I am naive.
It took me a while to grok that Romney is claiming to have paid 13% of his taxable income.
The whole point of being rich is that your taxable income is very small.
Over the course of one year you deposit $10 million into your bank account. At first blush, you should pay $3.5 million in federal income tax.
(I am leaving aside the rates for cap gains and dividends to keep this simple.)
But then you start deducting and categorizing. This thing here is expensed over a century... your foundation does some weird thing over there... your horse is deducted a business expense... so you manage to cut your taxable income down to $3.7 million. Then you pay your 35% of that adjusted gross income, and it comes to $1.3 million.
Since you made $10 million and paid $1.3 million that is 13%. When talking tax policy that is what is of interest—the actual rate, collected given the entirety of the tax code.
But if you define you income as your taxable income then the whole thing becomes circular. In the above case, your $10 million in gross income is whittled down to $3.7 million and then you pay 13% of that. So $455,000 tax paid on $10 million gross income... a practical rate of 4.5%.
Say you make $10 million but you get tax breaks such that your adjusted gross income is only $100. And you mail the government a check for $50.
You make $10 million. You pay $50. Would any sensible person say in a political context that he is being taxed at 50%?
I used to own a house. If my job paid $35,000 in a year, I deducted more than $12,000 for mortgage interest and the personal deduction ($3,500? $5,500? I forget) and my taxable income gets down to $17,000.
Now, if someone asked me what I made that year would I say $17,000? No. Nobody would! None of us think of our taxable income as our income except for the purpose of paying taxes.
Romney could have made $150 million every year for a decade and paid only twenty-six cents a year in taxes, and if his adjusted gross income every year was $2.00 then he "always paid taxes, and never less than 13%."
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