Mitt Romney

Taxing the truth

Republican Party candidate Mitt Romney's bid for the US presidency is undermined by half-truths and distortions on taxation issues

PUBLISHED : Wednesday, 05 September, 2012, 12:00am
UPDATED : Wednesday, 05 September, 2012, 2:26am

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Mitt Romney formally launched his bid last week as the Republican Party candidate for US president, promising to make America great again by getting government out of people's hair, reducing their taxes so they could prosper and create new jobs.

He wowed the Republican faithful, but his speech contained a lot of disconnects, half-truths and dangerous fantasies, all of which could hasten the decline of the US as the greatest superpower the world has ever known if he moves into the White House and actually gets to pursue his ambitions.

The most dangerous lie the Republicans are perpetrating is that the US is over-taxed and that its only way to prosper is to reduce taxes. In fact, among the club of 34 rich industrial nations, only Chile and Mexico have lower total tax revenues as a percentage of gross domestic product. In 2009, Mexico's taxes were 17.4 per cent of GDP, Chile's 18.4 per cent and total US tax revenues 24.1 per cent.

US tax revenues were half those of Denmark and Sweden as a percentage of GDP and much less than France, with 42.4 per cent, Germany at 37.3 per cent, or Britain at 34.3 per cent. Before the recession, US tax revenues were close to 28 per cent, still way below other Group of Seven countries.

In a careful study of the comparative tax rates of economically advanced countries, Andrea Louise Campbell, professor of political science at the Massachusetts Institute of Technology, notes three special features of the US tax system: "very low taxes, little redistribution of income and an extraordinarily complex tax code".

US tax receipts have remained hardly changed for the past 60 years, with federal tax revenues accounting for 18 per cent of GDP and state and local taxes bringing in 8 to 10 per cent.

"As Republicans are quick to point out, the United States does have one of the highest statutory corporate tax rates in the developed world," Campbell notes. "Combining the federal and state levels, the top rate of these taxes is 39 per cent, compared with an average of 36 per cent across the G7 and 31 per cent across the OECD."

But Republicans conveniently forget how deceptive appearances can be. Thanks to generous tax credits and breaks, the US Treasury calculated that between 2000 and 2005, the effective tax rate paid by businesses was just 13 per cent, almost 3 points below the rate in all industrialised countries and the lowest among the G7.

Corporate tax as a source of federal revenue, says Campbell, "has plunged from 30 per cent in the 1950s to 10 per cent today".

Confirmation of this came from recent earnings and tax payments of the 10 most profitable companies in the US compiled by NerdWallet Financial Markets, a blog that boasts that it "is designed to empower investors by providing unbiased and transparent access to financial markets information".

NerdWallet found that the top 10 corporate earners paidjust 9 per cent in federaltaxes. ExxonMobil paid merely 2 per cent, or US$1.5 billion of its US$73.3 billion pre-tax earnings, though it did shell out a further US$28.8 billion to foreign governments in countries where it operates.

The third and fourth-biggest earners, Apple and Microsoft, paid 11 per cent of their respective earnings of US$34.2 billion and US$28.1 billion to the US government. Apple paid a further US$1.5 billion to other governments in the US and to foreign governments, and Microsoft paid an additional US$1.8 billion, all but US$209 million to foreign governments.

The American tax burden has shifted from the corporation to the ordinary guy as payroll taxes have risen for social security and Medicare; a majority of Americans today pay more in payroll taxes than they do in federal income taxes. Individual income taxes still account for 42 per cent of US revenue, but thanks to recent tax reductions, really high-income households are paying "some of the lowest effective rates in the country's history", says Campbell.

The super-rich, like candidate Romney himself, who can shield much of their income as capital gains, pay more like 13 per cent. America's top 1 per cent has done rather well, even out of the recent recession: they account for about 20 per cent of all income and 30 per cent of all wealth. The top 1 per cent of earners account for 11 per cent of Germany's total income and 9 per cent of Japan's.

Inequality is growing and rampant. The left-leaning Institute for Policy Studies pointed out last month that of last year's 100 highest-paid US corporate chief executives, 25 took home more in CEO pay than their companies paid in income taxes.

Step forward: Motorola Mobility (CEO pay, US$47.2 million; federal income tax, zero); Ford Motor (CEO pay, US$29.5 million; tax, US$4 million refund); AT&T (CEO pay, US$18.7 million; tax, US$420 million refund); Boeing (CEO pay, US$18.4 million; tax, US$605 million refund); Citigroup (CEO pay, US$14.9 million; tax, US$144 million refund).

But Romney's supposed budget policy wonk and running mate Paul Ryan is hell-bent on grinding the noses of the poor, and offering those earning US$1 million a fresh tax cut of US$265,000.

Conservative New York Times columnist David Brooks correctly criticised the attitude of the Republican ascendancy as "rampant hyperindividualism", forgetting that individuals are part of webs of customs, traditions and institutions. "Today's Republicans… see every government programme as a step on the road to serfdom… They celebrate the race to success but don't know how to give everyone access to that race."

Romney's Republican way is the road to America's ruin.