Tax returns released on Tuesday by Angus King, the former Maine Governor and current Independent Senate candidate, showed that he is in the top 1% of income earners in America and that he paid a significantly lower tax rate than most Americans in that income tax bracket.
The returns also showed that in 2011, King paid an "effective personal income tax rate" on adjusted gross income of 14.0%, which is slightly less than the 14.1% "effective personal income tax rate" on adjusted gross income Republican Presidential nominee Mitt Romney paid in 2011. In 2010, King paid an "effective personal income tax rate" on adjusted gross income of 12.3%, which was 1.6% less than the 13.9% "effective personal income tax rate" on adjusted gross income Republican Presidential nominee Mitt Romney paid in 2010.
King released federal income tax returns for the most recent seven years beginning in 2005 and ending in 2011. During this period, 40% of King's adjusted gross income came from capital gains. His adjusted gross income (line 37) averaged $564,545 per year, $230,155 of which per year came in the form of capital gains (line 13). King's tax rate as a percentage of adjusted gross income during this seven year period averaged 15%, and ranged from 12% to 19%.
In 2011, 46% of King's adjusted gross income came from capital gains, compared to Romney's 49% for the same year. In 2010, 44% of King's adjusted gross income came from capital gains, compared to Romney's 58% for the same year.
While most Americans in the top 1% of income earners paid an average tax rate on adjusted gross income of 22.4% to 24.0%, King paid an average tax rate on adjusted gross income of only 15%. He paid only two-thirds the taxes paid by other "one percenters" because he took advantage of the lower 15% tax rate for long-term capital gains rates, which accounted for almost half his income, and did not pay the higher ordinary income tax rates he has publicly advocated should be paid on capital gains.
King has publicly called for the elimination of lower tax rates for long-term capital gains. At a debate in Lewiston, Maine on September 17, King said:
Investment income should be taxed at the same rate as the income tax of someone who works in a factory, office, or any other job in Maine. The idea that investment income should be taxed at a lower rate doesn’t make any sense and is bad policy.
Under King's proposal, the current 15% capital gains tax would be increased to the much higher ordinary income tax rate, which will top out at 39.6% for most high income taxpayers in 2013. From 2003 until 2012, the highest marginal ordinary income tax rate has been 35%.
On Sunday, King doubled down on his call to increase capital gains rates from 15% to 39.6%, telling WGME Television in Maine:
I think the [capital gains] rate ought to be the same as ordinary income as I said in the debate the other night... I don't see any reason why someone who goes to work at BIW or IDEXX or at a bank in Maine should pay 25 or 35 per cent when someone who gets a check in the mail should pay 15.
According to Tax Foundation data, the adjusted gross income for the top 1% of income earners in the U.S. during the five years beginning in 2005 and ending in 2009 ranged from a low of $343,927 to a high of $410,096. King's income during this same five year period ranged from a low of $561,698 to a high of 665,485, easily putting him in the top 1% of income earners in America. Tax Foundation data for 2010 and 2011 are not yet available, but King's income of $507,464 and $490,486 respectively in those two years will clearly keep him in the elite 1% for those years as well.
The Tax Foundation also reported that the average tax rate other Americans in the elite top 1% of income earners during the five tax years beginning 2005 and ending 2009 ranged from 22.4% to 24.0%, significantly more than the 15% rate paid by King.
Last week, when Mitt Romney released his tax returns for 2011 that showed his "effective personal income tax rate" on adjusted gross income was 14.1%, King's campaign was highly critical of Romney:
U.S. Senate Candidate Angus King says he cannot support lowering the capital gains tax rate for the country’s most wealthy people... This comes on the heels of Presidential Candidate Mitt Romney’s release of his personal financial records showing he is taxed at a much lower rate than many working Americans.
An analysis of King's tax returns showed, however, that he paid virtually the same tax rate as Romney, and for the same reason. While almost all of Romney's income was taxed at the 15% long-term capital gains rate, almost half of King's own income was taxed at the same 15% long term capital gains rate.
In 2011, King's "effective personal income tax rate" on adjusted gross income was 14.0%, which was virtually the same as, though slightly lower than, Romney's rate of 14.1%. Romney's 2011 Federal tax returns show that he paid taxes of $1,935,708 on $13,696,951 in adjusted gross income, an "effective personal tax rate" of 14.1%.
In 2010, King's "effective personal income tax rate" on adjusted gross income was 12.3%, which was 1.6% lower than the 13.9% rate Romney paid in 2010.
The King campaign tried to put a good spin on his own tax returns by using a different and not straightforward method for calculating his tax rate. Rather than base the denominator of the fractional calculation on his adjusted gross income, King made that number smaller by first withdrawing itemized deductions.
As a result of this mathematical sleight of hand, King claimed an "effective" tax rate that averaged 22% over this period, ranging from 20% to 26%. His "true" rate, however -- his "effective personal income tax rate" calculated as taxes paid divided by adjusted gross income -- was 15%.
On September 17, the Romney campaign released a summary of tax payments made during the twenty year period (1990 to 2009) that preceded the two years for which he released full returns, 2010 and 2011. The accounting firm Price Waters Coopers reported that Romney's "effective personal income tax rate" for this 20-year period averaged 20.2%, with the lowest rate paid in any year of 13.66%.
Recent polls show the three way race between Independent King, Republican Charles Summers, and Democrat Cynthia Dill is tightening. The Washington Post reported on Tuesday that King's lead is now down to single digits:
Independent former governor Angus King’s lead in the Maine Senate race has shrunk to a slight four-point advantage among likely voters over Republican nominee Charlie Summers, according to a GS Strategy Group poll conducted last week for the National Republican Senatorial Committee’s independent expenditure arm. The poll shows King leading Summers 37 percent to 33.5 percent, with Democratic nominee Cynthia Dill running third at 17 percent. Twelve percent are undecided. In the previous poll, conducted in early September, King led Summers 44 percent to 33 percent, while Dill was at 11 percent.
The race is expected to remain highly competitive until election day.