Newt's Tax Return for 2010 - What We Can Learn From It

Newt Gingrich made his 2010 tax return public on January 20, 2012, the day before the critical South Carolina Republican Primary. At that time the polls showed Newt neck-and-neck with Mitt Romney, who had, in the previous day's debate, expressed reluctance to reveal his own return. Romney had, however, stated that his tax rate (whatever that means) was about 15%. Newt's return showed his tax rate (defined as taxes/adjusted-gross-income) was over 30%.

Newt's release of his tax forms and Romney's reluctance to do likewise contributed to Newt's stunning victory on January 21. However, in the hullabaloo preceding the election, the return itself got little attention. Probably not more than a handful out of the thousands of primary voters bothered to look into the return's contents.

The return can be viewed in its entirety here.

Reuters posted a good report on Newt's tax return and gave some useful background information. Their article states:

Gingrich's 2010 income was about $3.1 million. It came mostly from Gingrich Holdings, an umbrella company for a collection of lucrative enterprises. These included a company that produced films and books and one that consulted for health care companies.

Gingrich Holdings was dissolved last year in an overhaul of his conglomerate shortly before Gingrich jumped into the race for the Republican nomination to take on Democratic President Barack Obama in November.

....

Gingrich reported in the 2010 joint return with wife Callista paying about $995,000 in federal taxes....

The tax returns don't tell us exactly what Newt did to make that much money. The Reuters article quotes Boston University tax professor Daniel Berman: "We can't see behind Gingrich Holdings or Gingrich Productions to see where that money is coming from."

Wikipedia tells us more about Newt's businesses.

After leaving Congress in 1999, Gingrich started a number of for-profit companies:[91] Between 2001 and 2010, the companies he and his wife owned in full or part had revenues of almost $100 million.[92]

According to financial disclosure forms released in July 2011, Gingrich and his wife had a net worth of at least $6.7 million in 2010, compared to a maximum net worth of $2.4 million in 2006. Most of the increase in his net worth was because of payments to him from his for-profit companies.[93]

The Wikipedia article goes on for another 500 words about Newt's business interests, describing Gingrich Holdings in particular. It's worth reading.

Newt's personal financial condition has improved considerably since he was Speaker. His ex-wife has stated they were nearly broke when he was cited for ethics violations in 1997 and had difficulty coming up with $300K to pay the fine. Obviously, a person can make more money influencing legislation than being a legislator.

Some Observations about the Return

The first page of Newt's and Callista's tax return--the 1040--shows their income sources for the year 2010. The biggest source comes from the category labeled "Rental real estate, royalties, partnerships, S-corporations, trusts, etc. Attach Schedule E." The amount shown on that line is $2,525,683. A peek at Schedule E indicates that all but about $72K of that comes from Gingrich Holdings, Inc, Newt's conglomerate.

The second biggest source of income falls in the category entitled "Wages, salaries, tips, etc. Attach Form W-2". Here we see $450,245. In the notes attached to the return this is broken down as follows: $252,500 to Newt from Gingrich Holdings, Inc; $5,918 to Callista from National Shrine; and $191,827 to Callista from Gingrich Productions, Inc.

The third biggest income source is in the category "Pensions and annuities" and the amount is $72,600, all of which was paid by the Office of Personnel Management. Presumably this is Newt's pension from his service as Congressman and Speaker of the House.

After smaller income sources are added in and adjustments are made, the Adjusted Gross Income comes to $3,142,066. After deductions, exemptions, credits and other taxes are accounted for, the "total tax" comes to $994,708.

Of course this "total tax" is actually the total federal income tax. Buried in the return we can see that Newt and Callista also paid $20,139 in payroll taxes for Social Security and Medicare and $122,844 in state income taxes.

At the bottom of page two of the Form 1040 Gingrich states his occupation as "CONSULTANT" and his wife's as "EXECUTIVE". This suggests the service provided by Newt's businesses is consulting. Couldn't this be interpreted as "lobbying"? But Newt isn't registered as a lobbyist. So, what do you call an unregistered lobbyist who tries to influence national policy? "Influence peddler" comes to mind.

Here's something to think about. Why does a man making $3 million dollars a year want a job that pays on only $400K? I'd say, egotism mainly. Newt has a gigantic, insatiable ego. And even if he loses the nomination or general election, he'll become even more valuable as an influence peddler.

Newt's personal financial assets generated a very small fraction of his income. Total interest (including tax-free interest) and dividends on his return amounts to $49K. His capital gains report shows he sold about one million dollars in securites in 2010, $600,000 of which were Certificates of Deposit. Overall, he had a net capital loss for the year of $28K and, because of the limitation, was only able to write off $3K of that on his taxes.

Gingrich doesn't make much use of the Tax Breaks For The Rich passed in the George W. Bush administation. He doesn't get any benefit from the low rate on capital gains because he doesn't have any capital gains. Also, only about half of his nearly $12K in dividends qualifies for the 15% rate. Doesn't he understand that Tax Breaks For The Rich stimulate the economy and create jobs?

The home mortgage interest deduction is one of the most widely used loopholes in the tax code. It's another Tax Break for the Rich (and Middle Class), but Newt doesn't take advantage of it. His return shows nothing in the space for home mortgage interest but it does show he paid $11K for property taxes. This strongly suggests he either bought his house with cash or has paid off his mortgage. ABC News says he bought his house in 2000 for $995,000. It's a nice looking place.

Doesn't he agree with his fellow Republicans that the home mortgage deduction stimulates the economy and creates jobs?

Speaking of creating jobs, the tax return does show that Newt created at least one job: for his household help. His return reports he paid his help $14,744 in 2010. So Newt dutifully pays the government $3,891 he owes to cover the employer's obligation for the help's social security tax, medicare tax and unemployment insurance. Other politicians have come to grief for neglecting to make this payment in similar circumstances.

On Schedule E he reports that he owns a rental property that paid him $6,835 in rents and cost him $8,710 in expenses and depreciation. That means he lost $1,875. What might appear odd to anyone unfamiliar with IRS tax forms is that reporting this loss required eight of the 46 pages of his tax return. In the end, tax rules disqualified his loss, so he had no taxable income whatsoever from his rental property. In other words, a rental property, whose gross rental income was 0.2% of his adjusted gross income, took up 17.4% of the pages Newt submitted to the IRS. Even if he'd been allowed to report his actual loss, the loss would have have reduced his adjusted gross by 0.06%. This tells us more about the tax laws and IRS than it does about Newt Gingrich.

Below we take a close look at Newt's return, schedule by schedule and line by line, to see what we can learn from it.

Overview. The joint return of Newton L. and Callista L. Gingrich contains 32 pages of schedules and forms. In addition to the Form 1040, the return includes Schedules A (deductions), B (interest and dividends), C (business income), C-EZ, (profit from sole proprietorship) D (capital gains), E (rents and royalties), SE (self employment income) and H (household employment tax). There are also Forms 1116 (foreign tax credit), 6251 (alternative minimum tax), 4562 (depreciation and amortization) and 8582 (passive activity loss limitation). Finally, there are 14 pages of notes that supplement material in the schedules and forms.

Gingrich's tax rate can be defined several ways.

total tax/total income = line 60/line 22 = 994,708/3,162,424 = 31.5%

tax/adjusted gross income = line 44/line 37 = 989,945/3,142,066 = 31.5%.

tax/taxable income = line 44/line43 = 989,945/2,916,671 = 33.9%.

marginal tax rate (from 2010 tax booklet) on $2,916,671 = 35%.

Form 1040. All SS numbers throughout the return are blacked out, as is the Gingrich filing address. The Gingriches each request that $3 go to the Presidential Election Campaign Fund. Their filing status is married-filing-jointly and they claim two expemptions. On the second page Newt states his occupation is "CONSULTANT"; Callista's occupation is "EXECUTIVE".

Line 7, Wages. The total is $450,245. A note on page 45 shows the sources. Newt got $252,500 from Gingrich Holdings, Inc and Callista got $5,918 from National Shrine and $191,827 from Gingrich Productions, Inc.

Lines 8 and 9, Interest and Dividends. Income from these sources is small for a return showing $3 million+ in total income. Details are given in Schedule B on page 4.

Line 10, State Tax Refunds. $33,124.

Line 12, Business Income. $41,625. Sources include speaking fees for Newt of $21,625 and board-of-director income for Newt and Callista totaling $20,000. Details are given on Schedule C's on pages 5 - 7.

Line 13, Capital Gains and Losses. -$3,000. This is the maximum loss that can be taken in one year. Details are on Schedule D on pages 8 - 11.

Line 16a, Pensions and Annuities. $76,200. Newt's only source of pension or annuity income (he's 68) comes from the Office or Peronnel (Personel?) Management. This is shown on page 44 of the return. Presumably he gets this because of his service as Congressman and Speaker of the House.

Line 17, Rental real estate, royalties, partnerships, S corporations, trusts, etc. $2,525,683. Here's the bulk of Newt's income. More detail is given on Schedule E (pages 12 and 13) which shows nearly all of this comes from a subchapter S corporation named Gingrich Holdings, Inc. It's not clear how, exactly, Gingrich Holdings makes its money.

Line 22, Total Income: $3,162,424. A lot of money. The couple's wages alone ($450K) put them in the top 1% of households.

Line 31a, Alimony. $19,800. Seems like a small amount, considering he has two ex-wives and $3 million in income.

Line 37, Adjusted Gross Income. $3,142,066.

Line 40, Itemized deductions. $218,095. Mostly state taxes and charity. Details on Schedule A on page 3.

Line 40, Tax. $989,945.

Line 60, Total tax. $994,708. The total taxed owed for 2011. This takes into account adjustments for foreign tax credit, self-employment tax and household employment taxes.

Line 61, Taxes withheld. $127,290.

Line 62, Estimated tax paid. $485,860.

Line 76, "Amount you owe." $382,734. Newt had to write a check for this amount.

Line 77, Estimated tax penalty. $1,543. Looks like a pretty small penalty for underwithholding $382K.

Schedule A - Itemized Deductions.

Line 4, Medical and Dental Expenses. $0. Newt's expenses don't meet the income-based threshold of $235,655, so he can't deduct anything.

Line 9, Taxes You Paid. $136,922. This is made of state and local income taxes ($122,844); real estate taxes ($11,656 - probably his personal residence); and personal property taxes ($2,422 - probably his cars).

Line 15 - Interest You Paid. $40. Here's a big surprise: no deduction for mortgage interest! He lives in a fine-looking house in Virginia and pays $11K in property tax, but doesn't have a mortgage. He must own the house outright.

Line 19, Gifts to Charity. $81,133. Notes on page 37 are cryptic. They list Basilica of the National Shri(ne) - $9,540; Misc donations - $3,100; 50% cash contrib from K-1s - $68,493.)

Line 22 - Tax preparation fees. $8,505. This is what it cost him to have someone do his taxes the previous year. If that return was as complex as this one, he got a good deal.

Line 28, Miscellaneous tax threshold. $62,841, which is 2% of his adjusted gross income on line 38. Newt's total miscellaneous expenses are only $8,655, so he can't deduct anything in this category, including the tax preparation fee on line 22.

Line 29, Total Itemized Deductions. $218,095.

Schedule B - Interest and Ordinary Dividends

Line 4, Interest Income. $26,655. Interest income is reported from the Congressional Federal Credit Union, UBS Financial Services, Wachovia Bank, Wells Fargo and Gingrich Holdings. The return also shows tax-exempt interest of $10,754, which is not included in the total (and not taxed at all on his federal return).

Line 6, Ordinary Dividends. $11,892. Payers are Morgan Stanley and UBS. Notes on page 36 indicate only $5,990 of the $11,892 total qualify for the 15% tax rate created by George W. Bush's administration as a tax break for the rich.

Schedule C and Schedule C-EZ, Profit and Loss from Business. These forms show a total of $41,625 of business income from Newt's speaking fees and the couple's director fees.

Schedule D - Capital Gains and Losses

Line 7, Short Term Gains. $4,184. Short-term gains are taxed as ordinary income, therefore at a higher rate than long-term gains. The return shows the sale of five securities held less than one year. The proceeds from these sales totaled $31,953.

Line 15, Net long-term capital gain or loss. -$32,541. Schedules D and D-1 show the sales of 15 securities in 2010 for a total of $1,257,051. Six of the securities were $100K Certificates of Deposit on which there was no gain or loss.

Line 16, combined short-term and long-term gains. -$28,357.

Line 21, capital loss limitation. $3,000. There is a $3,000 limitation on the amount of capital loss that can be claimed in one year. (I'll bet that not one American in a hundred knows this.) So, although Newt Gingrich has a net loss of $28,357 in 2010, he can only report a loss of $3,000. He can, however, carry forward to the next year a loss of $28,357 minus $3,000, or $25,357.

Schedule E, Supplemental Income and Loss - Residential Rental. Newt Gingrich owns a residential property from which he received $6,835 in rent in 2010. His expenses, including mortgage, were $5,904. In addition, he had a depreciation expense of $2,806. As a result, he had a net rental loss of $1,875. However, he can't deduct this loss from his other income because of IRS rules limiting such losses.

Schedule E, Income or loss from partnerships and S-corporations. Finally, we get to the big money. This form shows income from two S-corporations: Lubbers Agency, Inc has $72,247 and Gingrich Holdings, Inc has $2,478,537.

Schedule SE - Self employment tax. This schedule is used to compute the tax on Newt and Callista's business income that totals $41,265. On Newt's share (from speaking fees and director fees) of $31,625, there is a tax of $847. On Callista's share (from directors fees) of $10,000, the tax is $268. These taxes appear on the 1040 line 56 as "other taxes".

Form 1116 - Foreign Tax Credit. Newt claims a $243 federal tax credit as a result of paying $243 in taxes to foreign countries.

Alternative Minimum Tax (AMT) forms. These forms on pages 18 - 21 are pretty difficult to decipher. As far as I can discern they don't seem to have any effect on the amount of federal taxes Newt pays.

Schedule H - Household Employment Taxes. Newt paid a household employee $14,774 in 2010 and figures he owes $3,891 to cover that employee's Social Security, Medicare and unemployment insurance.

Form 4562 - Depreciation and Amortization. There are two of these in Newt's tax return. One supports a $2,806 depreciation claim on his residential rental property. The other supports his claim of $25,130 depreciation associated with Gingrich Holdings, Inc.

Form 8582 - Passive Activity Loss Limitation. Newt must file two of these forms--three pages each--to conclude he can't deduct his rental property's $1,875 loss.