WALL STREET JOURNAL
Teresa's Fair Share
October 18, 2004; Page A18
The Kerry campaign finally released Teresa Heinz Kerry's 2003 tax return, or rather two pages of it, late last Friday, and the story got buried next to the hardware-store ads. We think she ought to release the rest of her return, since her wealth was crucial to salvaging her husband's struggling campaign during the Democratic primaries in 2003.
But even this minimal disclosure deserves more attention in light of John Kerry's pledge to raise tax rates. In 2003, Mrs. Kerry -- or Teresa Heinz, as she declared herself on her IRS 1040 form -- earned $5.07 million, hardly a surprising income for someone estimated to be worth nearly $1 billion.
The news is that $2.78 million of that income came in the form of tax-exempt interest from what the Kerry campaign's press release attributed to investments in "state, municipal and public entity bonds." What the campaign didn't say is that these are the kind of investments that rich people can afford to hire lawyers and accountants to steer their money into. On her remaining "taxable" income of $2.29 million, Mrs. Kerry paid $627,150 in taxes, for an overall average federal tax rate of only 12.4% on her $5.07 million in total income.
WEALTH AND LOOPHOLES
Average federal income tax rate
Teresa Heinz Kerry, 2003 12.4%
All Taxpayers, 2001 14.2
Top 1%, 2001 27.5
Top 10%, 2001 21.4
Top 25%, 2001 18.1
Top 50%, 2001 15.9
Sources: Kerry campaign, Tax Foundation.
As the nearby chart shows, this puts Mrs. Kerry's tax rate at well below that of other filers in her super-rich neighborhood. But it also means she is paying a lower average rate than nearly all middle-class taxpayers paid in 2001, the last year for which the IRS has published the data. The top 50% of all federal filers contributed 96.1% of all federal income taxes in 2001, and they paid an average income-tax rate of 15.9%. That's 3.5-percentage points more than Mrs. Kerry paid in 2003.
The use of these tax-exempt investment vehicles is perfectly legal, and we don't begrudge her the savings even if her husband attacks others who exploit them as greedy and vaguely dishonest. Our point is less about hypocrisy than about what our liberal friends like to call "fairness."
Mega-millionaires such as Mrs. Kerry who can invest in tax-shelters will be able to dodge the new higher two top marginal tax rates on dividends and other income that Senator Kerry is proposing for anyone making more than $200,000. The top rate would go back up to 39.6% from 35% -- or to nearly 41% if you include the phase-out of deductions that remains part of the tax code.
The people who won't be able to escape these higher rates are two-earner couples on mid-career salaries, or small-business owners who pay taxes as subchapter S companies at individual rates, or pensioners who've saved all their lives to build a nest egg and are now living off dividends. Mr. Kerry calls these people "the rich," but we know a lot of them who are decidedly middle-class and who certainly can't afford the five homes that the Kerrys own.
At the very least, Mrs. Kerry's tax returns are a screaming illustration of the need for reform to make the tax code simpler and fairer. But they also show that Senator Kerry's proposed tax increases are much more about a revenue grab than they are about tax justice.
