NASHVILLE (AP) — A newspaper investigation reveals that Gov. Bill Haslam, who has never revealed all the sources of his income, has overstated his personal income tax rate in his limited financial disclosures.
During his run for governor, Haslam released data listing millions of dollars in income and taxes, claiming his tax rate at times topped 48 percent on those earnings.
Most of his wealth flows from Pilot Flying J, a nationwide chain of convenience stores and truck stops. Haslam has never disclosed his earnings from Pilot.
He instead released a summary that listed only his non-Pilot incomes, which was $28.5 million earned between 2003 and 2008 from a range of investments.
An analysis by the The Commercial Appeal found Haslam used a variety of tax breaks to reduce the taxes he paid on that portion of his annual income (http://bit.ly/vYTpiG).
While most taxpayers rely on wages progressively taxed up to 35 percent, the tax on much of Haslam's publicly disclosed income — much of it capital gains involving stocks, real estate and private equity deals — is capped at 15 percent.
In a second tax-saving step, Haslam used deductions to write off nearly a third of that non-Pilot income — shielding $9.2 million from taxes, the newspaper found.
What emerged was an effective federal income tax rate that at times was lower than that paid by many middle-class families.
The Republican governor told the newspaper his overall tax rate likely is higher when income is included from Pilot, which, with $18 billion in annual sales, ranks No. 11 on Forbes' list of America's largest private companies.
However, as he's done before, the governor declined to discuss his Pilot income or disclose his returns.
"I'm not sure that this is a case of somebody that's trying to dodge taxes," said Haslam, emphasizing that much of his federal tax deduction involves huge charitable contributions he's made, plus state taxes he paid.
His income summary revealed he and wife, Crissy, gave $4.1 million between 2003 and 2008 to a range of organizations.
Haslam said his federal tax deductions also include state taxes he paid under Tennessee's Hall tax on dividends and interest, nearly $597,000 over six years.
The bulk of the remainder of his deductions — about $4.4 million — involves investment expenses tied to business partnerships, he said.
Haslam's summary reported he paid $3.8 million in federal taxes and $597,000 in state taxes on his non-Pilot income over the six-year period.
This amounted to an effective tax rate that averaged 22.35 percent over the six years and reached 48 percent in two of those years, according to the summary.
However, Haslam's non-Pilot tax rate is much lower when isolated to federal taxes and calculated in a manner typically used to compare tax rates, the newspaper found. For one, Haslam calculated his tax rate by using taxable income, not total income.
Taxable income is lower because itemized deductions and personal exemptions have been subtracted.
Nick Kasprak, an analyst for the Tax Foundation, a nonpartisan, Washington-based tax research organization, said using taxable income inflates a tax rate.
"It's misleading to do that," Kasprak said. "There are a lot of tax deductions people can take. If you're not including those in your income, you're inflating your tax rate."
Haslam has said his CPA computed the tax rates published in his income summaries using accounting software by a leading national firm. The software divides taxes paid into taxable income, he said.
Haslam told reporters Monday that he didn't overstate his tax rate, but reiterated the use of the software, which he called "a pretty straight forward thing."
Renewed interest in Haslam's finances comes amid a growing national debate over taxes and wealth.
In addition to the Occupy movement, a report this fall by the nonpartisan Congressional Budget Office fueled the debate by finding a growing income inequality between the middle class and America's richest citizens.
"There is a bigger gap there, that's true," Haslam told the newspaper. "So the question is: Why? ... Is it solely tax policy? Is that what's driving the difference? Or are there a lot of other factors at play? And I think that's the discussion we should be having," he said, suggesting that inadequate education and the breakup of the traditional family might also be factors in the growing income gap.
"The easiest thing to say is, 'Well, there's the super rich. And the '1 percent' is doing well.'"
Information from: The Commercial Appeal, http://www.commercialappeal.com