First, an update about something I wrote about last week. I noted I was disappointed and expressed concerns about the jobs report. As you may recall, I wrote that jobless claims jumped to 399,000 the first week of January. It was the highest in six weeks, up from an upwardly revised 375,000 the week before. Well, what a difference a week makes. This week, according to a Thursday report by Associated Press, “the number of people seeking unemployment benefits plummeted last week to 352,000, the fewest since April 2008.” Weekly applications fell by 50,000. That was the biggest drop in the seasonally adjusted number in more than six years. And the four-week average dropped to 379,000, the second lowest figure in more than three years. A U.S. Labor Department spokesman that AP talked to cautioned that there is a lot of volatility at this time of year and mentioned the jump of two weeks ago that worried me. But he also told AP when weekly applications fall consistently below 375,000, it usually signals that hiring is strong enough to push down the unemployment rate. So overall, the new report is good news, and evidence that the job market is strengthening. It’s also evidence that my concerns may have been misplaced or premature and that’s a good thing. Let’s hope this trend continues. Now, let’s turn our attention to something that drives me a little nuts – the politics of taxes.There is all this furor among Mitt Romney’s GOP opponents to make Romney’s tax returns public. And before that, President Barack Obama was making political hay with remarks made by Warren Buffet. Buffet said he pays taxes at a lower rate than his secretary. First of all, let me say I think Romney should make his tax returns public. He’s under no legal obligation to do so, but it would be a nice gesture to voters. All it would do is confirm what everybody already knows. He’s a really rich guy, worth at least a couple hundred million dollars. But that’s not really the point. We always have CNN on in the newsroom. One morning this week, CNN anchor Kyra Phillips asked the question, “So how come Mitt Romney pays less taxes than most us working stiffs?” That’s absurd. First of all, I think most would agree Ms. Phillips – a CNN morning anchor – probably can’t legitimately characterize herself as a “working stiff,” but that’s irrelevant. What is relevant is that her remark is a completely inaccurate characterization of Romney’s tax situation. Here’s why. When Romney says he pays taxes at a rate of about 15 percent, he’s talking about his effective rate, meaning, that’s what he actually pays. Here are the marginal tax rates and slightly rounded incomes ranges they accompany according to the IRS: 10% – $0-$17K 15% – $17K-$69K 25% – $69K-$139K 28% – $139K-$212K 33% – $212K-$379K 35% – $379K and up Romney would fit into the highest marginal rate of 35 percent, based on his level of income. But does he effectively pay that rate? No, of course not. And neither does anybody else in America. Here’s a breakdown of effective individual tax rates for 2011 based on current tax law: Lowest quintile – (-)3.2% 2nd quintile – 2.9% 3rd quintile – 6.3% 4th quintile – 9.7% 5th quintile – 17.9% Top 10% – 20.1% Top 5%– 22.0% Top 1% – 24.7% (Following is the link to the Congressional Budget Office table that contained the above numbers: http://www.cbo.gov/doc.cfm?index=5746&type=0&sequence=1 ) Roberton Williams is a senior fellow at the Tax Policy Center. He points out the following: – Eighty percent of Americans have an effective income tax rate below 15 percent. (OK, Kyra, please note: Romney pays taxes at a higher rate than 80 percent of all us “working stiffs.”) – Considering income tax liability alone, the average effective federal tax rate for people with incomes between $40K and $50K is 3.2 percent. – $50K to $75K – 5.7%. – $75K to $100K – 7.2%. And remember, 46 percent of all income earners in the U.S. – for a variety of reasons – pay no federal income tax whatsoever. So how is it that somebody making $100K, firmly planted in the 25 percent tax bracket, pays an effective tax rate averaging a little more than 7 percent? First, there are itemized deductions. Things like mortgage points, medical and dental expenses, interest expense, charitable contributions, miscellaneous expenses, casualty losses, theft losses. There are literally hundreds of them. Go to irs.gov and scan the “Top 500 Itemized Deductions.” Then there are education credits, above the line deductions, tax exempt interest, exclusions of cash transfers, the standard deduction, child dependent exemptions, elderly tax credits, capital gains and dividend rates and on and on and on. Bottom line? That secretary of Buffet’s? Unless she makes more than $100K and cracks the top 20 percent of earners, she didn’t pay a higher effective rate than her boss. Please don’t misunderstand. I’m not suggesting the bloated tax code is fair. I’m not saying tax reform isn’t needed. But I do believe we should be honest when we talk about it.
