September 30, 2022

The Agenda: The Tax Deduction Mitt Romney Did Not Take

The Agenda

How small-business issues are shaping politics and policy.

The release of Mitt Romney’s tax returns for 2010, all 500 pages of them, shines a bright light into the strategies wealthy people use to reduce their tax burden — Mr. Romney managed to reduce his effective tax rate on $21 million of income to just 13.9 percent.

But, oddly, there was one strategy that Mr. Romney did not use — a full deduction for health insurance premiums that is available to most self-employed people. It is on Line 29 of the Internal Revenue Service’s Form 1040 income tax return. On Mr. Romney’s return, the line appears blank.

Mr. Romney did have self-employment income, which made him, for the purposes of the I.R.S., a sole proprietor. Sole proprietors report their income on the I.R.S.’s Schedule C: Profit or Loss From Business. In 2010, Mr. Romney actually filed two Schedule C’s: one for his speaker’s fees and the other for his service as a director of Marriott International. His speaker fees amounted to $528,871 in 2010, but commissions and advertising costs reduced that income to $480,115. All told, his self-employment income came to $593,996.*

In addition, the tax return shows the Romneys’ “self-employed health insurance premiums” came to $14,176. In the 35 percent tax bracket, deducting the health insurance premiums would have saved the couple almost $5,000 in taxes.

So why didn’t the Romneys take the deduction, when they managed to reduce their taxes in so many other ways? Mr. Romney’s tax preparer, Daniel Feheley of PriceWaterhouseCoopers, did not return messages seeking comment. But Keith Hall, the national tax adviser to the National Association for the Self-Employed, pointed to a restriction on the deduction. “It is very vague but it basically states that the health policy you have must be established under the small business,” Mr. Hall said. “There’s a reasonable chance that his health insurance is a policy that he’s had for many years — could be coverage that he had while at another company, or otherwise unrelated to his self-employment. If that’s true, he’d be precluded from taking that deduction on Page 1 on his 1040.”

Further, Mr. Hall said, it may not have made financial sense to shift his insurance to take advantage of the deduction. “He may have an old group policy, and depending on what medical conditions he or his family have, to try and convert it may cost more than the savings he’d get from the deduction.” Mr. Romney’s wife, Ann, was diagnosed with multiple sclerosis in 1998.

Yet Mr. Romney lives in Massachusetts, and as governor of that state, he signed legislation reforming its health care market. Jonathan Gruber, a Massachusetts Institute of Technology economist who served as an adviser to the Romney administration — and who has studied the self-employment tax deduction — said in an interview that he could not think of a reason Mr. Romney would not take the deduction. “There must be some arcana in the law that his accountant said that this is not worth messing around for $5,000,” Mr. Gruber said.

But, he added, it could not be because of the Romneys’ health status. “The Massachusetts law solves that,” Mr. Gruber said. “During the annual open enrollment period, you can change to a policy that covers pre-existing conditions and not be discriminated based on price.”

The health care law signed by President Obama in 2010, which Mr. Romney has vowed to repeal, is slated to extend that protection across the country in 2014.

*On Saturday, The Agenda reported how Mr. Romney learned to his surprise that self-employed people pay what is essentially both the employer and the employee’s share of their payroll tax obligation. “I’ll take a look at that,” he told a small businessman who “bird-dogged” him in New Hampshire. But it turns out that he needs to look no further than his own tax return. Mr. Romney paid self-employment tax on this income — both halves of it. The total came to $29,151.

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