Financial Writer James B. Stewart Claims He Pays Income Tax Rate of 74% on His Taxable Income

 Doesn’t Release Details – Just Take His Word for It

If It Sounds Too bad to be True, It Probably Is Not True

With the release of his 2010 tax return, Mitt Romney has created all sorts of interest in tax rates.  Mr. Romney of course created a stir by having such a low tax rate, below 15% atg the Federal level on his total income.  James B. Stewart, a renonwn financial writer has done the computations on his tax return, and comes up with the astounding numbers that he pays a much higher rates.

I paid 24 percent of my adjusted gross income in federal taxes and 37 percent in combined federal, state and local income taxes. I paid 49 percent of my taxable income in federal income tax, and 74 percent of my taxable income in combined federal, state and local income taxes. My totals include federal payroll and self-employment taxes.

Now this revelation is going to be a Conservative dream come true.  First of all they will take the number  74% and by leaving out a few details imply that not only Mr. Stewart, but everyone pays 74% of their gross income in taxes.  In fact, looking at the first set of numbers, where Mr. Steward pays 24% of his AGI (which is probably close to his gross income) in Federal taxes sounds about right.  Mr. Stewart is unique, as he is the first to admit.

It turns out that my individual circumstances are a near-perfect storm of punitive tax policies. Nearly all my income is earned, as opposed to capital gains, carried interest or dividend income taxed at a lower rate.

I live in New York City, where I pay some of the highest state and local taxes in the nation. My mortgage deduction is small relative to my adjusted gross income, so it doesn’t help me much.

Now exactly how Mr. Steward can get to 49% tax rate on his taxable income is difficult to see, since Mr. Stewart did not release the details of his tax return.  Note that no one has to make public his or her tax returns, but that if you are going to write about your own personal situation and expect to have any credibility, you kind of have to do that.  If you don’t want to release the tax info, don’t write about it.

Even without knowing his total income we do know that Mr. Stewart has a very high income.  And as he says, his situation is that he works for his income as opposed to someone, say like Mr. Romney who does no work but says he “earned” his money, Mr. Stewart does pay higher taxes than wealthy investors because the tax revisions of the last decades gave preference to investment income over income earned by actually being employed.  And yes, New York city is a very expensive place to live, both tax wise and non-tax wise.  But that is not the real lesson here.

No the real lesson here is not that total taxes are too high, even though everyone will see the Conservatives use the example of Mr. Stewart to say that.  The real lesson is that over the last several decades taxes have been shifted away from wealthy investors and shifted to working men and women.  Mr. Stewart’s tax situation cries out for raising taxes on Mr. Romney and his ilk, and using some of the money to lower them on people like Mr. Stewart.