By: Eugene Robinson, Opinion Writer, The Washington Post, January 16, 2012
What “Not Very Much” Income Is To Mitt Romney
In all things economic, the former Massachusetts governor is a veritable gaffe machine.
Up until now, Mitt Romney has refused to release his tax returns, something that he surely knew would eventually become an issue. And it isn’t too hard to figure out why. When you’re struggling to get past your image as an out-of-touch rich guy, having front-page stories about the millions you’re pulling in isn’t something you’d look forward to. And in Mitt’s case, there are really two problems.
The first is his income, which we can be pretty sure is in the seven figures. And this is despite the fact that he hasn’t actually held a job in years. Unlike people who work for a living, Romney makes money when his money makes him more money. Which leads us to the second problem: the tax rate he pays. Because our tax system treats investment income more favorably than wage income, Romney probably pays the capital gains tax rate of 15 percent on most of his income, as opposed to the 33 percent marginal rate he’d be paying if that money were wages. Which is what Romney was forced to admit yesterday, when he said, “It’s probably closer to the 15 percent rate than anything.” But here’s where Mitt’s tone-deafness on these kinds of issues comes, once again, to bite him:
The vast majority of the income Mr. Romney reported over 12 months in 2010 and ‘11 was dividends from investments, capital gains on mutual funds and his post-retirement share of profits and investment returns from Bain Capital, the firm he once led. And Mr. Romney also noted that he made hundreds of thousands of dollars from speaking engagements.
“I got a little bit of income from my book, but I gave that all away,” Mr. Romney told reporters after an event here. “And then I get speakers’ fees from time to time, but not very much.”
Financial disclosure forms that candidates are required to file annually shows that Mr. Romney earned $374,327.62 in speakers’ fees from February of 2010 to February of 2011, at an average of $41,592 per speech.
Oh Mitt, you really are the gift that keeps on giving. A smarter candidate would say, “I’ve been very fortunate to make significant amounts of money from giving speeches.” But Mitt describes $374,327 in speaking fees in one year as “not very much.” If you put that amount into the Wall Street Journal‘s handy calculator, it turns out that if those speaking fees were the only income Mitt had, he’d still be richer than 98 percent of Americans. But those speaking fees, apparently, are “not very much” to him.
Just to be clear, I don’t think that the fact that Romney considers an amount of income that most of us will never dream of earning “not very much” doesn’t mean he’d be a bad president, in and of itself. But like all Republicans, Romney thinks there’s nothing wrong with the fact that money you get for working gets taxed at a higher rate than money you make for selling a stock or having your grandfather die and leave you a few million, and he’d like to make that disparity even more extreme.
Romney now says he’ll probably release his 2011 returns in April. Which guarantees that there will be plenty of time for the Obama campaign to keep talking about it in anticipation of the big event. At the current rate, he should commit about one head-shaking gaffe per week on economic issues between now and then.
By: Paul Waldman, The American Prospect, January 17, 2012
“A Model Of Deception”: For House Republicans, A Game Of Debt Charades
Lawmakers went home for the holidays and got an earful from constituents about their juvenile behavior in Washington.
So, in their first major act of 2012, House Republicans picked up exactly where they left off: They staged a duplicitous debate in which they pretended that they were going to deny President Obama permission to increase the government’s borrowing limit.
The pretense had been clear since last summer, when 174 House Republicans voted for a budget deal that guaranteed that the debt limit would continue to increase this year unless two-thirds of the House and Senate voted otherwise — a practical impossibility.
But that didn’t stop many of those same 174 Republicans from marching to the floor Wednesday afternoon to vote for a resolution “disapproving” of the very same debt-limit increase they had already blessed. It was a model of deception: claiming to oppose something they had guaranteed would take effect.
“My resolution that is before this chamber will send a message that the constant borrowing from our children, our grandchildren, must come to an end,” declared Rep. Tom Reed (N.Y.), one of the 174 Republicans who voted to allow the borrowing last summer.
“During my time in Congress, I voted nine times against raising the debt limit because it was not tied to spending controls. This is another time to say no,” argued Rep. Don Manzullo (R-Ill.), who said yes last year to the increase he voted against on Wednesday.
“If we do nothing, American prosperity will drown in debt,” said Rep. Michael Fitzpatrick (Pa.), another of the 174 Republicans who had authorized the drowning.
“The culture of Washington must be reformed from the ground up,” Rep. Adam Kinzinger (R-Ill.) thundered in opposition to the debt-limit increase to which he consented last summer. “The future of our nation depends on it.”
Actually, if the culture of Washington is to be reformed, a good place to start would be for Kinzinger and his colleagues to be more honest about their shenanigans.
The role of calling out Republicans for their two-faced behavior fell on Wednesday to one of their own, conservative Rep. Jeff Flake (Ariz.), who, unlike most of his colleagues, was perfectly consistent: He opposed increasing the limit last year, and he continued to oppose it on Wednesday.
“This vote has been called a charade,” Flake said on the floor. “That is true. It is. Let’s face it.”
Flake, one of the few grownups in the chamber, was not done with his fellow Republicans. “I think we have to admit that even if the Senate had passed the House-passed budget, the so-called Ryan budget, we would still have to raise the debt ceiling,” he reminded them. “I don’t think anybody really disputes that. We are going to have to raise the debt ceiling again and again.”
Then Flake did something truly heretical: He reminded Republicans that “we were headed toward this cliff long before the president took control of the wheel.”
What Flake said was demonstrably true: Both parties created the debt mess, and to fix the problem both would have to be honest. Instead of being honest, however, House Republicans were staging a show so that they could tell voters they opposed the very debt limit hike they had authorized.
Rep. Gerald Connolly (D-Va.) accused the Republicans of donning “flip-flops.”
“I do prefer Crocs, if anybody cares,” Rep. Sam Graves (R-Mo.) retorted.
Apparently, most of the 174 Republicans who blessed the debt-limit increase last year were embarrassed about going to the floor to argue against it, because most of those who spoke were from that GOP minority who voted against the debt-limit increase last year, too.
“We should never have passed that Budget Control Act the way we did,” said Rep. Dan Burton (R-Ind.), who voted no last summer. As a result, he said, Obama is “raising the debt ceiling without us being able to do a thing about it. We made a big mistake.”
Maybe they made a big mistake. Or maybe they did the right thing last year in reaching an agreement that kept the federal government from defaulting.
Reed, the floor leader for Republicans on Wednesday, wanted to have it both ways. “It’s so important, in my opinion, for the future of this nation, the future of the world,” he pleaded, with an urgency that he apparently lacked last summer. “The national debt is a serious threat to our very existence as an American nation.”
Reed and 232 fellow Republicans then voted to “disapprove” of the debt-limit increase — well short of the two-thirds majority needed to overcome a presidential veto. The House’s first legislative act of 2012 had been utterly pointless — which was just the point.
By: Dana Milbank, Opinion Writer, The Washington Post, January 18, 2012
GOP Sen Chuck Grassley: We Need “Child Labor” To Fight Obesity Epidemic
At a recent town hall in Osage, Iowa, Sen. Chuck Grassley (R) responded to a question about the Labor Department’s stricter limits on child labor by claiming that they could exacerbate the child obesity epidemicby making kids less “active”:
Concern was raised about the proposed Department of Labor’s intent to greatly limit child labor on family farms.
“This farm bill will greatly affect our FFA and 4-H programs,” said Grassley. “Kids won’t be able to help on farms not owned by their parents.
“It’s interesting that this child labor bill goes against Michelle Obama’s anti-obesity initiative,” said Grassley. “How can kids be active if they are limited by this law?“
Grassley represents a farm state that both relies on child labor and contributes to the national obesity epidemic through its production of corn products like high-fructose corn syrup. Iowa farmers benefit from billions of dollars in corn subsidies that allow them to put a glut of cheap, unhealthy foods on the market.
As for his Dickensian defense of child labor, that’s sadly par for the course for Republicans these days. Several GOP-led states have rolled back child labor laws. In December, seventy rural state lawmakers led by Rep. Danny Rehberg (R-MT) denounced the Labor Department’s new protections for the country’s most vulnerable workers. They argued that hard manual labor teaches children important “life lessons.”
Under current law, 400,000 children working on farms are not protected from exploitation and dangerous labor. The proposed rules would forbid children younger than 16 from working with pesticides, timber operations, handling “power-driven equipment, or contributing to the “cultivation, harvesting and curing of tobacco.”
Contrary to Grassley’s suggestion, the physical activity children endure during farm labor is no picnic. The fatality rate for child farm workers is four times higher than that of nonagricultural child workers.
Many Republicans have mocked First Lady Michelle Obama’s anti-childhood obesity initiative, but Grassley in particular has powerful financial motivations for supporting some of epidemic’s worst culprits. As a member of the Agriculture, Nutrition, and Forestry committee, he’s raked in hundreds of thousands of dollars in campaign contributions from the Food & Beverage, Food Processing & Sales, and Agricultural Services and Products industries.
By: Marie Diamond, Think Progress, January 17, 2012
“Bait-And-Switch”: When Mitt Romney Ran Bain Capital, His Word Was Not His Bond
America has been learning a lot lately about “the Bain way.” The damning 28-minute video “When Mitt Romney Came to Town,” put out by a pro-Newt Gingrich super PAC, and the new book “The Real Romney,” by Boston Globe reporters Michael Kranish and Scott Helman, have shed light on the strategies that Mitt Romney’s old private-equity firm, Bain Capital, used to generate outsize returns for its investors.
Make no mistake: Under Romney’s leadership in the 1980s and 1990s, Bain was a top-performing private-equity fund. According to an internal 2000 estimate, the fund achieved annualized returns of an astounding 88 percent from 1984 to 1999 for its institutional investors, including state and corporate pension funds that invest the savings of millions of American workers. It also made a fortune for Romney, whose net wealth reportedly exceeds $250 million.
For Kranish and Helman, the Bain way is an “intensely analytical and data-driven” approach to studying companies, what makes them successful or not, and how to boost their competitiveness.
The video “When Mitt Romney Came to Town” is understandably less sympathetic. To the filmmakers, bankrolled by the Winning Our Future super PAC, the Bain way is nothing less than “turning the misfortunes of others into . . . enormous financial gains.” The film spends most of its time interviewing people who lost their jobs and much of their savings after working at various companies that Bain bought, milked and sold to generate those huge profits.
Yet, there is another version of the Bain way that I experienced personally during my 17 years as a deal-adviser on Wall Street: Seemingly alone among private-equity firms, Romney’s Bain Capital was a master at bait-and-switching Wall Street bankers to get its hands on the companies that provided the raw material for its financial alchemy. Other private-equity firms I worked with extensively over the years — Forstmann Little, KKR, TPG and the Carlyle Group, among them — never dared attempt the audacious strategy that Bain partners employed with great alacrity and little shame. Call it the real Bain way.
Here’s how it worked. Private-equity firms are always eager to find companies to buy, allowing them to invest chunks of the billions of dollars entrusted to them and from which they earn hundreds of millions in fees. One ready source of these businesses is Wall Street bankers hired to sell companies through private auctions. The good news is that when a banker puts together a detailed selling memorandum about a company, chances are very high that company will be sold; the bad news is that these private auctions tend to be very competitive, and the winning bidder, by definition, is most often the one willing to pay the most. By paying the highest price, you win the company, but you also may reduce the returns you can generate for your investors.
I never negotiated directly with Romney; he was too high-level for any interaction with me. Rather, I dealt often with other Bain senior partners, who were very much in his mold. In my experience, Bain Capital did all that it could to game the system by consistently offering the highest prices during the early rounds of bidding — only to try to low-ball the price after it had weeded out competitors.
By bidding high early, Bain would win a coveted spot in the later rounds of the auction, when greater information about the company for sale is shared and the number of competitors is reduced. (A banker and his client generally allow only the potential buyers with the highest bids into the later rounds; after all, you can’t have an endless procession of Savile Row-suited businessmen traipsing through a manufacturing plant if you want to keep a possible sale under wraps.)
For buyers, the goal in these auctions is to be one of the few selected to inspect the company’s facilities and books on-site, in order to make a final and supposedly binding bid. Generally, the prospective buyer with the highest bid after the on-site due-diligence visit is selected by the client — in consultation with his or her banker — to negotiate a final agreement to buy the company.
This is the moment when Bain Capital would become especially crafty. In my experience — which I heard echoed often by my colleagues around Wall Street — Bain would seek to be the highest bidder at the end of the formal process in order to be the firm selected to negotiate alone with the seller, putting itself in the exclusive, competition-free zone. Then, when all other competitors had been essentially vanquished and the purchase contract was under negotiation, Bain would suddenly begin finding all sorts of warts, bruises and faults with the company being sold. Soon enough, that near-final Bain bid — the one that got the firm into its exclusive negotiating position — would begin to fall, often significantly.
Of course, some haggling over price is typical in any sale, and not everything represented by sellers and their bankers is found to be accurate under close examination. But Bain Capital took the art of negotiation over price into the scientific realm. Once the competitive dynamics had shifted definitively in its favor, the firm’s genuine views about what it was willing to pay — often far lower than first indicated — would be revealed.
At such a late date, of course, the seller is more than a little pregnant with the buyer. Attempting to pivot and find a new buyer — which knew it had not been selected in the first place, but was now being called back — would be devastating to the carefully constructed process designed to generate the highest price. Once Bain’s real thoughts about the price were revealed, the seller either had to suck it up and accept the lower price, or negotiate with a new buyer, but with far less leverage.
Needless to say, this does not make for a very happy client (or a happy banker). By the end of my days on Wall Street in 2004, I found the real Bain way so counterproductive that I no longer included Bain Capital on my buyer’s lists of private-equity firms for a company I was selling.
The real Bain way may be nothing more than a clever tactic to eliminate competition from a heated auction in order to buy a business at an attractive price. After all, Bain Capital is seeking the highest returns for its investors. But Bain’s behavior also reveals something about the values it brings to bear in a process that requires honor and character to work properly. If a firm’s word is not worth the paper it is printed on, then its reputation for bad behavior will impair its ability to function in an honorable and productive way.
I don’t know if Bain Capital still uses the bait-and-switch technique when it competes in auctions these days (I’m told that it doesn’t). But that was the way the firm’s partners competed when Romney ran the place. This win-at-any-cost approach makes me wonder how a President Romney would negotiate with Congress, or with China, or with anyone else — and what a promise, pledge or endorsement from him would actually mean.
Would a President Romney, along with a Republican Congress, cut taxes for the wealthy even more than he has pledged to do? Would he not try to balance the federal budget, even though he has said he would? Would he protect defense spending, as he has indicated he would?
I have no idea how Romney might behave in office. I do believe, however, that when he was running Bain Capital, his word was not his bond.
By: William D. Cohan, The Washington Post, January 13, 2012
“Creative Destruction”: Re-Examining The Myth Of No-Fault Capitalism
From all evidence, the issue of economic justice isn’t going away. Break the news gently to Mitt Romney, who seems apoplectic that the whole “rich get richer, poor get poorer” thing is being discussed out loud. In front of the children, for goodness’ sake.
“You know I think it’s fine to talk about those things in quiet rooms,” he told the “Today” show’s Matt Lauer last week. “But the president has made this part of his campaign rally. Everywhere he goes we hear him talking about millionaires and billionaires and executives and Wall Street. It’s a very envy-oriented, attack-oriented approach.”
Actually, those blasts weren’t coming from President Obama. That was Romney’s competition for the Republican nomination, sounding like a speakers’ lineup at an Occupy Wall Street rally.
Now, I predict, will come a furious attempt by the GOP to unring the economic justice bell. Damage control efforts began with Newt Gingrich backing away from his sharp-fanged criticism of Romney’s record at Bain Capital, the investment firm he led. Don’t attack the GOP front-runner for being a ruthless, heartless corporate raider, Gingrich announced, but rather for not being conservative enough.
This admonition came as a pro-Gingrich political action committee continued to blast Romney as a ruthless, heartless corporate raider. Inconsistency, thy name is Newt.
By most accounts, Bain was a relative laggard in the ruthlessness department. Other private-equity firms were far more brazen in the way they bought troubled companies, laid off workers, stripped away assets and fattened investors’ bank accounts. While Romney’s claim to have created 100,000 jobs looks like a gross exaggeration, it’s true that Bain stuck with companies such as Staples and Sports Authority and helped them grow.
But as for heartlessness, well, it comes with the turf, right? Bain was just serving as an instrument of “creative destruction,” and if workers lost their jobs, if they had to raid their children’s college funds to pay their mortgages, if perhaps that money ran out and they ended up losing their homes, in the long run they’ll still be better off. Or the country will be better off. Or something.
In any event, capitalism means never having to say you’re sorry. Perish the thought that anyone would critically examine this ethos except in a “quiet room.”
But to the horror of radical free-market ideologues, the myth of no-fault capitalism is under scrutiny. No one is arguing against markets, which are indeed the best way to create wealth and thus the best weapon against poverty. No one is arguing that investors who risk their capital in a company should not be able to reap rewards. What the ideologues ignore, however, is that workers also have “capital” at risk — in the form of mind and muscle, creativity, loyalty, years of service. Why is this investment so casually dismissed?
The first of the Republican candidates to raise the fairness issue was Rick Santorum, who spoke in debates of the pain many families were suffering because of economic dislocation. This was before his strong showing in Iowa, so no one was paying attention.
Then Gingrich and Rick Perry picked up the theme in an attempt to slow Romney’s march to the nomination. Whether they meant what they said or were just being tactical, the effect was to open a discussion of economic fairness and justice that will be hard to squelch.
The next logical step is to look at the results being produced by the radically deregulated, no-fault capitalism that has been practiced in this country since the Reagan revolution. Overall, we’ve had tremendous growth and low inflation. But we’ve also seen rising inequality and falling mobility. Middle-class incomes have stagnated, upper-class incomes have skyrocketed, and rags-to-riches stories are now less likely than in most of the “European social democracies” Romney holds in such disdain.
We have failed to keep pace with other industrialized societies in public education, and rather than offer relevant retraining to employees displaced by innovation and globalization, we leave them to their own devices. As a result, we’re starting to lose not just basic manufacturing jobs but also high-value-added, knowledge-based jobs to countries where workers are more qualified.
Government has played a huge role in guiding the nation through previous economic upheavals — after World War II with the GI Bill, for example. It can and should play such a role now.
That’s my view, at least. Thanks to the Republican candidates, of all people, we’ll get to hear what President Obama and his eventual opponent think.
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