Mitt Romney paid $1.9 million in federal taxes in 2011 on income of $13.7 million, an effective rate of 14.1 percent that reflects the Republican presidential candidate’s dividends, capital gains and other returns that are assessed at some of the lowest tax rates.
Romney’s tax return, which he released Friday, showed that he boosted his effective tax rate by not declaring all of the $4 million in charitable contributions that he made during 2011, instead only reporting $2.3 million. By doing so he stayed consistent with an earlier public statement that his tax rate for the year would not drop below 13 percent.
The return does little to fundamentally change the perception of Romney’s finances. It is also unlikely to end Democratic attacks on his sources of income, which include foreign investments and other vehicles that are not available to most taxpayers.
He did, however, take a step toward rebutting allegations by Senate Majority Leader Harry Reid, D-Nev., that Romney had paid no federal taxes in some past years. The Romney campaign released a statement by PricewaterhouseCoopers LLP, the accounting firm that has prepared his tax returns since 1990, saying that Romney had never had an effective tax rate of less than 13.66 percent during that period and had an average tax rate during the period of 20.2 percent.
Romney made efforts during 2011 to remove some of the investments and modify the tax strategies that had triggered the most strident political attacks on his candidacy, said Philip J. Holthouse, managing partner in Holthouse Carlin & Van Tright, a Los Angeles accounting and financial advisory firm, who reviewed the tax return at the request of the Los Angeles Times.
“A number of offshore investments have been sold and the Swiss bank account has been closed,” Holthouse said. “He has done some things to stop some of the questions and scrutiny of those areas.”
But Romney continued to derive significant income from international investments. In some of his tax return schedules, he reports gross earnings of about $3.5 million, which were offset by expenses and taxes that he paid to foreign nations.
Many of his foreign investments appear to be highly successful hedge funds and other financial instruments that he helped set up or invested in while at Bain Capital, the Boston-based private equity firm that he founded in 1984 and led until he stepped down in 1999.
The tax return shows that Romney’s income came in far lower than he had expected in January, when he filed an estimated tax return that projected he would earn $20.9 million. The $7.2 million drop in his expected income was explained by the Romney campaign as a result of variations in his investment returns that he could not have foreseen in January.
The Romney campaign suggested, after the voluminous materials were made public, that it was time to move on.
Not surprisingly, Democrats disagreed.
President Barack Obama’s campaign issued a statement demanding answers to more than a dozen follow-up questions involving Romney’s overseas investments, the amount of foreign taxes he paid and his ties to Bain Capital – where he made his personal fortune and, depending on the telling, did or did not preside over massive layoffs at the companies he helped retool.
Even as reporters and tax experts pored over the thick cache of documents, many were quick to note the smaller charitable deduction. While it kept him in line with his statement that he had paid at least 13 percent in federal income taxes in each of the last 10 years, it also contradicted something else he has said: “I pay all the taxes that are legally required and not a dollar more. I don’t think you want someone as the candidate for president who pays more taxes than he owes.”