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January 12, 2012
News Analysis: Forget Buffett -- What About a Romney Rule?
Joseph J. Thorndike

Full Text Published by Tax AnalystsTM

Mitt Romney won't release his tax returns. Presumably, he's reluctant to be caught violating the so-called Buffett rule, President Obama's aspirational standard for tax reform. No household making more than $1 million annually should pay a smaller share of its income in taxes than middle-income families pay, according to the rule.

The Buffett rule may be vague and unenforceable, but it's certainly good politics, so Romney's reluctance to disclose his returns is understandable. But it's also a mistake.

Candidates have an undeniable right to keep their tax returns private. It's certainly the safe thing to do. But sometimes safety is overrated, especially in politics. And if Romney won't take my word for it, then maybe he'll listen to dear old Dad.

Father Knows Best

In 1967 Michigan Gov. George Romney set the bar for tax disclosure by presidential candidates. While running for the Republication nomination, he was "badgered" by a writer for Look magazine to release his most recent tax return.

Romney refused. Releasing a single return wouldn't prove anything, he told the magazine's senior editor, T. George Harris. It could be a fluke, or even a cynical manipulation designed to make the candidate look good. What really mattered was how a candidate managed his personal finances over the long haul.

"Stumped by his argument," Harris wrote in the magazine, "I was not prepared for the move that it eventually led him to make: He ordered up all the Form 1040's that he and Mrs. Romney had filed over the past twelve years -- including those profitable ones when he saved the American Motors Corporation from bankruptcy and became a millionaire on the company's stock options."

Romney's disclosure was unprecedented, according to United Press International. While other candidates had released statements outlining their income, assets, and other financial data, none had ever released his actual returns. When columnists Drew Pearson and Jack Anderson asked other GOP candidates to make similar disclosures, they all refused.

Romney's tax returns told an interesting story. To no one's surprise, they revealed him to be a rich man (although not nearly as rich as his son is reputed to be). His adjusted gross income ranged from a high of $566,771.47 in 1963 (roughly $4 million in current dollars) to a low of $78,483.85 in 1966 (about $527,000).

In some years, Romney's salary at AMC provided most of his income, but starting in 1960, he began to report considerable investment income. (His salary ranged from a high of $200,000 in 1959, when he was still an auto executive, to a low of $27,499 in 1963, when he was governor of Michigan.) His investment income followed the opposite trajectory, starting at a low of $3,541 in 1955 but rising to more than $500,000 by 1963.

Romney's income was impressive, but so were his deductions. In particular, his charitable contributions made headlines -- of the useful, not the embarrassing, variety. Over the 12-year period covered by the returns, George and Lenore Romney gave away 23 percent of their income to charity, including 19 percent to the Mormon church.

"One year, in 1960, they carefully gave away all but $389.59 of [George's] salary and bonus, $173,125," the magazine noted with apparent awe. Of course, the Romneys still collected $487,202.68 in dividends, interest, and capital gains that year, so they weren't in much danger of starving. But still, the gifts were impressive.

Romney paid a lot of tax during the 12 years in question, although his average tax rate varied dramatically from year to year. It hit a high of 45.8 percent in 1961 and a low of 16.5 percent in 1966. Over the total period, however, it averaged 37 percent.

Mitt's Problem

What might Romney Jr. learn from his father's experience with tax disclosure? It's a fair question, especially because Mitt has been known to trade on George's transparency. In a recent interview, Romney Jr. explained how his father had tried to instill good values in his children:

    At home, he filled us with the conviction that life was not handed to us on a silver platter. He made sure my brother and I mowed the lawn, shoveled the driveway. When he ran for president and his tax returns were published, it was clear he could've hired a landscaper. But he decided we would learn to work with our hands.1

George Romney and Mitt Romney (AP Photo)That's a modestly compelling point. And one that Mitt can't make in relation to his own children. (And that's only partly because he does hire landscapers, including some with questionable immigration status.2) He won't reveal enough about his finances to make any sort of claim to regular guy status.

Of course, Romney's dad wasn't a regular guy either -- he was rich by the standards of 1967 and even rich by the standards of 2012. But he wasn't afraid of making his wealth known to the voters. Maybe he had less to hide than his son. Or maybe he simply understood that parading through the sunlight of public disclosure is ultimately less damaging than hiding in the shadows of taxpayer privacy.

Romney Jr. should take a lesson from Romney Sr. and take the risk of public disclosure. He should challenge the Buffett rule head-on, offering up his own Romney rule in honor of his father: "No presidential candidate should be afraid to confront the electorate with the truth, no matter how uncomfortable it might be for either of them."

In vague terms, Romney Jr. has already flirted with that approach. When pressed by reporters about his use of loopholes, Romney showed a spine, of sorts. "I can tell you we follow the tax laws," he said, "and if there's an opportunity to save taxes, we, like anybody else in this country, will follow that opportunity."3

That's entirely reasonable. And he should go even further. Peter J. Reilly, a contributor to, recently suggested that Romney release his return and offer this statement to the nation:

    Here is my return. Unlike that of your Treasury Secretary, it was prepared in accordance with the instructions provided by the IRS. I was required to report capital gains from the partnership as capital gains. If you believe that the "carried interest" benefit is an abuse, then instruct the IRS to change the regulations. You have the power. If you do, I promise that when I am elected I will not reverse that regulation.4

Who wouldn't welcome that sort of candor? It would place the blame for Romney's (presumably) low tax rate where it belongs: on Congress and the IRS. It would end all the distracting chatter about what Romney might or might not be hiding. And most important, it would make him seem like a stand-up guy.

Of course, it would take a certain amount of guts, too. But isn't that something we want in our president?

                         1955-1966 Romney Joint Returns

              Salary                  Interest, and    Adjusted
              and       Deferred      Taxable          Gross      Church
 Year         Bonus     Compensation  Capital Gains    Income     Contributions

 1955       125,000.04         --         3,541.21    129,674.46     23,887.96
 1956       125,000.04         --         7,031.70    133,763.31     33,154.43
 1957        87,500.01         --         3,607.18     92,573.06     22,341.01
 1958       168,750.02         --            4,280    173,858.77     39,758.25
 1959          200,000         --        60,451.82    260,801.82     64,027.08
 1960          173,125         --       487,202.68    661,427.68    156,038.31
 1961       155,083.40         --       116,493.66    272,977.06     41,243.68
 1962        75,803.02         --       117,117.36    194,920.44     13,404.22
 1963        27,499.92     31,705       507,566.55    566,771.47     42,821.62
 1964        27,499.92     31,705       211,958.18    271,163.10        78,941
 1965           30,000     31,705        74,803.56    136,508.56     31,033.97
 1966           30,000     11,705        41,130.52     78,483.85     13,956.64
 Totals   1,225,261.37    106,820     1,635,184.42  2,972,923.58    560,608.17

                               [table continued]

          Other           Total           Taxable                     Average
 Year     Contributions   Deductions      Income            Tax       Tax Rate

 1955        3,190.96      36,118.98      89,355.48      45,651.49     35.20%
 1956        2,261.50      43,370.05      86,193.26      43,172.17     32.28%
 1957        2,740.45      32,948.45      56,024.61      23,959.20     25.88%
 1958        5,765.63      56,760.06     113,498.71      63,469.19     36.51%
 1959        5,591.25      86,761.14     170,440.68     109,150.24     41.85%
 1960       16,697.10     181,905.47     476,522.21     237,000.48     35.83%
 1961       26,875.30      81,036.03     188,941.03     124,955.96     45.78%
 1962       37,149.89      66,062.17     125,858.27      73,173.37     37.54%
 1963        2,054.23      60,675.59     503,095.88     249,998.56     44.11%
 1964        3,051.50      97,263.19     170,899.91      80,830.62     29.81%
 1965        1,362.50      47,231.83      86,276.73      35,213.50     25.80%
 1966        8,465.59      33,723.37      41,760.48      12,980.40     16.54%
 Totals    115,205.90     823,856.33   2,108,867.25   1,099,555.18     36.99%

 Note: All pay from 1955 through 1962 came from American Motors Corp., except
 $7,500 in delegate's per diem at the state constitutional convention.

 Source: T. George Harris, "What Makes Romney Run," Look, Dec. 12, 1967.