December 22, 2024

Economix Blog: Romney’s Tax Bill, European Style

5:46 p.m. | Updated to correct income figure for Liliane Bettencourt.

PARIS — Perhaps it’s no surprise that the Republican presidential candidates Mitt Romney and Newt Gingrich have been so vociferous in warning against what they deride as President Obama’s efforts to turn the United States, as Mr. Romney put it, ‘‘into a European-style welfare state and have government take from some to give to others.’’

Because one thing is for sure: if they lived in Europe, they’d be paying more taxes.

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We spoke with tax experts in Germany, France and Britain about how much tax they would expect a citizen of their countries to pay on an income similar to Mr. Romney’s. The short answer is, millions more.

None of our tax advisers, all of whom deal with wealthy clients, wanted to be identified, and they cautioned that there was no way to give more than a ballpark estimate without studying Mr. Romney’s tax forms in more detail themselves.

But for the sake of a simple comparison, let’s start with France, which has a top income tax rate of 48 percent, and a capital gains tax rate of 19 percent. (All income is also subject to a 13.5 percent social security tax that helps to pay for things like pensions, unemployment insurance and health care; in the United States, by comparison, the top ordinary income rate is 35 percent and the capital gains rate is 15 percent. Only the relatively small Medicare tax is applied to all earned income, while in 2010 and 2011 Social Security tax applied to only the first $106,800 of wage and salary income.)

In Paris, the hypothetical M. Romney’s effective tax rate would probably have been in the neighborhood of 35 to 40 percent, including the social security tax. While much of his income derived from capital gains, his dividends, interest and income from his private-equity holdings would mostly be taxed at ordinary income rates. At 40 percent, his bill would have been about $8.6 million. (France also gives generous tax credits for large families, but M. Romney’s five children are all adults now, so that would not be of much use.)

In the United States, Mr. Romney paid $3 million in income taxes on his 2010 income of $21.6 million, for an effective rate of 13.9 percent. His Social Security and Medicare tax bills would have been trivial by comparison.

In Britain, income tax rates top out at 50 percent. But most likely, a top London tax lawyer told us, the effective rate would be significantly lower, since Mr. Romney’s income from capital gains would have been taxed at 18 percent to 28 percent.

So, he said, an educated guess would produce an effective tax rate for Mr. Romney of ‘‘probably 30s rather than 40s.’’ At 35 percent, the tax on Sir Mitt’s $21.6 million would add up to about $7.6 million.

In Germany, high-earning workers pay individual income tax rates of up to 45 percent, though our adviser — a lawyer in Frankfurt with a top international firm — noted that an additional ‘‘solidarity surcharge’’ is tacked on top of that for an effective top rate of 47 percent. Mr. Romney, however, would benefit from the lower rate applied to private capital investments: 25 percent, with the solidarity surcharge bringing it up to about 26.4 percent. With most, but not all, of his income treated as capital gains, Herr Romney would probably pay about 30 percent, or $6.5 million.

As for Mr. Gingrich, who paid 32 percent in federal income tax on his $3.14 million in income, he would face mostly ordinary income tax rates in Europe, so he would probably have to fork over about 40 percent of his income if he lived in one of the major European countries.

Of course, many wealthy people find ways to avoid the tax collector (legally and illegally), even in the dreaded European welfare states. Just ask officials in Greece and Italy.

In fact, Mr. Romney may even have competition: Liliane Bettencourt, heiress to the L’Oréal fortune and the richest person in France, made headlines last year with reports that she paid only about 4 percent in taxes on an income of nearly 250 million euros, or $324 million.

After the uproar, Ms. Bettencourt and some other members of the French wealthy elite took a page from Warren Buffett’s book, and asked the government to raise their taxes.


This post has been revised to reflect the following correction:

Correction: January 25, 2012

An earlier version of this post misstated Liliane Bettencourt’s reported annual income. It was in the hundreds of millions of euros, not hundreds of billions.

Article source: http://feeds.nytimes.com/click.phdo?i=8940c13c2558deebf294fc83d58d6252