument are the Bush tax cuts, which expire at the end of the year. The majority of Americans, when polled, agree that the rich should pay more. Of course the defining line is what you consider to be rich.

President Obama has put that line at $250,000, while others would argue that it should be at $1 Million. Republicans argue against any tax cuts during this economic crisis and point to the Presidents own comments when he was Candidate Obama in 2008. There is also the argument that letting the tax cuts expire for the rich would only cover four days of federal government operations.

Mitt Romney's Income Tax Returns

Mitt Romney has released his 2010 income tax return, which shows that he paid a nominal tax rate of 13.9% on $21.6 million income. He has given an estimate on his 2011 return, showing that he paid $3.23 million on $20.9 million of income. If you want to brand him filthy rich, so be it, but it's not a crime to be rich.

The DNC and Democrats have pushed hard to get Mitt Romney to release at least ten years worth of income tax returns. Mitt Romney has said that he will only release two years worth. While Mitt Romney's tax returns are fair game during a presidential election campaign, Senate Majority Leader Harry Reid, has taken the issue to a new level that is questionable.

The Nevada Democrat used the pulpit of the Senate floor to state that Mitt Romney hadn't paid taxes for a decade an that it was up to Romney to prove him wrong. He quoted an anonymous source. He said that an extremely credible source had told him that Mr. Romney had not paid taxes for ten years.

"It's clear Romney is hiding something,"Reid said. "Let him prove that he has paid taxes, because he hasn't,"Reid said on the Senate floor last week.

Under conventional law, an accused is innocent until proven guilty. So the onus to prove it is on he Senate Majority leader. It is noteworthy that none of the leading Democrats have pursued Reid's allegations. In any case, it gave enough fodder to pundits on both sides to keep it going in the news cycle for several days.

The Issue of the "Rich" paying their fair share

The Democrats have gained some momentum with the issue of making the rich pay their fair share of taxes. Is this a realistic issue though? It depends on what you perceive a fair share of the total tax burden is.

According to data released by the Internal Revenue Service (IRS), the top 1% of income earners paid 36.7% of all income taxes on 16.9% of adjusted income. The average tax rate in 2009 ranged from 24% for the top 1% while the bottom 50% was around 1.9% of income. IRS Statistics available here

Naturally, any data can be used by the various spin machines. Individual income tax amounts to about 25% of all taxes levied at all levels of government, while payroll taxes, not included in this data, amounts to approximately 20%. It is a narrow concept, which does not include income items like government transfers (except for the portion of Social Security benefits that is taxed), the value of employer-provided health insurance, under reported or unreported income (most notably that of sole proprietors), income derived from municipal bond interest, net imputed rental income, worker's compensation benefits and others.

When taking in the rhetoric by both campaigns, one should be careful to judge without doing a fact check. Both sides have the habit of throwing out sound bytes that can resonate with voters. Don't be fooled. Check it out, the information is out there.