More On Tax Planningfrom The Advisor's Professional Library
- Charitable Giving Charitable giving can reduce your clients’ tax liabilities. However, the general and verification rules for the deduction of charitable gifts must be understood in order to take full tax advantage of such gifts.
- Taxation of Real Estate Real estate may be used to shelter income and may offer certain tax benefits. However, the type of real estate investment may result in different tax treatment. Learn how to use these investments to help your clients.
The question of how much income tax a presidential candidate pays comes up every four years. It’s been a rite of passage since the early 1970s. This year, the question has been more contentious than in some years as voters and pundits are clamoring for more information from Gov. Mitt Romney, the Republican nominee.
Critics think Romney’s effective rate (taxes paid divided by gross income) of 14.1% sounds low, and call it unfair that a wealthy businessman pays a much lower tax rate than a middle class worker, but that’s the way the tax code is written. And Romney can say that there is at least one president over the last 40 years who paid a much lower rate.
That information comes from taxanalysts.com, which looked at the returns of all presidents, plus Romney, going back to Richard Nixon. (They note that President Gerald Ford did not release returns but did make public detailed information about his taxes.)
It’s notable that, in general, the effective tax rate paid has gone down over the years. That, as taxanalysts.com explains, is because of tax reform that has lowered tax bills for everyone.
Here is the countdown from highest to lowest Tax Rates Paid by 8 U.S. Presidents and 1 Nominee:
(President Ford dancing with Queen Elizabeth at the White House in 1976.
9. Gerald Ford: 37.8%
Gerald Ford took over the presidency after Nixon resigned. His reputation after more than two decades representing Michigan in the House of Representatives was one of honesty and integrity. Nothing about his tax bill would change that perception. A check of his taxes from before he was president shows the effective tax rate he paid as bouncing between 31% and 42% from 1966-74.
(President Reagan showing off his boot after signing his tax reform bill at
his California home in 1981. Photo: AP)
8. Ronald Reagan: 32.37%
Maybe the “Great Communicator” was inspired to champion tax reform after glimpsing his own tax bill. While his rate is second-highest on this list, there is something else to note about Reagan’s taxes. According to the National Journal, he was the first presidential challenger pressured to release his tax returns.
(President Carter signing a bill in the White House in 1977. Photo: AP)
7. Jimmy Carter: 31%
Carter came in promising to attack the culture that ruled Washington. As an outsider, he won support from voters looking for a change after Vietnam and Watergate had left the country weary. Carter’s presidency was a bust, although some historians tout his post-presidency success as second only to Herbert Hoover’s.
(President Bush walking through the White House in 2006. Photo: AP)
6. George W. Bush: 27.17%
Bush, whose name is famously attached to a series of tax cuts set to expire at the end of this year, sits smack in the middle of our list. Judging by his quiet post-presidency, he’s probably glad to be watching the battle over those tax breaks from the comfort of his Texas home.
(President Obama delivering State of the Union address in 2012. Photo: AP)
5. Barack Obama: 26.45%
The battle over taxes and who should pay what rates has been a hot-button issue during the Obama administration and the 2012 campaign. In the public relations battle, the president could claim that he pays what he likely considers his fair share.
(President Clinton with his wife, Hillary, in 1998. Photo: AP)
4. Bill Clinton: 20.15%
Clinton’s effective tax rate while president might be relatively low, but the amount he has paid since leaving the White House has moved into the stratosphere. From 2000 to 2007, Clinton and his wife, Hillary, paid $33 million in taxes on $109 million in gross income, an effective rate of 30.2%. Most of that income came from books they each wrote and from fees ($51 million) for speeches given by the former president.
(President Bush and Vice President Dan Qualye waving during the GOP
convention in 1988. Photo: AP)
3. President George H.W. Bush: 19.86%
The first president named Bush followed Reagan with his famous “read my lips” line pledging “no new taxes.” Like Reagan, promises of lower taxes proved to be more rhetoric than reality, and when he violated his no tax pledge during his term it helped lead to his defeat to Clinton in the 1992 election. Like Romney, Bush’s substantial wealth meant much of his money was generated through investments rather than ordinary income.
2. Gov. Mitt Romney, GOP Nominee: 14.1%
Romney has released two years of tax returns that show he paid an effective rate of 14.1%. That relatively low rate is because the bulk of Romney’s income for the past two years was earned from investments. Romney has said for many years his effective tax rate was 20%, but he has not released documents to back that up.
(President Nixon addressing a press conference in 1973 about Watergate
crisis. Photo: AP)
1. Richard Nixon: 0.3% (that’s not a typo)
Nixon might have earned the nickname “Tricky Dick” while running for Congress way back in 1950, but future events would cement the perception that it was particularly apt. Watergate, of course, is Nixon’s unfortunate legacy, but forgotten by many are Nixon’s paltry tax payments for 1970 and 1971.
Getting what later was deemed a too-high value placed on his personal papers, which he donated to the National Archives, Nixon was able to use a large charitable deduction, taxanalysts.com says, to almost eliminate his tax liability. Alas, like Watergate, the scheme came to light in 1974 when the IRS investigated. The scandal was quickly eclipsed by the revelations from The Washington Post’s Woodward and Bernstein, but Nixon did end up paying $465,000 in back taxes and interest.
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