Jeb Bush says his 'average federal tax rate' was 36 percent

When former Florida Gov. Jeb Bush released 33 years of tax returns, he suggested we are all paying too much in taxes -- himself included.

"I paid the government more than one in three dollars that I earned in my career," Bush wrote on his campaign website June 30. "Astounding. The total effective rate was 36 percent. I think I speak for everyone, no matter your tax rate: We need to get more money back in your pocket and less in the federal kitty."

A chart highlighted Bush’s "average federal tax rate" as 36 percent.

Was Bush’s average federal tax rate 36 percent over the years? It was a figure that drew attention and criticism.

We found that it depends on how you calculate it.

Bush’s tax rate

Bush arrived at that 36 percent average by weighting his income -- so higher income and tax rate years counted more than the years when he earned far less -- including four years when he paid nothing in taxes and therefore had a zero tax rate. In fact, Bush didn’t start paying a rate of 36 percent or higher until he left office in 2007.

Bush showed his annual tax rate for every year from 1981 through 2013. (He filed for an extension for 2014.) His footnotes explained that Bush was citing an effective federal tax rate calculated by dividing cumulative total tax paid by cumulative total taxable income. Abraham N.M. Shashy, Jr., former chief counsel for the Internal Revenue Service, calculated the rate for Bush.

Bush’s income went up and down while he was in the private sector before he ran for governor for the first time in 1994. Later, it would drop while he was in the governor’s mansion from January 1999 through January 2007 and then rise again when he left office. As his income fluctuated, so did his tax rate.

During the 1980s, Bush’s tax rate was usually less than 24 percent. For four years, his taxable income was either zero or negative as a result of losses taken on real estate and business investments while he worked with Miami real estate developer Armando Codina.

His income surpassed $1 million for the first time in 1990. During the 1990s his tax rate ranged from 27 to 33 percent.

Bush’s income dropped while in office from 1999 through January 2007 and then soared from $260,000 in 2006 to $7.4 million in 2013. Since 2007, his rate has ranged from 36 to 40 percent.

So that means that Bush’s rate only exceeded that 35 percent for seven of his 33 years of tax returns.

Whether 36 percent was his average rate depends on a few factors, including what we should count as income to determine the rate.

Some of the tax experts we interviewed came up with different calculations or disagreed with how Bush calculated his rate. Here are the issues they raised:

Weighted average: On this point, we found some disagreement about whether Bush used the best method or not.

Bush used a weighted average, which counts the higher-earning years more than others. When we did a straight up average by adding up all the rates that Bush reported, we got an average of about 24.5 percent.

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Michael Kitces, a financial planning and tax expert who writes the Nerd’s Eye View blog, did his own analysis using a different income line on tax returns and calculated that Bush’s average rate was 21.3 percent.

Rebecca Wilkins, a tax expert and executive director of the Financial Accountability and Corporate Transparency Coalition, said the weighted average is more accurate.

"It reflects what you are paying in taxes overall and doesn’t get skewed by unusual years," she said.

Asawath Damodaran, a finance professor at the Stern School of Business at New York University, said that these methods simply reflect two different ways of calculating taxes. "One is not right and the other wrong," he said.

Although Bush cited his average, his website includes the rate for each individual year.

Payroll taxes: Experts we interviewed said that Bush should not have included payroll taxes in his income tax calculation.

Wilkins subtracted Bush’s payroll tax and found that his effective rate was 36 percent for 2013 -- not the 40 percent he cited. And when she averaged the rate for the past five years without the payroll taxes, she found an average of 33 percent.

Taxable income: Bush used taxable income, which subtracts deductions, to calculate his rate.

Here’s an example of how using taxable income rather than total income can skew the tax rate, as Kitces pointed out to PolitiFact. In 1984, Bush’s total income was $44,626 while after his deductions his taxable income was $11,276. So by dividing the $1,961 in taxes paid by the $11,276, we get the rate of 17 percent that Bush claimed. However, if we use the actual income figure of $44,626, his rate would have been 4 percent.

Retirement money excluded: Roberton Williams at the Tax Policy Center says that Bush underestimated how much he earned because he omitted that his firm contributed millions to retirement accounts. (The Wall Street Journal reported that labor filings showed that the firm’s pension plan had assets of $2.4 million as of the end of 2013.)

"The bottom line is they have chosen the smallest measure of income they could use, and therefore calculated the largest tax rate they could get," Williams said.

Not accounting for inflation: A more valid way to calculate the rate would be to inflate the dollars each year up to 2013 dollars and then determine the rate. That would cause the overall average effective tax rate to drop by a bit more than half a percentage point, Williams said. When Williams used adjusted gross income in place of taxable income that made it drop about another 1.5 percentage points. So when Williams adjusted for inflation and used the adjusted gross income, he calculated Bush’s average rate at 33.7 percent.

We shared a summary of our findings from other tax experts with Bush’s campaign and asked why they used the method they used.

"Our calculation of the average effective tax rate Gov. Bush paid over 33 years takes into account his complete federal tax burden, which we believe any calculation of effective tax rate should aim to do," said Allie Brandenburger, a spokeswoman for Bush’s campaign. "The 36 percent rate addresses all federal taxes, and presents the clearest and most accurate picture of Gov. Bush’s effective tax paid."

Our ruling

Bush said his average federal tax rate was 36 percent.

That’s the number that results if we use the method he did to calculate his taxes based on his taxable income, including payroll taxes and weighting the average to give more weight to the higher income years.

However, there are other ways to calculate his average rate that would result in a lower number. For example, one way is adjusting for inflation and using a different measure of income, which lowered the rate to 33.7 percent. Other methods led to rates of 24.5 percent or 21.3 percent. Experts say it depends on what method you use.

Overall, Bush did pay higher tax rates when he made more money. But he seems to have chosen a method of calculating his tax rate that results in the highest possible number.

We rate this claim Half True.