Last week, Republican presidential candidate Jeb Bush released 33 years of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. returns. He reported a little more than $7.2 million in AGI and $2.9 million in taxes paid on his 2013 and most recent tax return. His effective tax rate (income plus payroll) was approximately 36.5 percent.
As expected, the news media reported on his tax returns. Interestingly, some articles have taken the angle that Jeb Bush isn’t paying too little, but he is paying too much! One article quoted an analyst who implied that he could have gotten away with paying much less and that his tax bill was unusually high for political reasons.
While there may be ways that Jeb could have legally reduced his tax bill, the amount he paid is actually pretty typical for the type and amount of income he reported.
Jeb reported 7.2 million in income on his 2013 tax return. A vast majority of that income ($5.8 million) came from his consultant work. He reported this as Schedule C income. In addition, to the consultant income, he reported $800,000 in wages, ordinary dividends, and rental income. Under current law, this income is taxed at ordinary income tax rates that range from 10 percent on the first $17,850 (married filing jointly, in 2013) of taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. to 39.6 percent on any taxable income over $450,000 (married filing jointly, in 2013).
In 2013, the tax on this $6.6 million of income would be approximately $2.5 million.
In addition, Jeb had about $626,000 in long-term capital gains. The effective tax rate for long-term capital gains for Jeb in 2013 would have been 20 percent, implying a tax of about $125,000.
Together, this would yield an income tax bill of approximately $2.6 million, which is just about as much as he reported in income taxes.
In addition to the ordinary income tax, self-employed individuals that report schedule C income need to pay the self-employment payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. . The self-employment tax is 15.3 percent on the first $113,700 in 2013 of schedule C income and 2.9 percent on income above that. There is also an additional .9 percent Medicare SurtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. on income over $250,000 (married filing jointly) and the 3.8 percent net investment income tax. In total, he paid about $260,000 in these taxes.
In total his tax bill was $2.9 million or an effective tax rate of 36.5 percent. Nothing out of the ordinary.
Sometimes it’s peoples’ instinct to find something out of ordinary in presidential candidates’ tax returns. Remember Mitt Romney’s famous 14 percent effective tax rate on millions of dollars of income? Although this income was actually double-taxed and faced an effective rate of over 50 percent, the media jumped on this as something peculiar. This time around, people are looking to make Jeb’s returns a spectacle by painting Jeb’s tax bill as being too high.
That really isn’t the story.
The story here should be that Jeb Bush’s tax bill is pretty typical for those that earn that much earned income. If this rate seems high, it should be the tax code we examine, not one man’s tax returns.
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