Ever since Mitt Romney mentioned Michael Bonadio's tax bill in last Wednesday's presidential debate, we've been trying to make the numbers add up.
Mr. Bonadio, 63, of St. Peters, runs a small shop that manufactures high-end guitar amplifiers. He operates the firm with a son and a third partner. Their top-of-the-line amp lists at $2,295.
Mr. Romney didn't get into all of this. Indeed, he didn't mention Michael Bonadio, whom he met at a campaign event in Kirkwood last March, by name. Here's what he said:
"Now, and — and I've talked to a guy who has a very small business. He's in the electronics business in — in St. Louis. He has four employees. He said he and his son calculated how much they pay in taxes, federal income tax, federal payroll tax, state income tax, state sales tax, state property tax, gasoline tax. It added up to well over 50 percent of what they earned."
Since Mr. Romney and President Barack Obama were discussing taxes on small business at the time, we must assume Mr. Bonadio's complaint was about his business taxes, not his personal taxes. Though, if he's like most small-business people, his business income is treated as personal income.
Mr. Bonadio told the Post-Dispatch's Bill Lambrecht that he'd added up all the taxes he paid — income, sales, personal property, real estate, gasoline, the excise tax on his phone bill, etc. — and came up with 60 percent of his income. "It's a lot," he said, "that really ticked me off."
Loath as we are to mess up a good campaign anecdote with facts, 60 percent seems a little high. We ran it past a CPA who agreed. Even the conservative Tax Foundation estimates the combined state-local tax burden in Missouri at a mere 9 percent.
But without knowing the intimate details of Mr. Bonadio's operation, or precisely how it is organized (LLC? Partnership? S corporation?) it's impossible to judge the extent of his problem. He did not return messages seeking clarification.
But assume the firm has taxable income of less than $335,000, which would be a lot of amps. In federal income taxes, it pays 22 percent on the first $100,000 and 39 percent on anything over that. It pays the same non-progressive 6.25 percent Missouri corporate tax rate that every corporation pays.
The firm pays 7.65 percent in Social Security and FICA taxes on payroll (Mr. Bonadio will pay an equivalent self-employment tax on his earnings). It pays Missouri "use tax" on corporate personal property and some sales taxes at St. Peters' rate of 7.55 percent. Federal and state gasoline taxes in Missouri total 38.4 cents per gallon. There's about 7 percent worth of taxes on his phone bill; on $3,000 worth of phone service, that's $210.
It's pretty hard to make this add up to 50 percent, as Mr. Romney said during the debate, or 60 percent, as Mr. Bonadio claimed, or 65 percent, as Mr. Romney has claimed elsewhere on the campaign trail. But we'll take Mr. Bonadio at his word.
But relative to what is paid by corporations with legions of tax lawyers and accountants, Mr. Bonadio's amplifier firm could be paying through the nose.
On paper, the combined state and federal corporate tax rate can be as high as 39 percent. But only suckers pay that much. According to a U.S. Treasury Department report, between 2000 and 2005, U.S. businesses paid an effective federal income tax rate of only 13 percent. Adding Missouri income tax gets you only to 19.25 percent. Big taxpayers can offset up to a quarter of their Missouri taxes by buying discounted tax credits.
Thus, to whatever extent Mr. Bonadio is overtaxed, the fault lies not with Mr. Obama, but with decades of federal and state tax policies benefiting those who are able to penetrate the opaque tax code and take advantages of the loopholes it contains.
Andrea Louise Campbell of the Massachusetts Institute of Technology reports that "compared with other developed countries, the United States has very low taxes, little redistribution of income and an extraordinarily complex tax code."
In her study, published in the September/October edition of Foreign Affairs, Ms. Campbell cites statistics from the Organization for Economic Cooperation and Development. They show that in 2006, before the financial crisis struck, total taxes in the United States, at all levels of government, amounted to 27.9 percent of gross domestic product. Among the world's rich democracies, only South Korea had lower taxes.
In July, the nonpartisan Congressional Budget Office reported that federal income taxes for American households averaged 17.4 percent in 2009, the lowest of any year since 1978.
And then there's Mr. Romney himself, who, thanks to the wisdom of 15 percent tax rates on carried interest and capital gains, managed to pay an effective tax rate of 14.1 percent on $13.7 million in income last year.
Perhaps, in return for the useful, if misleading, campaign anecdote, Mr. Romney should lend Mr. Bonadio his accountant.