“Disclosure For Thee But Not For Me”: Romney Using Ethics Exception To Limit Disclosure Of Bain Holdings
Republican presidential front-runner Mitt Romney, whose wealth has become a central issue in the 2012 campaign, has taken advantage of an obscure exception in federal ethics laws to avoid disclosing the nature and extent of his holdings.
By offering a limited description of his assets, Romney has made it difficult to know precisely where his money is invested, whether it is offshore or in controversial companies, or whether those holdings could affect his policies or present any conflicts of interest.
In 48 accounts from Bain Capital, the private equity firm he founded in Boston, Romney declined on his financial disclosure forms to identify the underlying assets, including his holdings in a company that moved U.S. jobs to China and a California firm once owned by Bain that filed for bankruptcy years ago and laid off more than 1,000 workers.
Those are known only because Bain publicly disclosed them in government filings and on the Internet. But most of the underlying assets — the specific investments of Bain funds— are not known because Romney is covered by a confidentiality agreement with the company.
Several of Romney’s assets — including a large family trust valued at roughly $100 million, nine overseas holdings and 12 partnership interests— were not named initially on his disclosure forms, emerging months later when he agreed to release his tax returns.
There is no indication that Romney is violating any rules, and his advisers note that his reports have been certified by the Office of Government Ethics, which reviews the disclosures required of presidential candidates.
Romney spokeswoman Andrea Saul said the disclosure “completely and accurately describes Governor Romney’s assets as required by the law.” She said Romney does not know the details of his investments since he turned them over to a trustee to manage, and that ethics officials confirmed that “everything … was reported correctly” and completely.
Several outside experts across the political spectrum, however, say Romney’s disclosure is the most opaque they have encountered, with some suggesting the filing effectively defeats the spirit of disclosure requirements.
“His approach turns the whole purpose of the ethics statute on its ear,” said Cleta Mitchell, a Republican lawyer who has represented dozens of candidates and officials in the disclosure process, including Romney’s leading challenger for the GOP nomination, Rick Santorum.
Romney’s fortune and his association with Bain are frequent topics in the presidential campaign, with opponents charging that the way he accumulated much of his wealth — through leveraged buyouts that in some cases ended in bankruptcy and layoffs — is at odds with the interests of working-class Americans.
The ties to Bain, a private firm known for its reticence, put Romney in a rare category exempting him from the transparency rules that apply to most candidates.
Like all nominees for federal office, Romney is covered by the statute that mandates disclosure of assets. But since the 2004 campaign — when Democratic presidential candidate John Kerry declined to disclose some of his wife’s holdings — the Office of Government Ethics has permitted nominees and presidential candidates to postpone revealing underlying assets in investment accounts that have a legally binding confidentiality agreement.
Bain routinely asks its investors to sign such agreements.
But after a nominee is in office, the ethics agency requires that any undisclosed assets be sold as a way to meet conflict-of-interest requirements.
The implications for Romney, if elected, are uncertain because sitting presidents are not subject to the conflict-of-interest sections of the ethics law. Although still subject to the disclosure requirements, a president cannot be compelled by OGE to sell undisclosed assets, according to an OGE official. Romney’s would be the first presidency to face this circumstance, according to the official, who spoke on condition of anonymity because of the sensitivity of the topic in an election year.
Romney does disclose underlying assets in his accounts held by financial firms other than Bain, such as Goldman Sachs. But his advisers say Bain holdings, the source of most of his wealth, are kept confidential at the request of Bain management for proprietary business reasons. Romney’s attorneys asked Bain officials to release information about the funds, but the request was denied, according to Saul.
When he talks about Bain, Romney promotes the image of a jobs generator spawning megastores such as Staples and Sports Authority , which serve as emblems of Bain’s extraordinary financial success.
But some other Bain-affiliated companies have a history of controversy. Romney is invested, for example, in DDI, a company in California once owned by Bain that filed for bankruptcy in 2003 and laid off more than 1,000 workers.
Company chief executive Mikel Williams said the firm has returned to profitability and is expanding, in part because of recent support from Bain and others.
Romney also has holdings in Sensata Technologies, a high-tech sensor control firm that has moved U.S. manufacturing jobs to China. A Sensata spokesman declined to comment.
Most of Romney’s holdings in Bain accounts are impossible to identify because of the confidentiality rules imposed by Bain, but his investments in Sensata and DDI were revealed through Securities and Exchange Commission filings.
Saul said it is unfair to link the candidate to such firms because “Governor Romney has not had any role at Bain Capital since he left over a decade ago,” and has turned over “control and overall management” of his investments to a trustee.
Ethics office’s ‘double standard’
Under pressure, Romney recently released hundreds of pages of tax returns for 2010 and estimated returns for 2011. A comparison of those returns with his federal and state “personal financial disclosure” reports and corporate filings at the SEC revealed dozens of discrepancies – and provided a window into what might emerge if Romney revealed the assets he holds in Bain accounts.
“I don’t know what legal authority exists for the federal ethics office to allow Mitt Romney not to disclose these assets,” said Mitchell, the Republican campaign lawyer. “The statute intends for presidential candidates to publicly disclose underlying assets.”
She said she views the OGE’s exception as a “double standard” that allows very wealthy candidates to avoid disclosure because they are more likely to have their assets in accounts covered by a confidentiality agreement.
By comparison, she said, her congressional clients are required to report every asset unless they qualify for one of the few exceptions described in the law.
One indication of the lack of specificity in Romney’s disclosures is the size of his report. In 2011, it ran 27 pages, compared with 123 pages filed by Ross Perot before he announced his presidential bid in 1992 and 51 pages filed by Henry Paulson, former chief executive of Goldman Sachs, when he was nominated as Treasury secretary in 2006.
Steve Pagliuca, a current Bain managing director who sought election to the U.S. Senate in 2009, and filed a 94-page disclosure. He too was denied permission to release underlying assets in Bain accounts, according to a source familiar with the matter, who spoke on condition of anonymity because he was not authorized to speak on the topic.
Romney is not the first presidential candidate to say he is unable to list underlying holdings in a private equity account. But he is the first to do so for such a large portion of his overall assets.
“I have never seen anything like this,” said Joe Sandler, a Democratic Party lawyer who has shepherded candidates and nominees through the disclosure process for 26 years. “Romney’s approach frustrates the very purpose of the ethics and disclosure laws,” he said. Sandler served as general counsel to the Democratic National Committee when Kerry ran for president.
As a senator, Kerry continues to say he cannot list assets in a Bain account held by his wife, Teresa Heinz Kerry, which his staff says is in compliance with Senate rules.
When he was running for president, Kerry did not list assets in Bain and half a dozen other private equity and hedge fund accounts — some valued over $1 million. A Kerry aide, who spoke on condition of anonymity because she was not part of the presidential campaign, said, “In this case, Senator Kerry wasn’t a beneficiary of Heinz family trusts, had no role in their management, and preexisting confidentiality agreements governing proprietary information were a unique issue.”
New Jersey Sen. Frank Lautenberg (D) does not list underlying investments in several private equity accounts his wife owns — and he provided no explanation with his disclosure report. His chief of staff, Dan Katz, said information on accounts owned by trusts connected to Lautenberg’s wife have proved unobtainable so far, but the senator has been told he is in compliance with Senate rules.
Senate Ethics Committee officials said they could not comment on individual members.
When he ran for the Senate from New Jersey in 2000, Jon Corzine, a former chief executive at Goldman, initially declined to release tax returns, citing confidentiality obligations to his firm. William Canfield III, a former Republican counsel to the Senate Ethics Committee, said at the time that the New Jersey millionaire had a special obligation to disclose, in part because of his extraordinary wealth.
“Mr. Corzine has to understand, while he retains some privacy rights, he has given up a substantial number of them in holding himself out for public office,” Canfield said at the time. Canfield has gone on to private practice and advised federal candidates, including Texas Gov. Rick Perry.
A spokesman for Corzine, who ultimately released his tax returns, declined to comment.
The purpose of disclosure
The 1978 Ethics in Government Act requires candidates to publicly disclose their wealth in broad ranges and to list the assets in most partnerships, trusts and pooled investment funds.
The purpose is to allow the public to identify potential conflicts of interest and the personal economic priorities of candidates and elected officials, said Fred Wertheimer, the longtime advocate who worked to enact the measure in the aftermath of the Watergate scandal.
Mitchell and several other Washington campaign lawyers say they advise candidates to reveal underlying assets, divest them if they cannot be disclosed or choose not to seek public office.
“My clients have had fund managers squawk about their ‘proprietary information’ and I’ve always been told, ‘There is no choice — the law requires disclosure,’ ” Mitchell said.
Canfield, the former Senate ethics lawyer, will not comment on Romney’s assets. But, he said, “I always counsel my clients to err on the side of disclosure” and to note on ethics forms “the same description of assets they would disclose to the IRS.” Doing so, he said, is in keeping with the spirit of the law and prevents embarrassing questions about discrepancies.
Romney’s tax forms showed holdings in a Swiss bank account, a real estate trust and nine offshore accounts not named on the public disclosure reports. In addition, 12 Bain accounts described as “fund” investments on the disclosure were identified as “partner” investments to the IRS.
Romney’s attorneys subsequently amended the disclosure to acknowledge the Swiss bank and the real estate accounts. The other assets, Romney aides said, were too small to report or had been listed, under other names, on the public disclosure. The general explanations were accepted by government ethics reviewers as were the amendments.
“Any document with this level of complexity and detail is bound to have a few trivial inadvertent issues,” Saul said at the time.
In his disclosure reports, Romney’s lawyers noted that he retired from Bain in 1999, is now a “passive investor” and “has not had any active role with any Bain entity.”
Romney’s tax returns indicate that he and his wife received “carried interest,” a controversial form of compensation that provides a share of profits to Bain managers and is taxed at the lower capital gains rate.
Romney’s compensation from ongoing Bain deals results from a retirement agreement when he left the company in 1999 allowing him a stake in Bain’s new investment funds for a decade after.
By: Tom Hamburger, The Washington Post, April 5, 2012
On the wonderful night of November 4, 2008, thousands of people, white, black, and Latino, gathered in Grant Park in Chicago to celebrate the election of our first black president. For many Americans, Barack Obama’s election was the beginning of a new era when there would be cooperation not conflict between races. Finally the racial conflict which had plagued America for centuries would come to an end. Fat chance!
The truth is that racial relations now seem to be even worse than they were before election day in 2008. The ugly truth is that Barack Obama’s election brought the bigots and haters out in full force.
The dream ended for me when I watched a Tea Party rally in Washington where several of the protestors carried posters that pictured the president of the United States as a witch doctor with a bone through his nose. Then there was the infamous incident when white Tea Party protesters at the Capitol hurled racial epithets at black members of Congress.
The Republican candidates for president have made overt and covert racial appeals. Former House Speaker Newt Gingrich, a smart man who should know better, once said President Obama’s views on foreign policy were shaped during his childhood in Africa. During this year’s presidential campaign, Gingrich and former Sen. Rick Santorum both urged black Americans to end their dependence on federal entitlement programs. Pointedly, neither candidate offered the same advice to the millions of white Americans who receive federal benefits. Former Gov. Mitt Romney criticized his primary opponents for just about every reason under the sun, but he never called his opponents out for their racism.
The Republican race baiting filtered down through the ranks. An official of the Orange County Republican Party in California sent out an E-mail that showed the president of the United States as the child of chimpanzees. A Republican mayor in California sent an E-mail that depicted the White House lawn as a watermelon patch.
The final straw was the tragic death of Trayvon Martin.
It’s hard for me to see how Martin could have been a threat to George Zimmerman. Zimmerman had a gun and Martin was armed with a bag of Skittles. Not really a fair fight. My kids used to eat Skittles and fortunately no one shot them. But my kids are white and Trayvon Martin was black. The Republican indifference to Martin’s murder is shocking. The Pew Center released a national poll on Tuesday that indicated that a majority of Republicans believed the media had paid too much attention to the Martin tragedy. They would not think that way if the victim had been a white kid.
The question facing America is whether racial hatred is getting worse or whether it is a rear guard action by people trying to hold back the racial changes in America. I think it’s the last gasp of a dying breed of racial dinosaurs. In their book Millennial Makeover Morley Winograd and Mike Hais demonstrate that the millennial generation of young Americans, who will set the course for American politics for the next generation, is remarkably free of racial basis. And there’s a good reason for this according to the authors. Four out of every 10 Americans between the ages of 18 and 30 are black, Latino, Asian, or Arab. Many young white Americans have black and Latino friends, a situation that has created a generation almost free of racial hate.
If Republicans do win this year, it would be a classic example of winning ugly. But if they win ugly in 2012, they will pay a political price in a few years when millennials replace baby boomers as the dominant force in American politics. Don’t say I didn’t warn them.
By: Brad Bannon, U. S. News and World Report, April 5, 2012
Some politicians might believe that “corporations are people,” as former Gov. Mitt Romney declared last year.
At tax time, however, corporations enjoy better treatment than ordinary folks. While millions of individual Americans file last-minute income tax returns this month, some major corporations won’t pay a dime despite reaping record profits.
From 2008 to 2010, the 280 most profitable U.S. corporations sheltered half of their profits from taxes, thanks to tax subsidies totaling nearly $224 billion, according to a 2011 analysis by Citizens for Tax Justice. A dozen large companies, including Exxon-Mobil, Boeing, and General Electric, reaped $175 billion in profits, but their combined tax rate was negative 1.4 percent, thanks to $64 billion in subsidies from oil depletion allowances, write-offs from overseas profits, and other loopholes, according to the study.
These subsidies didn’t just come about by accident—at least 30 Fortune 500 firms pay their lobbyists more than they pay in taxes. Most small businesses can’t afford lobbyists, so it’s no surprise that the benefits of tax loopholes flow mainly to Wall Street, not Main Street.
Thanks to these loopholes, probably no major company pays the full federal corporate tax rate of 35 percent. The highest three-year average effective rate paid by any of the 12 large corporations in the Citizens for Tax Justice study was 14.2 percent—less than many middle class families.
That’s the kind of sweetheart deal most taxpayers—and most small businesses—can only dream about. We do, however, get to pick up the tab for these costly tax breaks. For starters, when corporations shirk billions of dollars in federal taxes, middle class taxpayers must bear more of the cost of national defense, healthcare, and other necessary programs.
Then there is the effect on state and local services, most notably education.
Most states mirror federal tax loopholes, and many states also provide tax subsidies for companies just to locate within their borders. Total state and local tax subsidies to business add up to about $70 billion a year. That windfall for big business comes at the expense of students. Over the past three years local school districts have cut 238,000 education jobs, which means more students crammed into larger classes and fewer opportunities for extra tutoring or after-school programs. Middle class families have also had to foot a larger share of the bill for higher education, as total state funding has declined 3.8 percent over the last five years.
Small businesses also pay a price for corporate handouts. Not only is the tax burden shifted to companies that can’t afford to game the system, but small businesses rely on public education to train skilled workers and teach them how to think critically. When Spencer Organ Company, Inc. was founded in 1995, many of the people who applied for jobs not only had basic reading and math skills—they also had been exposed to music education and had learned to use tools in shop classes, knowledge that is useful in the organ restoration business. Today, after years of curriculum cutbacks, most students have not had those opportunities, a shift that translates to higher training costs for this small business.
Our nation built the most prosperous economy in history during the 20th century, and public education was a foundation of that success. We all have a responsibility to provide similar opportunities for future generations to succeed, and our biggest corporations must do their fair share. After all, the same people who own stock in these companies also have a stake in America’s future.
By: Joseph Rotella and Dennis Van Roekel, U. S. News and World Report, April 5, 2012
The Path to Prosperity blueprint of House Budget Committee Chairman Paul Ryan—the foundation for the budget that the House passed last week—reflects conservative politicians’ war on government. As my Center on Budget and Policy Priorities colleagues conclude about a Congressional Budget Office, or CBO, analysis of the Ryan plan:
The CBO report, prepared at Chairman Ryan’s request, shows that Ryan’s budget path would shrink federal expenditures for everything other than Social Security, Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and interest payments to just 3¾ percent of the gross domestic product (GDP) by 2050. Since, as CBO notes, ‘spending for defense alone has not been lower than 3 percent of GDP in any year [since World War II]‘ and Ryan seeks a high level of defense spending…the rest of government would largely have to disappear.
The conservatives’ war is sustained by a series of myths.
Myth No. 1: Spending Is Out of Control, and Only Draconian Cuts Will Rein It In
As my colleagues at the center have shown, however, noninterest spending outside Social Security and Medicare spiked in the Great Recession but is scheduled to fall substantially as a share of GDP as the economy recovers (see chart).
To be sure, government spending will rise as a share of gross domestic product as the population continues to age, healthcare costs throughout the economy continue to rise, and more Americans become eligible for Social Security and Medicare. But, my Center on Budget and Policy Priorities colleagues have written:
When Americans hear talk of the government exploding in size and reach, they don’t usually think this means that more people will receive Social Security and Medicare because the population is growing older or that Medicare will cost more because of factors like the aging of the baby boomers and advances in medical technology that improve health and prolong life but at significant cost. Outside of those demographic and health cost factors, the portrait of a rapidly growing federal behemoth is simply at odds with reality, since costs are shrinking to levels well below their historical averages.
Myth No. 2: The Country Faces a Looming Debt Crisis Due to the Debt Incurred In the Past Few Years
That myth fueled irresponsible brinksmanship over legislation to raise the nation’s debt limit last year, and it stands in the way of meaningful deficit-reduction.
While the policies that Presidents Bush and Obama and Congress enacted to combat the financial crisis and Great Recession helped drive up deficits after 2007, those policies were temporary and will have little effect on deficits and debt going forward. The weak economy and the legacy other policies enacted under President Bush (especially his tax cuts) play a far larger role. Indeed, the Congressional Budget Office calculates that under current law (which calls for the Bush-era tax cuts to expire at the end of this year), deficits would fall over the coming decade as the economy improves, and debt would fall to 61.3 percent of GDP in 2022.
Yes, the gap between spending and revenues will rise again as a share of GDP in later decades if we don’t take prudent action to rein in future deficits. Policymakers and analysts who are not ideologically committed to radically shrinking government recognize that this will require a balanced mix of revenue and spending measures. But such a balanced policy runs up against myriad tax myths, including the following:
Myth No. 3: Americans’ Tax Burden Is High and Rising
That’s certainly the impression the Tax Foundation wants to convey in its latest “Tax Freedom Day” report released earlier this week: “Americans will work 107 days into the year, from January 1 to April 17, to earn enough money to pay this year’s combined 29.2% federal, state, and local tax bill. “
But notice, the report does not refer to “every” American or the “typical” American. That’s because, as this Center on Budget and Policy Priorities report demonstrates, four out of five U.S. households likely pay a much lower average tax rate than the one highlighted in the Tax Foundation report. Moreover, average federal income rates are at historic lows for typical taxpayers. When total taxes, including federal and state and local taxes, are taken into account, the United States has one of the lowest average tax rates among all industrialized countries.
So, here’s the question:
Are those who advance these myths interested in fixing the deficit and debt problem, as most Americans would hope, or are they conducting a bait-and-switch in pursuit of antitax advocate Grover Norquist’s quest to “reduce [government] to the size where I can drag it into the bathroom and drown it in the bathtub?”
By: Chad Stone, Chief Economist at The Center on Budget and Policy Priorities, Published in U. S. News and World Report, April 5, 2012