“No, We Don’t Dig It”: What We Still Don’t Know About Mitt Romney’s Taxes
With the documents Mitt Romney released recently, we know a bit more about his taxes.
We know, for instance, that Romney paid a rate of 14.1 percent on $13.7 million in income on his 2011 tax return, which he achieved by purposely overpaying. Though he was entitled to deduct $4 million in charitable contributions, Romney deducted only $2.25 million to keep his tax rate above 13 percent.
(Romney, it has been pointed out, could file an amended return to claim the full deduction after the election. We’ve contacted the Romney campaign, and Michele Davis, a spokeswoman, assured us he would not do so.)
We know, according to a letter from his accountants at PricewaterhouseCoopers, that Romney has paid state and federal income taxes each year since at least 1990, which would seem to disprove Senate Majority Leader Harry Reid’s claim in July that Romney had not paid any taxes for a decade.
And we know that Romney’s tax rate since 1990 never dipped below 13.66 percent, according to his accountants. Romney paid an average effective tax rate between 1990 and 2009 of 20.2 percent.
But there’s still a lot we don’t know. “I think most of the major questions we had before [last Friday] are still out there,” said Brian Galle, a tax law professor at Boston College. Here are a few:
How much did Romney make before 2010?
While Romney has disclosed his average effective tax rate for the last two decades, he hasn’t said how much he earned in those years or how much — the dollar amount — he paid in taxes.
That’s an important distinction, said Daniel Shaviro, a tax law professor at New York University. Various tax-planning strategies may have enabled Romney to reduce his adjusted gross income in some years.
In 2008, for instance, investors everywhere lost money when the stock market tanked. Romney may have carried those losses forward, Shaviro said, and used them to reduce his adjusted gross income in 2009. While we know Romney paid at least 13.66 percent of the income he recorded on his taxes in a given year, we don’t know what percentage he paid of the money actually took home that year.
Why is Romney’s IRA worth so much?
Much of Romney’s wealth sits in his IRA, which is worth as much as $101.6 million. It’s a remarkable number, in part because Romney would have been able to contribute a maximum of $30,000 a year to his IRA while he was at Bain, from 1984 to 1999.
Galle, the Boston College tax law professor, said the most likely explanation for the outsized IRA is that Romney put in shares in Bain investments that swelled in value. According to the Wall Street Journal, Bain allowed employees to buy a special class of shares in the firm’s investments. The shares didn’t cost very much, but they could be extremely lucrative. In one deal, the Journal reported, “some Bain employees saw a 583-fold increase” in the value of their shares — an astronomical return. Because the shares were in IRAs, the profits could be plowed into new Bain deals without subtracting taxes.
Romney also may have beefed up his IRA by contributing “carried interest” — a share of the profits in funds managed by Bain. As Reuters reported earlier this year, any potential carried interest would “not be disclosed in his personal financial summary or on a federal income tax return.” In other words, even if Romney released all his tax returns, we still might not know exactly how he accumulated his huge IRA.
What about Romney’s investments offshore?
We know many of Romney’s IRA investments are based in foreign countries but it’s hard to know how much. He valued one account in the Cayman Islands at anywhere between $5 million and $25 million.
One thing we do know is that Romney pays a far lower tax rate overseas than he does here. According to Quartz, Romney paid only 2.4 percent in foreign taxes in 2011 on the $3.5 million he earned abroad.
We also know where Romney’s current overseas investments are held —Bermuda, the Cayman Islands, Switzerland, Luxembourg — and many of the firms he has invested in, including a state-owned Chinese oil company and a Chinese bank that Romney’s family trusts sold their stake in last year. But we don’t have a lot of other important documentation, including forms would show whether Romney had, as the New York Times has reported, “over the years declared all of his foreign income to the IRS in a timely manner.”
The Wall Street Journal has reported that Romney’s offshore IRA investments likely helped him avoid a little-known tax called the unrelated business income tax. The tax, “meant to discourage tax-exempt entities such as an IRA or college endowment fund from unfairly competing with for-profit, taxpaying entities by operating a business without paying taxes on it,” could have hit Romney at up to 35 percent.
The Romney campaign seems unlikely to release any more information about his finances, but that hasn’t kept reporters from digging it up. Bloomberg, for instance, analyzed securities filings to report last Thursday that Romney has set up a type of trust known as an “I Dig It” trust — a legal way for Romney to avoid estate and gift taxes and pass some of his fortune onto future generations.
By: Theodoric Meyer, Propublica, October 1, 2012
“Was The Stocking Stufffed?”: Time For Mitt Romney To Come Clean On His Taxes
Mitt and Ann Romney are deluding themselves if they believe that calls for the presumptive Republican presidential nominee to release more of his income tax returns are simply a campaign instigated by Barack Obama’s supporters. Would that partisanship is sparking the demands for additional disclosure. The Romneys must know in their hearts that there is more to it.
Most Americans don’t begrudge Mitt Romney his wealth, estimated in the neighborhood of $250 million. His entrepreneurship is an American success story.
But voters also want to know why this fantastically rich seeker of the presidency is being so secretive about his tax payments and how he made his money.
Does he have something to hide?
If everything in his tax returns is above reproach, why won’t Romney follow the bipartisan tradition established by the presidential campaign of his father, George Romney, in 1968, and release more of them?
It’s not enough for Romney to say he’s paid all taxes that are “legally required.” A person who wants to be president should also be able to say, and to demonstrate, that no ethical lines have been crossed.
Romney has offshore accounts. Voters are within their rights to ask why this man who wants to be president would divert income from U.S. financial institutions to foreign tax havens.
These are not questions raised solely by the Obama camp.
Consider some points raised by tax experts in a CNN piece last month on Romney’s lack of disclosure. Edward D. Kleinbard, a professor at the University of Southern California’s Gould School of Law and former chief of staff of the congressional Joint Committee on Taxation, and Peter C. Canellos, former chair of the New York State Bar Association Tax Section, asked several good questions.
Why would Romney have a Swiss bank account? “Most presidential candidates don’t think it appropriate to bet that the U.S. dollar will lose value by speculating in Swiss Francs, which is basically the rationale offered by the trustee of Romney’s ‘blind’ trust for opening this account,” they wrote. And “you don’t need a Swiss bank account” to speculate in foreign currencies, they note.
Then they focused on the tax-compliance questions the Swiss account raises. “The account seems to have been closed early in 2010, but was the income in fact reported on earlier tax returns?” they asked. And did the Romneys file, on time, the necessary disclosure forms to the Treasury?
Then there is Romney’s sizable IRA.
“Even under the most generous assumptions,” wrote Kleinbard and Canellos, “Romney would have been restricted to annual contributions of $30,000 while he worked at Bain. How does this grow to $100 million?”
Plausible explanations exist, they said, including that “a truly mighty oak sprang up virtually overnight from relatively tiny annual acorns because of the unprecedented prescience of every one of Romney’s investment choices.” But it’s also possible, they said, that Romney may have “stuffed far more into his retirement plans each year than the maximum allowed by law by claiming that the stock of the Bain company deals that the retirement plan acquired had only a nominal value.”
Of course, we don’t know without seeing Romney’s tax paperwork.
Kleinbard and Canellos said the vast amounts in Romney’s family trusts raise a parallel question: “Did Romney report and pay gift tax on the funding of these trusts,” or might he have claimed “unreasonable valuations” that “would have exposed him to serious penalties if all the facts were known?”
The “complexity of Romney’s one publicly released tax return, with all its foreign accounts, trusts, corporations and partnerships, leaves even experts (including us) scratching their heads. Disclosure of multiple years’ tax returns is part of the answer here, but in this case it isn’t sufficient. Romney’s financial affairs are so arcane, so opaque and so tied up in his continuing income from Bain Capital that more is needed, including an explanation of the $100 million IRA.”
Next comes Romney’s low effective tax rate: 13.9 percent in 2010. (Recall that Romney said last week that over the past decade, he “never paid less than 13 percent.”)
The rate is probably low, the experts suggested, because the Romneys’ income comes from “carried interest,” which they called “the jargon used by the private equity industry for compensation received for managing other people’s money.”
“The vast majority of tax scholars and policy experts agree that awarding a super-low tax rate to this one form of labor income is completely unjustified as a policy matter,” they concluded.
So again, how did Mitt Romney make his money? What has he done with it? Why the offshore accounts?
Romney should come clean in Tampa with the Republicans who must carry his water.
Romney also should be open and transparent with the American electorate. They deserve to know his full, true story.
By: Colbert I. King, Opinion Writer, The Washington Post, August 24, 2012
“A No Show At A Mob Front”: Mitt Romney’s Unnecessary Lie
If you’re planning on running for president, here are a few quick things you should probably do:
- Make sure your tax returns and finances are in order
- Make sure you’re not blatantly lying about some major portion of your biography.
Mitt Romney seems to have decided to do neither, I guess because he thought no one would check? Maybe Romney should have taken his fortune out of the various offshore tax havens where he stores it before he decided to run for president, because the thing is every presidential candidate is going to be prodded to release his tax returns and financial information. If you don’t want to be criticized for a Swiss bank account and a mysterious $102 million IRA, either don’t run for president or don’t have those things!
But much, much more important than not looking like a shady tax-dodger is “not telling a fairly easily disprovable lie.” Like “I quit Bain Capital in 1999,” a thing Mitt Romney says all the time when he wants to respond to criticism of various awful things Bain Capital has done since 1999. Except the Boston Globe (and Mother Jones and TPM) have now reported that Romney continued to be Bain Capital’s “sole stockholder, chairman of the board, chief executive officer, and president” until a couple years after 1999. Romney was drawing at least $100,000 a year from Bain Capital and was still listed as the guy in charge on SEC documents and financial disclosures through 2002.
What’s worse is that his resigned in February 1999 line was even apparently contradicted by multiple contemporary news accounts, with two from August of 2001 saying Romney had just or was about to quit Bain. The New Yorker’s Andrew Prokop says, “It seems clear there was a period 1999-2001 where Romney was retaining the CEO job because he thought he might return to it after Olympics,” which flatly contradicts Romney and Bain’s statements. Romney’s best defense, as Andrew Sullivan points out, is that he was drawing a massive salary for doing nothing — like a “no-show” at a mob front.
The only reason Romney wanted everyone to think he quit Bain completely in 1999 to begin with was in order to avoid being accused of being responsible for “outsourcing.” Now, I am 100 percent positive that Romney, as a rich conservative former financial professional, does not consider outsourcing a bad thing. He almost definitely considers it a net positive for the American (and world) economy. The fact is, most elected Democrats support policies that encourage outsourcing — on this there is basically universal consensus among the political and economic elite. Romney — and plenty of others! — believe that companies like Bain Capital perform a public good, even though to some it just looks like parasitic capitalism at its worst. But: Outsourcing and closing down factories and slashing wages and busting unions and laying people off are all things Mitt Romney supports on a philosophical level, and I’m sure it’s galling to him that he has now been caught in a lie designed to cover up actions he feels were totally right and beneficial for the nation as a whole.
How much will it hurt him, that everyone now knows he is a liar? I am guessing “Swiss bank account” actually “hurts” him more, because the Romney campaign was smart enough to call Obama a liar at the exact same time as the national media was getting ready to call him a liar, and for your average person, that just sounds like two politicians saying mean things about each other.
By: Alex Pareene, Salon, July 12, 2012
“Something Smells”: About That Fishy Romney Individual Retirement Account
haven’t been much of a fan of the personalized Romney-bashing this campaign season. I avoid the rudely juvenile moniker “Willard.” I thought the whole “Corporations are people” supposed-gaffe was a stupid nothing. I find thinly-veiled attacks on Romney’s LDS heritage to be idiotic and reprehensible. I don’t know enough about Romney’s conduct at Bain to intelligently praise or criticize his managerial performance there.
If you are going to mount a direct personal criticism of a candidate, you should know what you’re talking about. You should say it straight without smarminess or insinuation. And you should put your name to it.
I’ll put my name to one issue. Governor Romney has–in practical, though quite possibly not legal terms–evaded paying his proper taxes. Of course, as a matter of broad policy, he’s taken advantage of loopholes to pay way too little. He and his Bain colleagues are exhibits A, B, and C in the case to tighten the carried interest thing and related provisions. His roughly-14 percent tax rate is galling. Yet the particulars of this suff go further, too.
I’ve presumed all along that whatever he did was legal and standard fare for the uber-wealthy. Now I’m rwondering. He’s been weirdly and unacceptably secretive about these matters. He hasn’t released the full history of his returns. His stance is doubly weird when one considers how strange it is for a major presidential contender to hold complicated offshore bank accounts in Switzerland or the Caymen Islands at all.
Then there’s that fishy IRA, which has a reported rough valuation of between 20 million and 100 million dollars. Given the $30,000 (or lower) annual contribution limits for an IRA, It strains credulity to believe that properly-valued securities of the legally-permitted value would swell by a factor of 1,000, as such securities apparently did.
It seems patently obvious that whatever securities Romney and his Bain colleagues initially contributed were under-valued for strategic tax purposes. The convoluted details of Bain’s divided classes of IRA securities hardly assuage my concerns. That wasn’t ethical or right. I’m not so sure it was legal, either.
By: Harold Pollack, Ten Mile Square, The Washington Monthly, July 9, 2012
Don’t Try This At Home But, How You Can Pull A General Electric On Taxes
There’s been a firestorm this week over the news that General Electric will pay no tax—at least, no federal corporate income tax—on last year’s profits.
But if you’re like a lot of people, your first reaction was probably: “Hmmm. How can I get that kind of deal?”
If General Electric pays close to zero in Federal Income taxes, can you? Brett Arends tells Kelsey Hubbard how even a “regular Joe” can lower their tax bill, especially if they are self-employed.
You’d be surprised. You might. And without being either a pauper or a major corporation.
I spoke to Gil Charney, principal tax researcher at H&R Block‘s Tax Institute, to see how a regular Joe could pull a GE. The verdict: It’s more feasible than you think—especially if you’re self-employed.
Let’s say you set up business as a consultant or a contractor, something a lot of people have been doing these days. And, to make this a challenge on the tax front, let’s say you do well and take in about $150,000 in your first year.
First off, says Mr. Charney, for 2010 you can write off up to $10,000 in start-up expenses. (In subsequent years it’s only $5,000.)
Okay, let’s say you claim $7,000. That takes your income down to $143,000.
You can also write off all legitimate business expenses. Mr. Charney emphasizes that this only applies to legitimate expenses.
He didn’t say, but everyone seems to understand, that this can be quite a flexible term. Even if you buy a computer, a cellphone and a car primarily for business use, you can use them for personal purposes as well. If you happen to take a business trip to Florida in, say, January, no one is going to stop you from enjoying the sunshine or taking a dip in the pool.
So let’s say you manage to write off another $10,000 a year in business expenses.
That brings your income, for tax purposes, down to $133,000.
You’ll have to pay Medicare and Social Security taxes (just like GE). Because you’re self-employed, you have to pay both sides: the employee and the employer. That will come to about $19,000.
However, you can deduct half of that, or $9,500, from your taxable income. So that brings your total down to $123,500 so far.
Now comes the creative bit. The self-employed have access to terrific tax breaks on their investment and retirement accounts. The best deal for many is going to be a self-employed 401(k), sometimes known as a Solo 401(k).
This will let you save $43,100 and write it off against your taxes. That money goes straight into a sheltered investment account, as with a regular 401(k).
Why $43,100? That’s because with a Solo 401(k), you’re both the employer and the employee. As the employee you get to contribute a maximum of $16,500, as with any regular 401(k). But as the employer you also get to lavish yourself with an incredibly generous company match of up to 20% of net income.
Yes, being the boss has its privileges. (And if you’re 50 or over, your limit as an employee is raised from $16,500 each to $22,000.)
You can save another $10,000 by also contributing to individual retirement accounts—$5,000 for you, $5,000 for your spouse. If you use a traditional IRA, rather than a Roth, that reduces your taxable income as well. If you’re 50 or over, the limit rises to $6,000 apiece.
If you contribute $43,100 to your Solo 401(k), and $10,000 to two IRAs, that brings your income for tax purposes down to just over $70,000.
We haven’t stopped there either, says Mr. Charney.
Now come the usual itemized deductions. You can write off your state and local taxes. Let’s say these come to $10,000.
You can write off interest on your mortgage. Call that another $10,000. That’s enough to pay 5% interest on a $200,000 home loan.
That gets us down to about $50,000 And we’re not done.
If you’re self-employed, health insurance is probably a big headache. But the news isn’t all bad. You can write off the premiums for yourself, your spouse, and your kids.
And if you use a qualifying high-deductible health insurance plan—there are a variety of rules to make sure a plan qualifies—you get another break. You can contribute $3,050 a year into a tax-sheltered Health Savings Account, or $6,150 for a family. You can write those contributions off against your taxable income. The investments grow sheltered from tax. And if you spend the money on qualifying health costs, the withdrawals are tax-free as well.
So call this $10,000 for the premiums and $6,150 for the HSA contributions. That gets your income, for tax purposes, all the way down to about $34,000.
If you have outstanding student loans, you can write off $2,500 in interest. And you can write off $4,000 of your kid’s college tuition and fees.
Then there’s a personal exemption: $3,650 per person. If you’re married with one child, that’s $10,950.
Taxable income: just under $17,000. That’s on a gross take of $150,000. You’d owe less than $1,700 in federal income tax.
And it doesn’t stop there. Because now you can bring in some of the tax credits. Unlike deductions, these come off your tax liability, dollar for dollar.
GE got big write-offs related to green energy. There are some for you too, although on a small scale. You can claim credits for things like installing solar panels, heat pumps or energy-efficient windows or boilers in your home. Let’s say you use a home equity loan to pay for the improvements and take the maximum $1,500 write-off.
That gets your tax liability down to $200.
Can we get rid of that? Sure, says Mr. Charney.
If your spouse spends, say, $1,000 on qualifying adult-education courses or training programs, you can claim $200, or 20% of the cost, in Lifetime Learning Credits. (The maximum is $2,000.)
That wipes out the remaining liability.
Congratulations. You’ve pulled a GE. You owe no federal income taxes at all.
OK, it’s just an illustration. Few will be quite so fortunate. On the other hand, it’s not comprehensive either. There are plenty of other deductions and credits we didn’t mention. You could have written off up to $3,000 by selling loss-making investments. Your spouse may be able to use a 401(k) deduction as well. There are lots of ways to tweak the numbers.
In this case, you’ve paid no federal income tax, and meanwhile you’ve saved $19,000 toward your retirement through Social Security and Medicare, and $53,000 through your 401(k) and IRAs. You’ve paid most of your accommodation costs (that is, the interest and property taxes on your home), covered your health-care costs and quite a lot of personal expenses through your business account, paid $4,000 toward your child’s college costs and had about $2,000 a month left over for cash costs.
Who says GE has all the fun?
By: Brett Arends, The Wall Street Journal, April 1, 2011
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