In the last few months Americans have heard about Presidential contenders' tax rates
over and over again.
As a quick recap.
2010 effective tax rates for GOP Presidential contenders
- Romney 13.9%
- Santorum 28.3%
- Gingrich 31%
All three candidates earned plenty of money ($500,000-$21 million).
And all three obeyed the tax laws.
So why the variation?
Mitt Romney told the media he used advisers and most of his income came from past investments. (Capital gains on investments are taxed at 15 percent rather than as much as 35 percent, the rate for ordinary income).
Rick Santorum told America that he does his own taxes. Most of his income was ordinary income (consulting and appearances) taxed at 35%.
Newt Gingrich didn't disclose who does his taxes, but his returns show that most of his income also came from consulting and appearances. Thus his income is taxed as ordinary income too.
All three had charitable contributions ranging from less than 2% (Santorum) to over 10% (Romney).
Lessons:
- It's wise to invest throughout your life because the tax rate is much less on capital gains from investments as compared to ordinary income.
- Tax advisers help keep taxes legally low. If you DIY taxes, then have a tax expert check your work (two intelligent friends of mine have saved thousands in taxes by using an accountant).
- You can give much to charity and still be well off.
It's tempting to criticize the high income of others, but look at their income as proof that American free enterprise works.
Then use investments, accountants and giving to lower your taxes.
(Photo courtesy Arvid Balaraman)
Image via Wikipedia
Image via Wikipedia
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