{"id":12349,"date":"2012-02-09T18:51:18","date_gmt":"2012-02-09T23:51:18","guid":{"rendered":"http:\/\/blog.beliefnet.com\/watchwomanonthewall\/?p=12349"},"modified":"2012-02-09T18:51:18","modified_gmt":"2012-02-09T23:51:18","slug":"man-taxed-at-102","status":"publish","type":"post","link":"https:\/\/www.beliefnet.com\/columnists\/watchwomanonthewall\/2012\/02\/man-taxed-at-102.html","title":{"rendered":"Man Taxed at 102%"},"content":{"rendered":"
\n

At 102%, His Tax Rate Takes the Cake<\/h1>\n

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~<\/span><\/p>\n

By\u00a0JAMES B. STEWART\u00a0|\u00a0New York Times<\/cite><\/p>\n

 <\/p>\n<\/div>\n

\"\"Meet Mr. 102%.<\/strong><\/p>\n

James Ross, 58, is a founder and managing member of Rossrock, a Manhattan-based private investment firm that focuses on commercial real estate and distressed commercial mortgages. \u201cI realize I am very fortunate, and in fact I am a member of the 1 percent,\u201d Mr. Ross wrote in an e-mail. His r\u00e9sum\u00e9 is studded with elite institutions: Yale, Columbia Law School and stints at the law firms Cravath, Swaine & Moore in New York and Holland & Hart in Denver. Since his company fits the category of private equity, he even has carried interest, the kind of incentive compensation that enabled Mitt Romney to pay such a low tax rate.<\/p>\n

Yet Mr. Ross told me that he paid 102 percent of his taxable income in federal, state and local taxes for 2010. \u201cMy entire taxable income, plus some, went to the payment of taxes,\u201d Mr. Ross said. \u201cThis does not include real estate taxes, sales taxes and other taxes I paid for 2010.\u201d When he told friends and family, they were \u201castounded,\u201d he said.<\/p>\n

In the midst of a national debate over tax rates and tax policy,\u00a0I lifted the veil last week\u00a0on my income tax rates for 2010, a year in which I paid 37 percent of my\u00a0adjusted gross income\u00a0in federal, state and city income taxes and 74 percent of my taxable income. (Adjusted gross income \u2014 your total income minus retirement plan contributions, tax-exempt interest and other specified exclusions \u2014 is usually higher than taxable income, which is adjusted gross income minus your personal exemptions and itemized deductions. So taxes as a percentage of taxable income are almost always higher.)<\/p>\n

I was dismayed by the comparison to Mr. Romney \u2014 who paid 13.9 percent of his adjusted gross income of $21.7 million and 17.5 percent of his taxable income of $17.1 million \u2014 as well as by the possibility that I paid a higher tax rate than just about anyone. So I invited readers to send me e-mails disclosing their tax rates and circumstances.<\/p>\n

\"\"I was deluged with submissions, including many people who pay a higher rate than I do. But at 102 percent, Mr. Ross was in a category of his own.<\/p>\n

\u201cI had no idea I was paying such a high rate,\u201d he told me when we spoke this week. \u201cI had trouble believing this was possible. I called my accountant, and I said, \u2018Do you realize I\u2019m paying every penny I have in taxable income? I\u2019m dipping into savings to pay my income tax.\u2019 He said, \u2018It\u2019s unfortunate, but at your income level\u2019\u00a0\u201d \u2014 with high earned income and large itemized deductions that Mr. Ross can\u2019t take advantage of \u2014 \u201c\u00a0\u2018that\u2019s just the way it is.\u2019\u00a0\u201d Mr. Ross\u2019s plight illustrates something that came through in nearly every response and cuts across nearly all income levels: the disparities of the tax code don\u2019t just pit rich against poor or middle class. It taxes people within the same income brackets at grossly unequal rates. \u201cI cannot help but reflect on the unfairness of the current tax regime,\u201d Mr. Ross wrote. \u201cWhy should I pay 102 percent of my taxable income in taxes when others, with far greater wealth than mine, pay a fraction of that?\u201d<\/p>\n

I asked Robert Willens, a tax expert and New York attorney, if such a thing were possible, and he said it was. \u201cIt\u2019s entirely within the realm of possibility,\u201d he said. \u201cI can\u2019t recall any clients quite that high, but I\u2019ve had people come close.\u201d<\/p>\n

How could Mr. Ross pay so much? I thought I was the victim of a perfect storm of punitive tax policies, but Mr. Ross\u2019s situation is worse. Like me, he lives and works in New York City, which all but guarantees a high tax rate. Nearly all of his income is earned income and thus fully taxable at top rates. (He said that\u2019s not always the case, but given the recent dire condition of real estate, in 2010 he had few capital gains and his carried interest didn\u2019t yield any income.) Unlike me, he can\u2019t make any itemized deductions, which means his adjusted gross income exceeds $1 million, the level at which New York State eliminates all itemized deductions, except for 50 percent of the value of charitable contributions. Mr. Ross said he gave 11 percent of his adjusted gross income to charity.<\/p>\n

That means Mr. Ross can\u2019t deduct any interest expense on the money he borrows to finance his real estate investments, which is substantial, nor can he deduct any other expenses or other itemized deductions except for part of his charitable contributions. This means he pays an enormous amount in state and local taxes. Since those are among the deductions that are disallowed when computing the federal alternative minimum tax, Mr. Ross is in turn especially hard hit by the A.M.T.<\/p>\n

Because Mr. Ross has so many deductions, his tax as a percentage of adjusted gross income, as opposed to taxable income, is 20 percent, which is much lower than mine. Still, all those deductions, such as interest expense, are money out of Mr. Ross\u2019s pocket, which is why he has had to draw on his savings to pay his taxes. Mr. Willens made the argument that because of that, taxable income may be a better comparison for measuring the tax burden. In any event, by either measure Mr. Ross pays a higher rate than Mr. Romney<\/p>\n

Mr. Ross said he asked his accountant what he could do. \u201cHe said, \u2018Fire everyone here and move to Florida,\u2019\u00a0\u201d according to Mr. Ross. He employs 10 people in his New York office.<\/p>\n

Mr. Ross may be a member of the 1 percent, but many people who responded and said they paid high tax rates weren\u2019t. Eliana S. Rivero is a professor emeritus at the University of Arizona who told me she gets by on Social Security, a TIAA-CREF pension fund and a small amount of royalty income. She said she paid just over 26 percent of her adjusted gross income in income taxes.<\/p>\n

\u201cI reacted the way you did when Romney\u2019s tax status was revealed: \u00a0I went to my calculator,\u201d Dr. Rivero wrote.\u00a0 \u201cMuch to my dismay and, yes, outrage, I pay\u00a0almost double\u00a0the tax rate he does. \u00a0And I promise you, I am very far from the 1 percent crowd!!!<\/p>\n

\u201cI worked for 45 years in my chosen profession, helped educate quite a few of\u00a0the present\u00a0generation college faculty, received\u00a0several teaching and scholarly awards, and yet my government taxes me right and left for the moderate wages I earned but lets the wealthy get away with paying proportionately less than I do. I\u00a0truly wouldn\u2019t mind it so much if my taxes went to pay for schools and bridges and roads but\u00a0when they go to wars and loopholes for the mega-rich, I see red!\u201d<\/p>\n

A disproportionate number of high-rate taxpayers appear to be self-employed and many are professionals, such as lawyers, doctors, dentists and architects with mostly earned income rather than dividends and capital gains. Some are in the upper 1 percent, but most aren\u2019t. Architects, who as a group may be the most underpaid profession relative to their education, talent and responsibility, seem especially disadvantaged by the current tax code.<\/p>\n

Daniel Kelley is an architect who wrote from Philadelphia. \u201cMy wife and I have a 20-year-old architecture firm employing 20 to 30 full-time professional people,\u201d Mr. Kelley said. \u00a0\u201cIn 2010, we paid 31.3 percent federal taxes on our adjusted gross income. \u00a0We paid 37.5 percent federal, state, local taxes on our adjusted gross income. If our practice was in New York, I imagine the latter would approach 45 percent.\u00a0Instead of tax breaks for people who make a living from their money, perhaps there should be reduced taxes for those of us who have small businesses and employ Americans. \u00a0I don\u2019t necessarily mind the very rich making money, but if they don\u2019t pay a fair tax, then they are stealing from the rest of us.\u201d<\/p>\n

Journalists and authors were also well represented. Jeffrey Bennett, author of \u201cMath for Life\u201d and numerous other books, reported that he paid 26.8 percent of his adjusted gross income in federal taxes, topping my 24 percent rate, but because he lives in Colorado, his total federal and state burden is lower than mine though still far higher than Mr. Romney\u2019s. Ironically, a chapter in Mr. Bennett\u2019s book discusses the \u201cinsanity of our current tax policies,\u201d he said. \u201cAnd despite our high rate, you can mark us down in the category of people who believe our rate should be increased. After all, it\u2019s either us paying it or our children, and it\u2019s not right to pass it on down the line.\u201d<\/p>\n

And for those of you who questioned how I could be a business columnist and yet be such a sap, James Cramer, the host of \u201cMad Money\u201d on CNBC and founder of the financial Web site TheStreet.com, disclosed that he paid a higher rate than I do. He forwarded an e-mail from his accountant estimating that he paid 45 to 50 percent of his adjusted gross income in income taxes in 2010. Mr. Cramer\u2019s taxes are especially high \u2014 and complicated \u2014 because he lives in New Jersey and works in New York and New Jersey, so he pays income taxes in both high-tax states (and gets a credit on his New Jersey return for his New York taxes). Most of Mr. Cramer\u2019s income is earned, and thus is fully taxed. Although he had capital gains, they were offset by losses. \u201cThe best way to have everyone pay their fair share is to tax all income (whether earned or unearned) at the same rates,\u201d his accountant, Jeffrey Rosenthal, said.<\/p>\n

One thing that emerged loud and clear is that a large swath of hard-working people are paying a high rate and are furious about it \u2014 not because they object to paying taxes, even high taxes, but because so many people, even billionaires, pay at a much lower rate than they do.<\/p>\n

\"\"The tax code, Dr. Rivero wrote, \u201cis written to favor the rich,\u00a0who have not created all those jobs they were supposed to generate.\u201d The rich themselves are some of the most distressed. \u201cNone of the dialogue about taxes has anything to do with fairness,\u201d Mr. Ross lamented. \u201cCertain rich people are paying way more their fair share and other rich people are paying a lot less. I\u2019d like to see a conversation take place along nonideological lines where everyone is asked to pay their fair share, where everyone makes some payment, even if it\u2019s one dollar. Everyone I know is so disgusted. People aren\u2019t stupid. They know what\u2019s going on. At the end of the day, the system is broken.\u201d<\/p>\n

Source:\u00a0http:\/\/finance.yahoo.com\/news\/102-tax-rate-takes-cake-160010322.html<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

At 102%, His Tax Rate Takes the Cake ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ By\u00a0JAMES B. STEWART\u00a0|\u00a0New York Times   Meet Mr. 102%. 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