Charlie Leonard: Inalienable Rights
August 8, 2012
Recently, Aspen Mayor Mick Ireland made a number of public statements about Gov. Mitt Romney’s tax returns. In short, the mayor said the former Massachusetts governor has not released enough of them and based on what he has released, Romney is clearly not paying his fair share of taxes. To support his point, the mayor said that he paid a higher tax rate than Romney and that was wrong.
What is not in dispute is that in 2010, Romney paid about $3 million in taxes on $21.6 million in income – virtually all of which was a capital-gains tax on his investment and interest income.
The current tax rate for capital gains is 15 percent, but Romney’s total tax rate was reduced by a little more than 1 percent as a result of more than $4 million in charitable contributions.
In 2010, the city paid Ireland $27,900 for serving on City Council. He reported earning an additional $37,308 from his private-sector work, for a total of $65,208. After claiming a number of deductions and exemptions, including the “Making Work Pay” credit, the mayor reduced his taxable income by about 27 percent. Accordingly, the mayor paid $8,138 of tax on taxable income of $47,833, making the mayor’s effective tax rate in 2010, just as he claimed, about 17 percent.
As a percentage of his total income, however, the mayor’s tax rate was actually about 12.5 percent. That is because the current tax code allows people with incomes like the mayor’s, as opposed to Romney’s, to lower their tax bills by taking advantage of certain deductions and exemptions not available to people at higher income levels. Moreover, the governor primarily paid a capital-gains tax, and the mayor primarily paid an income tax. But the reason we treat those incomes differently will have to wait for another day.
With that information in hand, as well as some additional information from the local real property tax rolls, I thought I would give the mayor a call and give him a chance to explain his thoughts about tax fairness more fully.
The first question I asked the mayor was whether he thought Romney was cheating on his tax obligations or was he paying what is required under the law for someone who earns most of his income from gains on investments rather than wages. The mayor assured me that he did not think Romney was cheating. He said his position was that the law should change to make people like Romney pay more.
When I asked the mayor to tell me what he considered fair and unfair about both his and Romney’s taxes, he said he wanted to make something very clear about his income before we went any further.
The mayor said he worked very hard for his money. In fact, he told me that he worked much harder than I do and put in many more hours than I do. (I’m not sure this is true or why the mayor believes it to be true, but I thought it worth mentioning since the mayor was so emphatic about the point.)
The mayor said a lot of weeks he works 50 to 60 hours, and some weeks he works more than 100 hours between his duties as mayor and his self-employment as a lawyer and consultant. Later in the call, he acknowledged that he also has some 20-hour workweeks, as well, but he said that on balance he is pretty much working nonstop.
I assured the mayor I worked pretty hard, too, but that I was actually more interested in understanding how he made his money and how much he thought was a fair amount for him to pay in taxes since, after all, he made it well known that he thought Romney wasn’t doing his fair share.
I also told the mayor that his private-sector income didn’t seem like very much for an able-bodied lawyer of his experience and standing in the community.
The reason I asked this question of the mayor is because I think that if we are going to have a debate about tax fairness in the country, I believe it also should involve a debate about what people do – or, in the mayor’s case, may not do – to support themselves.
In other words, if you choose to work less and earn less, or even work hard but charge little for it – as opposed to being temporarily out of work or underemployed for reasons not of your making – is it then fair to ask your neighbors to support your lifestyle choices through tax breaks and housing assistance?
The mayor went to considerable lengths to explain to me that making a lot of money is not something that has ever been important to him, all the while assuring me that he’s working morning, noon and night for his income.
The mayor explained that he believed one of the reasons Aspen is such a special place is because the community does support people like him who may not be trying to make a lot of money but contribute in other ways like volunteering and doing a lot of pro-bono work.
I asked the mayor for the number of pro-bono clients or number of pro-bono hours he works. He said he didn’t keep track of it and couldn’t give a number. I asked if he could estimate or guess, and again he said he couldn’t. He did, however, again assure me that he works much, much harder than I do.
I then asked the mayor if he thought it was fair that he still lives in a public housing unit that he purchased from the city in 1997 for $97,000 and, in 2010, required him to pay only $242 in property taxes.
The mayor did not hedge. He said he absolutely thought he was paying his fair share, including his property tax bill. And, he pointed out, that’s all the law required.
I again told the mayor that his public persona gave the outward appearance of someone capable of making more money and therefore capable of buying or renting a free-market home and paying more in real estate taxes to support our community and government.
The mayor told me that the housing program and reduced real estate taxes on public housing keep the population diverse and allow young people who are waiters and bus drivers or ski instructors, rather than just investment bankers, to live here.
I reminded the mayor that I wasn’t asking about waiters or ski instructors. Rather, I said I was asking about him personally, a mature man with a license to practice law.
Again, he did not waver. The mayor said the community receives a real benefit from people like he, who aren’t only interested in making money but care more about public service. He said he thought it was perfectly fair for him to continue living in public housing, paying a couple hundred dollars in property taxes, not wanting or needing to generate the kind of income that would allow him to give up his government benefits.
I asked the mayor what he thought would be a fair amount of tax for Romney to pay.
At first, the mayor said he hadn’t really given a lot of thought to what a fair number was but then said if he had to pick a number we should probably return to the Clinton-era tax rates for high-income people.
I told the mayor that since Romney’s income was based on capital gains from investments and the Clinton-era capital gains tax rate was only five points higher than it is today, it really wouldn’t amount to a significant increase, in relative terms, in the governor’s income or taxes.
The mayor said he didn’t recall exactly what the Clinton-era capital-gains rate was, but when I reminded him it was 20 percent, he said he would favor going back to that rate.
So this is what it all boils down to: Romney paid 368 times more in taxes than Ireland in 2010, after they both adjusted for the deductions and exemptions. The mayor found that grossly unfair. Instead, the mayor would like to see Romney pay 491 times more in taxes than he does. After all, as the mayor pointed out, Romney makes much more money. And, he added, a lot of people think taxes should be much higher on people who make more money.
As we wrapped up our conversation, the mayor said he wanted me to know he wasn’t aware of the rates during the Clinton era, but for the sake of argument, he said he would take my word on it.
I thought for a second to ask the mayor why – if he didn’t know what the Clinton-era tax rates actually were, but was advocating for them nonetheless – he thought they were so much more fair.