Reactions to the Rick Santorum Tax Returns
Last night,Republican Rick Santorum, who shocked political pundits by toppling Mitt Romney and Newt Gingrich during his recent run of victoriesin Minnesota, Colorado and Missouri, finally relented to what has become a rite of passage for any serious presidential candidate: the public release of his tax returns.
After Santorumpublishedhis 2007, 2008, 2009 and 2010 federal returns online(though some attachments were missing), wewere asked to review the returns for Bloomberg. The verdict? They were remarkable in just how unremarkable theywere.
Santorum’s returns stood in stark contrast to the much-publicized returns of leading Republican candidate Mitt Romney, both in terms of magnitude and composition:
-WhereasRomney’s AGI exceeded $20,000,000 in 2010, Santorum’s hovered around $900,00 for the four-year period.
-As opposed to Romney — whose income was largely taxed at the 15% rate on long-term capital gains and qualified dividends — Santorum generated almost no income subject to preferential rates (zero long-term capital gains and negligible (less than $700) qualifieddividend income over the four-year period.)
-Instead, the bulk of Santorum’s income was realized in the form of wages (approximately $300,000 per year) and self-employment income (approximately $600,000 per year), which are subject to tax at ordinary rates. As a result, Santorum’s effective tax rate averaged close to 27% over the four-year period, which is nearly double Romney’s 2010 rate of 13.9%. [i]
-Also in contrast to Mitt Romney, Santorum’s returns contained no reference to family trusts or foreign investments. That’s neither good nor bad, just a fact, and one that is likely to make Santorum more identifiable to many taxpayers.
Also worthy of note:
-Santorum has seven kids, which may explain why he’s pushing to triple the personal exemption amount.
-Santorum paid AMT in 2006, but narrowly avoided it from 2007 through 2010. This was a bit of a surprise, as his large deductions for state taxes and personal exemptions (both AMT adjustments) made Santorum a prime candidate to be subject to the minimum tax. Because Santorum’s income steadily climbed into the higher tax brackets, however, his effective rate exceeded the 28% maximum AMT rate. Perhaps these close calls were the impetus for Santorum’s promise to do away with the AMT should he be elected?
-Despite being one of only four men left in the conversation to be the next leader of the free world, Santorumprepared his own tax returns. The thought of a manwith AGI approaching $1,000,000 and suchlofty political aspirations cranking out his ownSchedule Con Turbo Tax isboth adorable and dangerous, like a kitten playing with a handgun.
-Perhaps because the returns were self-prepared, Santorum deducted $85,000 in mortgage interest in 2009, an amount that borders on impossible given the $1,100,000 maximum amount of primary residence debt permitted to be taken into accountunder I.R.C. § 163. Either Santorum got a raw deal in the form of a 7.5% jumbo interest rate on his home, or he really needs to read this post.
-WithAGI of nearly $1,000,000 per year but no investment income, Santorum’s tax returns beg the question: Where does he keep his money? Based on a quick perusal of his financial disclosure, it appears Santorum has $50,000-$100,000 in a checking account, $100,000-$250,000 of Universal Health Systems stock, $500,000-$650,000 in various IRA investments, and $250,000 in Section 529 plans so his seven kids can go to college and form a kick-ass volleyball squad.
How Santorum’s returns are received by the media and taxpaying public will begin to be revealed tomorrow, but this much is certain, no one will be able to attack his effective tax rate or use of loopholes favoring the wealthy.
[i] As I’ve stressed before, any discussion of Romney’s effective tax rate really should take into consideration the corporate level tax paid by his many investments.
