When I was 57, it was a very good year
A review of President Bush's and Vice President Cheney's 2003 federal tax returns, which were released to the public yesterday, reveals another financially successful year for two rich old boys from Texas.
Bush's tax status was virtually unchanged between 2002 and 2003. For the latter year, he had income of almost $400,000 from salary, around another $400,000 of interest income, $23,000 of dividends, and around $2600 of royalty income. He and his spouse took roughly $95,000 of itemized deductions, up from about $84,000 last year, with the increase largely attributable to a "miscellaneous" expense that wasn't disclosed on the portion of the return that was released to the public.
The First Couple paid $227,494 in federal income tax for '03 on a taxable income of $727,083. That's an effective rate of 31.29 percent of taxable income, and 27.67 percent of their gross. The rates the previous year were 34.75 percent and 31.39 percent, respectively. The decrease is no surprise -- the Bush tax cuts tend to favor rich, married, single-wage-earner couples like George and Laura. In fact, under the tax laws in effect when Bush was elected in 2000, the Bushes' taxes for 2003 would have been more than $260,000.
And so the Bushes are paying around $35,000 less in federal income tax now than they would have in 2000.
Cheney's return is always more interesting, because the Vice President is one rich s.o.b. He and his spouse grossed around $1,988,000 from all sources, including $454,000 of salaries, $627,005 of tax-exempt bond interest, $137,644 of dividends, $6564 in taxable interest, $44,500 from Lynne Cheney's consulting business, $327,643 of book royalties, and $302,000 in capital gains on sales of more than $10,000,000 of mutual fund shares in the early part of 2003. (They got out of Treasury bond funds -- "big time," as the Veep himself might say.)
For 2003, the Cheneys had so many tax goodies on their return that they had to pay alternative minimum tax (AMT) -- a special tax designed to prevent taxpayers from overdoing it on tax-favored items. This cut into the tax benefits of their deductions substantially. They wound up owing $248,369 in income taxes (including AMT, but before a foreign tax credit of about $7,000) on a taxable income of $813,266. That's an effective tax rate of 30.54 percent of taxable income, 19.59 percent of their adjusted gross income, and only 12.5 percent of their total gross, including the interest on their tax-exempt bonds. They did pretty well on those counts compared to '02, when the percentages were 35.45, 28.72 and 17.67, respectively.
I struggled to calculate what the Cheneys would have had to pay on their 2003 income under the tax law as it existed in 2000. The calculations get pretty hairy, what with the AMT and the capital gains preference. (The Bushes haven't had any capital gains to speak of in the last two years.) My best efforts result in a would-be 2000 tax on the Cheneys of $287,000, rather than the $248,000 they actually paid under the Bush tax cuts. That's about a $39,000 tax savings this year for the Second Couple from what they would have paid under Clinton.
Charitable contributions for the year? The Cheneys' jumped from about $120,000 to about $320,000, because Ms. Cheney's book royalties, which all go to charity, rose by that much. The Bushes' gifts to charity sagged very slightly -- from $69,925 in '02 to $68,360.
The Bushes stopped listing their daughters as dependents this year for the first time, but they weren't providing their parents with any tax benefit anyway, because the family makes too much money.
One mystery in my review of the Bush and Cheney tax returns is that they are partially incomplete. The forms released to the public do not include the many explanatory statements that were attached to the returns. As any IRS agent will tell you, those attachments are an integral part of the return, and they are covered by the perjury statement that the taxpayers sign. (Although the Bushes don't sign their returns -- they have someone at their bank do it for them under a power of attorney.) But the separate statements don't get published as part of the annual White House tax return disclosure ritual.
An intriguing item on the Cheneys' returns: they deduct their tax return preparation fees on Ms. Cheney's business schedule. That way Ms. C. doesn't have to pay 15 percent plus in self-employment (Social Security and Medicare) tax on the money she pays her tax accountants at KMPG. A smart move, but is it kosher?
UPDATE, 4/15, 4:15 a.m.: The plot thickens on the Cheneys' tax return preparation fee, just discussed. Several alert readers have commented to me off-blog about how much advantage the Cheneys might have gained by having that expense deducted on Lynne Cheney's business schedule, as opposed to listing it as an itemized deduction. There are a couple of advantages, and they appear to add up to even more than the 15-percent-plus in saved Social Security and Medicare taxes that I speculated about in the above post.
First of all, a correction on my part. It turns out that Ms. C. had already paid the maximum tax into Social Security for the year on account of her book royalties and her day job. And so she didn't save any Social Security tax by clever placement of the tax prep deduction; she wouldn't have owed any more Social Security tax than she actually paid, regardless. However, she did save Medicare taxes (just under 3 percent) by the deduction of the tax return prep fee on her business schedule.
More significantly, however, if that expense had been listed as an itemized deduction instead of a business deduction, it would not have been deductible by the Cheneys for AMT purposes, whereas it was fully deductible for that purpose (saving 28 percent of the deduction in tax) on the business schedule. Bottom line: The couple appears to have saved tax of more than 30 percent of the tax return prep fee by the way they listed it. (A couple of additional, indirect tax savings were suggested, but they'd be really tiny.)
Some of my correspondents join me in questioning the correctness of how the Cheneys played it. It's not a lot of money for tycoons like them -- maybe $1,000 or so in tax -- but I'd sure love to hear someone explain how the couple's tax accountants are entirely an expense of her consulting business.
One possibility is that the tax preparation fee listed on her business schedule is only part of the overall amount they paid to have their taxes done. Perhaps the rest was deducted as an itemized deduction (but not for AMT purposes) on those mysterious attachments that don't get released with the rest of the tax forms. Without those statements, I guess we'll never know.