Some GOP presidential candidates may have more to lose than political points if the debt super-committee adopts President Obama’s deficit reduction plan, one provision of which would raise taxes on some millionaires to ensure that high-income earners do not pay a lower tax rate than middle-class Americans.
This provision, or the Buffett Rule, as the president has taken to calling it, could apply to as many as five of the Republican candidates who in 2010 collected millions in investment income, which carries a much lower tax rate than salary, and is the primary reason some millionaires pay a lower tax rate than middle-income Americans.
And while the White House hopefuls have so far refused to release their tax returns, investor Warren Buffett, whom Obama named the Buffett Rule after, has offered to make his public but only if media mogul Rupert Murdoch released his as well.
Buffett ignited a fury over a millionaire’s tax increase in August after the billionaire investor wrote an op-ed in the New York Times complaining that he paid a lower tax rate than his secretary. Soon after Buffett’s comments ran, the president announced his Buffett Rule. A statement outlining the broad concept of the rule noted that “people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.”
According to his 2010 tax return, Obama’s effective federal income tax rate was about 24 percent. With a reported income of about $1.7 million, the president paid the same rate as a married couple who earned $101,000 after deductions. Under the Buffett Rule, the president would undoubtedly have to pay higher taxes to push his taxable income into the highest 35 percent tax bracket.
GOP presidential candidate Mitt Romney, who recently regained the No. 1 spot in the polls, would likely have a much heftier tax burden as well because the majority of his income came from his investments, many of which are taxed at a lower rate than salary.
Romney is the wealthiest candidate on the GOP primary ballot bringing in between $9.6 million to $40 million in 2010, according to campaign disclosure forms.
It was virtually impossible to calculate exactly how much Romney’s taxes would increase, because his disclosure forms did not specify what portion of his income specifically came from capital gains, which are usually taxed at 15 percent, versus dividends or interest, which are taxed at the same rate as salary — in Romney’s case that would be 35 percent.
While all presidential hopefuls have to disclose every source of income that exceeds $200, they do not have to specify the exact amount received from each source. Instead, they choose from a range of incomes so the disclosure forms provide only a vague picture of how much money each contender makes in a given year.
For example, Romney reported 31 sources of income that fell within the $100,000 and $1 million category, resulting in a more than $30 million range in his reported income.
“It is virtually impossible to get an estimate of how much income tax they paid,” said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. “You can’t nail it down, but you could approximate.”
And approximate we did.
By ABC’s calculations, Newt Gingrich reported the second-highest income, totaling between $2.6 million and $2.7 million. Almost all of Gingrich’s income was paid in the form of dividends from his company, Gingrich Productions.
Although Gingrich falls into the millionaire category, he probably would not pay significantly higher taxes under the Buffett Rule because dividends are taxed at virtually the same rate as salary, meaning he most likely already pays a higher tax rate that a middle-class American.
Herman Cain, on the other hand, could see a fairly large increase in his taxes under Obama’s Buffett Rule because a large portion of his income stream is from less-taxed capital gains. Cain’s disclosure forms showed that he took in between $230,000 and $1.3 million from capital gains in 2010.
Under Cain’s 9-9-9 economic plan, capital gains would be tax-free, meaning the former Godfather’s Pizza CEO could personally save between $34,500 and $195,000 in capital gains taxes alone if his plan was implemented.
Cain’s total income for the year was between $1.1 million and $2.4 million, making him the third wealthiest GOP presidential candidate.
Rick Santorum, the fourth-highest paid GOP candidate, would probably not see his tax burden increase significantly because his 2010 income of between $1.4 million and $1.6 million came almost solely from salary. The former Pennsylvania senator earned $1.3 million in consulting and news media contributor fees.
All of Jon Huntsman’s reported income came from his investments, but it was unclear whether the bulk of it would fall under the higher-taxed dividends or lower-taxed capital gains.
Huntsman reported earning between $688,700 and $3.7 million in 2010 making him the second wealthiest candidate if his profits came in on the high end of the approximation or the sixth wealthiest if he earned closer to the low end of his reported income range.
Depending on where his income level actually lies, Huntsman may fall short of the Buffett Rule tax increases. The same is true for his fellow GOP contender Ron Paul, who reported earning between $400,000 and $1.3 million in 2010.
About $174,000 of Paul’s income is from his congressional salary, which would theoretically not be taxed at a higher rate under the Buffett Rule. White House hopeful Michele Bachmann also earned a $174,000 congressional salary, but has yet to submit her presidential candidate personal disclosure forms.
Former GOP front-runner Rick Perry has not filed his disclosure forms either, but according to Texas public disclosure filings the Texas governor earned an estimated $156,000 to $235,000 in 2010, $150,000 of which was from his governor’s salary, the National Journal reported.
Neither Perry nor Bachmann would be affected by the Buffett Rule, seeing as their incomes were significantly less than the $1 million threshold.