Deconstructing Teresa Kerry's Income Taxes
Teresa Heinz Kerry released her 2003 income tax Form 1040 the other day, and the right-wing commentariat claims to find her tax situation deeply ironic. On an income of more than $5 million, she paid federal income taxes of $627,150, or 12.4%.
As a Wall Street Journal editorial put it Monday, this "means she is paying a lower average rate than nearly all middle-class taxpayers." This was declared to be a devastating comment on Sen. John F. Kerry's tax plans. It shows that they "are much more about a revenue grab than they are about tax justice," the Journal said. The point is echoing in talk-radioland. It is bewildering.
John Kerry's stated position is that rich people pay too little in taxes. His proposal is to raise taxes on incomes above $200,000 and cut taxes for the middle class. Maybe this is a terrible idea; maybe not. But Teresa Kerry's tax return certainly seems to illustrate, not contradict, the case for her husband's tax proposal. By contrast, if you're offended by how little Teresa Kerry pays in taxes, you might want to direct your anger toward President Bush's tax cuts, which have saved her many millions.
More than half of Teresa Kerry's 2003 income was interest from tax-exempt bonds. The Journal hilariously described these Monday as "the kind of investments that rich people can afford to hire lawyers and accountants to steer their money into." And the paper predicted that "mega-millionaires such as Mrs. Kerry" would avoid her husband's higher taxes through "tax shelters" like this one, leaving ordinary $200,000 taxpayers to shoulder the burden.
In fact, tax-exempt bonds are hardly an exotic tax-avoidance technique requiring lawyers and accountants. Anyone with a hundred bucks can buy into a mutual fund of tax-exempt bonds with a simple call to Fidelity or Charles Schwab. The Wall Street Journal got it precisely wrong: The remarkable thing about Teresa Kerry's tax return is that this fabulously rich woman apparently has most of her income-producing wealth stashed in an utterly mundane and non-exclusive form of investment.
The Journal returned to Teresa Kerry's taxes on Wednesday, declaring carefully that a "huge reader response" had been "helpful in illuminating the issue." This second bite at the apple begins by noting that her investment income is exempt from the Social Security payroll tax. "This is fine by us," the editorial says. Next, the editorial concedes that "millions of other Americans" invest in tax-exempt bonds, and "we have nothing against" that either.
