As for retirement saving, many taxpayers roll over their company pensions into a tax‐deferred IRA just as Romney did. More than 70% of my family’s wealth, for example, is in two IRAs and two 401(k) plans. After turning 70 1/2, however, seniors must withdraw sizable amounts each year which are taxed at regular income‐tax rates, rather than at the lower rates for capital gains and dividends.
In this respect, Romney’s seemingly low tax rate is partly illusory — a temporary reprieve rather than long‐term tax savings.
The other main reasons the Romney family appeared to pay a low rate are that (1) they donate $3 million to $4 million a year to charities, and (2) most of their remaining income was taxed at the 15% rate on capital gains and dividends that ends this year.
When Berkshire Hathaway chairman Warren Buffett complained that his 2010 taxes were too low, nobody accused him of taking special advantage of complicated loopholes that are not available to other taxpayers. In fact, Buffett’s federal tax rate was significantly lower than Romney’s and for essentially the same reasons — charitable contributions and capital gains.
In a New York Times Op‐Ed last August, Mr. Buffett revealed that his federal income taxes for 2010 were only 17.4% of his taxable income, before taking account of deductions. Although the media did not report Gov. Romney’s federal taxes in the same way they reported Mr. Buffett’s, the Romney family also paid 17.6% of taxable income.
Both Buffett and Romney are famously frugal and generous, however, so both had extraordinarily large charitable deductions. After taking account of such deductions, Buffett paid only 11% of his gross income, while Romney paid 13.9%.