I have a theory why Mitt Romney, unlike his father and most elected leaders, has been unwilling to share all tax returns. My son, Steve, an investor himself, inspired me. We were trading email stories about Romney’s taxes. Steve concluded, “It’s not illegal, the problem is it’s legal!”
I thought about that. Yes, we’re told over and over how our tax system favors the rich. The Occupy Movement proclaims it, and Warren Buffet, the world’s second richest man, announced he paid a lower percent of income in taxes than his secretary. To those of us who believe that a progressive tax system is the most fair and best for our country, that is terrible news.
Then I remembered a personal experience in how the “rich” get favored treatment. Once upon a time, with no planning, my husband and I stumbled a little closer to “rich.” Here’s how: We lived in the ordinary little house we owned on a nice hill in Walnut Creek, Calif. Purchased in 1975, this home became a good rental property when we moved away. We kept it only because we planned to move back one day.
But years passed, and we didn’t move back; we settled in Iowa. So we decided to sell the hillside house – all 1,300 square feet. The renters moved out and we groomed the place for sale. It was a “hot” market in 2001. The little house sold for almost eight times what we’d paid in 1975! Sure there were fix-up expenses, realtors’ fees, etc., so maybe we netted closer to seven times what we’d paid. We learned that’s called CAPITAL GAINS because it was “investment” property. Net sale income was many times over what we totaled each year in “ordinary income” so we would owe a lot of taxes. Right?
Wrong. Remember I said tax laws favor the rich? First, “capital gains” aren’t taxed at as high a rate as ordinary income. (Why?) Second, there’s a legal way you can avoid paying any taxes on this kind of capital gain – a “tax-deferred exchange.” We did our homework and wound up “trading” for two duplexes closer to home. Full taxes on that capital gain will be paid only if we sell the duplexes before we die. But if our heirs receive them, they get to use the value at our death as their “basis” (beginning value) and they will avoid that huge capital gain from our original sale.
I’m not giving legal advice – talk to your lawyer! This is a tiny peek into how someone can make lots of money and pay few taxes – legally – in our system. I can’t begin to tell you about off-shore accounts and all the other legal dodges the rich employ.
That, I believe, is why Mr. Romney won’t share more tax returns. He is ashamed – he paid a lower tax rate than the women who work two jobs to feed their children, the men who sweat to fix our roads, the workers who labor in packing plants. He should be ashamed. We should all be ashamed.
That’s why I’ll vote for Obama. Yes, the Democrats love money, too, but through the years they’ve come much closer to fair taxation.
Most important, regardless of who is elected, let’s all study, write, push, picket and scream until our tax code requires that everyone pays a fair share – even people who manage to sell their California homes before the next earthquake.