“Cayman Baining”: Mitt Romney Invests In Several Bain Funds That Use Offshore Tax Havens To Boost Profits
Mitt Romney yesterday admitted for the first time that his tax rate is about 15 percent, lower than the rate paid by millions of middle class families. Romney is able to pay such a low rate (even though the top income tax rate is 35 percent) because his income comes overwhelmingly from investments and he is able to use a pernicious loopholeavailable to wealthy money managers.
Romney has been refusing to release his tax returns, finally conceding to releasing his 2011 return after he files it in April. However, only releasing his 2011 returns would give Romney the opportunity to keep under wraps some of the financial engineering he may have done to avoid taxes before the last calendar year. As Reuters noted, those returns “could shed light on how Romney and Bain use offshore strategies to avoid taxes.” In fact, ABC News reported today that Romney has millions of dollars parked in several Bain funds that are set up in tax shelters in order to help their investors avoid U.S. taxes:
Although it is not apparent on his financial disclosure form, Mitt Romney has millions of dollars of his personal wealth in investment funds set up in the Cayman Islands, a notorious Caribbean tax haven…As one of the wealthiest candidates to run for president in recent times, Romney has used a variety of techniques to help minimize the taxes on his estimated $250 million fortune. In addition to paying the lower tax rate on his investment income, Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.
Even if these funds don’t help Romney directly dodge U.S. taxes, which the campaign claims they don’t, they convey a host of advantages to Bain and Romney, including “higher management fees and greater foreign interest” from investors looking to avoid U.S. taxes. As the Washington Post’s Suzy Khimm noted, “just one of these offshore-linked funds — Bain Capital Fund VIII, based in the Cayman Islands — generated $1 million for the Romneys in 2010.”
Offshore funds are attractive to investors, since they help with tax evasion, and more investor interest translates into more profit for Bain and Romney. As we’ve noted, Romney has a lucrative retirement deal with Bain that is paying him millions each year.
In contrast to Romney’s steadfast refusal to release his tax returns, George Romney (Mitt’s father) released 12 years worth of tax returns when he ran for president in 1968. Those returns showed that the elder Romney paid a 37 percent effective tax rate.
By: Pat Garofalo, Think Progress, January 18, 2012
“Everyday Workers”: Capitalism’s Real “Risk-Takers”
Mitt Romney is casting the 2012 campaign as “free enterprise on trial” — defining free enterprise as achieving success through “hard work and risking-taking.” Tea Party favorite Sen. Jim DeMint of South Carolina says he’s supporting Romney because “we really need someone who understands how risk, taking risk… is the way we create jobs, create choices, expand freedom.” Chamber of Commerce President Tom Donahue, defending Romney, explains “this economy is about risk. If you don’t take risk, you can’t have success.”
Wait a minute. Who do they think are bearing the risks? Their blather about free enterprise risk-taking has it upside down. The higher you go in the economy, the easier it is to make money without taking any personal financial risk at all. The lower you go, the bigger the risks.
Wall Street has become the center of riskless free enterprise. Bankers risk other peoples’ money. If deals turn bad, they collect their fees in any event. The entire hedge-fund industry is designed to hedge bets so big investors can make money whether the price of assets they bet on rises or falls. And if the worst happens, the biggest bankers and investors now know they’ll be bailed out by taxpayers because they’re too big to fail.
But the worst examples of riskless free enteprise are the CEOs who rake in millions after they screw up royally.
Near the end of 2007, Charles Prince resigned as CEO of Citgroup after announcing the bank would need an additional $8 billion to $11 billion in write-downs related to sub-prime mortgages gone bad. Prince left with a princely $30 million in pension, stock awards, and stock options, along with an office, car, and a driver for five years.
Stanley O’Neal’s five-year tenure as CEO of Merrill Lynch ended about the same time, when it became clear Merrill would have to take tens of billions in write-downs on bad sub-prime mortgages and be bought up at a fire-sale price by Bank of America. O’Neal got a payout worth $162 million.
Philip Purcell, who left Morgan Stanley in 2005 after a shareholder revolt against him, took away $43.9 million plus $250,000 a year for life.
Pay-for-failure extends far beyond Wall Street. In a study released last week, GMI, a well-regarded research firm that monitors executive pay, analyzed the largest severance packages received by ex-CEOs since 2000.
On the list: Thomas E. Freston, who lasted just nine months as CEO of Viacom before being terminated, and left with a walk-away package of $101 million.
Also William D. McGuire, who in 2006 was forced to resign as CEO of UnitedHealth over a stock-options scandal, and for his troubles got pay package worth $286 million.
And Hank A. McKinnell, Jr.’s, whose five-year tenure as CEO of Pfizer was marked by a $140 billion drop in Pfizer’s stock market value. Notwithstanding, McKinnell walked away with a payout of nearly $200 million, free lifetime medical coverage, and an annual pension of $6.5 million. (At Pfizer’s 2006 annual meeting a plane flew overhead towing a banner reading “Give it back, Hank!”)
Not to forget Douglas Ivester of Coca Cola, who stepped down as CEO in 2000 after a period of stagnant growth and declining earnings, with an exit package worth $120 million.
If anything, pay for failure is on the rise. Last September, Leo Apotheker was shown the door at Hewlett-Packard, with an exit package worth $13 million. Stephen Hilbert left Conseco with an estimated $72 million even though value of Conseco’s stock during his tenure sank from $57 to $5 a share on its way to bankruptcy.
But as economic risk-taking has declined at the top, it’s been increasing at the middle and below. More than 20 percent of the American workforce is now “contingent” — temporary workers, contractors, independent consultants — with no security at all.
Even full-time workers who have put in decades with a company can now find themselves without a job overnight — with no parachute, no help finding another job, and no health insurance.
Meanwhile the proportion of large and medium-sized companies (200 or more workers) offering full health care coverage continues to drop – from 74 percent in 1980 to under 10 percent today. Twenty-five years ago, two-thirds of large and medium-sized employers also provided health insurance to their retirees. Now, fewer than 15 percent do.
The risk of getting old with no pension is also rising. In 1980, more than 80 percent of large and medium-sized firms gave their workers “defined-benefit” pensions that guaranteed a fixed amount of money every month after they retired. Now it’s down to under 10 percent. Instead, they offer “defined contribution” plans where the risk is on the workers. When the stock market tanks, as it did in 2008, the 401(k) plan tanks along with it. Today, a third of all workers with defined-benefit plans contribute nothing, which means their employers don’t either.
And the risk of losing earnings continues to grow. Even before the crash of 2008, the Panel Study of Income Dynamics at University of Michigan found that over any given two-year stretch about half of all families experienced some decline in income. And the downturns were becoming progressively larger. In the 1970s, the typical drop was about 25 percent. By late 1990s, it was 40 percent. By the mid-2000s, family incomes rose and fell twice as much as they did in the mid-1970s, on average.
What Romney and the cheerleaders of risk-taking free enterprise don’t want you to know is the risks of the economy have been shifting steadily away from CEOs and Wall Street — and on to average working people. It’s not just income and wealth that are surging to the top. Economic security is moving there as well, leaving the rest of us stranded.
To the extent free enterprise is on trial, the real question is whether the system is rigged in favor of those at the top who get rewarded no matter how badly they screw up, while the rest of us get screwed no matter how hard we work.
The jury will report back Election Day. In the meantime, Obama and the Democrats shouldn’t allow Romney and the Republicans to act as defenders of risk-taking free enterprise. Americans need to know the truth. The only way the economy can thrive is if we have more risk-taking at the top, and more economic security below.
By: Robert Reich, Salon, January 17, 2012
For “A Government That Represents All The People”, Overturn Citizens United
In America today, the top 1 percent earns more income than the bottom 50 percent and the wealthiest 400 individuals own more wealth than the bottom half of the country–150 million Americans. We have the most unfair distribution of wealth and income of any industrialized country.
In America today, the middle class is largely disappearing while the rich and largest corporations are doing phenomenally well. Meanwhile, despite a $15 trillion national debt, the effective tax rate for the top 1 percent is the lowest in decades and many large corporations enjoy huge tax loopholes and pay little or nothing in taxes.
In America today, while insurance companies and the pharmaceutical industry enjoy large profits, 50 million Americans lack health insurance, and we are the only major country on Earth that does not provide healthcare to all as a guaranteed right.
All of these disturbing American realities, and many more, are related to the sad fact that the Washington political establishment is much more interested in representing the wealthy and the powerful than the needs of ordinary Americans. Why is that? The answer is simple. We have a horrendous campaign finance system in which Big Money is able to elect the candidates of its choice and defeat those who oppose its agenda.
The absurd Citizens United Supreme Court decision makes a bad situation much worse. Now, corporations can go right into their treasuries, set up super PACs, and spend as much as they want, without disclosure, on political advertising. This gives the Big Money interests even more power over the political process. It makes it harder and harder for the voice of the average American to be heard.
If we are serious about giving ordinary Americans the power to control their political future, we must overturn the Citizens United decision, eliminate super PACSs, and move toward public funding of elections. Our goal must be a government that represents all of the people, and not just those wealthy individuals and corporations who can put millions into political campaigns.
By: Sen Bernie Saunders, Vermont; U. S. News and World Report Debate Club, January 13, 2012
Adam Smith’s “Invisible Hand” Picking Our Pockets
Now that Newt Gingrich has torn the mask off the ugly face of predatory corporate capitalism, it’s clear why defenders of the status quo such as AEI President Arthur C. Brooks were so eager to frame the debate after the Wall Street collapse in 2008 as an existential clash between “entrepreneurship” and “European-style statism” in which freedom itself was endangered by “expanding bureaucracies, a managed economy and large-scale income redistribution.”
Trickle-down, supply-side capitalism sold itself for decades to a gullible public as the comforting belief that a rising tide raises all boats. There was no need for class warfare, the rich assured us, since giving them more money meant more jobs for us. That was the implicit bargain when America agreed to cut the taxes of the rich in half.
Yet, the most important economic story of the last 30 years has been the growing income gap brought on by the radical transformation of the American economy from one that makes things to one that packages debt – and does so by enhancing the purchasing power of the masses at the expense of the predictable wage growth that supplies the foundation of a stable and broadly-based middle class society.
Denied the utilitarian argument that trickle-down capitalism works best for everyone, defenders of laissez faire have more recently turned to metaphysics and morality in order to build their firewall against what they can all see coming: a Second New Deal.
This helps explain the peculiar, desperate and almost frenzied explanations we’re hearing from plutocrats like Mitt Romney, who is being forced (thanks to Occupy Wall Street and now Newt Gingrich) to explain to us in greater detail just how he came by all those millions.
Romney’s reliance on the fall-back reactionary politics of “envy” and “class warfare” shows it’s a story he’s not keen on telling.
As Charles Blow wrote in the New York Times, Romney “lambasted” his Republican opponents Newt Gingrich and now Rick Perry for poking about into what Romney did as head of the private equity firm Bain Capital. Obviously targeted for a friendly Republican audience rather than a more skeptical general election one, Romney’s only comeback seemed to be a tactical one — that attacks against him and his performance as a latter-day Robber Baron were playing right into the hands of President Obama, who Romney charges with dividing America through the “bitter politics of envy.”
On NBC’s Today show Romney went further and said the entire debate about income inequality was out of bounds, even telling host Matt Lauer that questions about whether those palatial fortunes of the rich were fairly won should be entertained — if they are entertained at all — only “in quiet rooms” where opposition to out-sized fortunes could either be safely reasoned with or bought off.
Listen carefully because Romney’s is the authentic voice of the New American Aristocracy.
And that’s the problem, says Blow. With all due respect to Romney’s “quiet rooms,” says Blow, Americans have been quiet for far too long about a reward system that unfairly favors the few.
Notes Blow, a report released last week by the Pew Research Center found that about two-thirds of Americans perceive a “strong conflict” between rich and poor. That is up 19 percentage points from 2009. Another report cited by Blow showed that the United States ranks near the bottom among Western countries in the social mobility it provides its citizens.
“This has nothing to do with envy and everything to do with fairness,” says Blow.
Indeed, as all those Tea Party Republicans who’ve been brushing up on their early American history can no doubt tell us, it’s precisely the power of concentrated capital to re-create a British aristocracy wearing colonial blue that was at the heart of the bitter rivalries and antagonisms that separated Federalists from Anti-federalists, Hamiltonians from Jeffersonnians.
More recently, conservative apologists for Big Monied interests were quick to label Elizabeth Warren as a leftist radical who hates all that is decent and holy about American rugged “individualism,” while harboring the typical Harvard elitist’s contempt for the simple desire of average Americans to get ahead. Yet, even conservatives had to concede that when Warren spoke about the American Social Compact she was articulating the commonplace truth that “nobody in this country got rich on his own. Nobody.”
Nevertheless, the starkly elitist and anti-government writings of Ayn Rand are enjoying an Indian Summer among America’s plutocracy largely due to the flattering portrait Rand paints of them as society’s only “productive class” and upon whom the rest of us parasites must feed. These are the members of America’s superclass, says Rand, who have it within their power to bring civilization itself to a halt should they decide to “Go Galt” – go on strike – in order to resist the taxes imposed on them to support the lassitude of the greater idle masses.
Warren articulates an alternative view in which the resources of these wealthy job creators are nothing but worthless paper in the absence of the critical collective investments society makes in the human and economic infrastructure necessary to build the kind of economy where all that paper can be profitably put to use.
You can see now why Warrren’s alternative narrative about the value of investments in roads, research and schools made by a government Rand’s superclass is so intent on dismantling would be seen as destabilizing to the self-serving mythology plutocrats have constructed for themselves that unregulated private capital is solely responsible for wealth creation and the jobs that go with it. And this is why conservatives were so determined that Elizabeth Warren and her subversive ideas be knocked down, and now — and even by social conservatives who believe birth control is immoral and should be illegal who nevertheless lined up to attack Warren on her imagined assaults on “individualism” and “personal autonomy.”
Recently, I wrote about the arbitrage Republicans have used to great effect in recent decades to profit from the gap that exists between the way the public thinks about how the economy works and how it really does. The public thinks the same old rules still apply about people being rewarded for the risks they take and the contributions they make within a competitive “free market,” where taxing away the fruits of those labors in order to give rewards to others less prudent or hard-working is thought to be both unfair and unjust.
That in a nutshell is the basic concept called The American Work Ethic to which most American voters subscribe.
But there is a huge gap between the facts and fictions of our economic existence that Blow helps to illuminate when he writes about an older Contract with America that the wealthy in this country have now broken.
The old “social symbiosis,” says Blow, was one where Americans working together “create a society in which smart, hard-working people can be safe and prosper, and the rich in turn reinvest a fair share of that prosperity back into society for posterity.”
It’s an arrangement in which everyone benefits, says Blow. “But somewhere along the way this got lost. Greed got good. The rich wanted all of the societal benefits and none of the societal responsibilities. They got addicted to seeing profits go up and taxes go down, by any means necessary, no matter the damage to the individual or the collective. Those Maseratis weren’t going to pay for themselves. And the resulting income inequality helped to stall economic mobility.”
The values of “freedom,” “individualism,” “entrepreneurship” – and the corresponding attacks against “envy” and “class warfare” – which the Republican Party and its wealthy benefactors are feverishly putting forward to protect their privileges and vested interests, are predicated on public belief in what Blow calls the “idea of equal opportunity” that is central to this country’s “optimistic ethos.”
But income inequality and “corporate greed,” he says, “are making a lie of that most basic American truism. The rich and their handmaidens on the political right have consolidated America’s wealth on the ever-narrowing peak of a steep hill and greased the slope. And they want to cast everyone at the bottom as lazy or jealous, without acknowledging the accident of birth and collusion of policies that helped grant them their perch.”
A Republican Party whose agenda is now so wholly At One with America’s One Percent thinks nothing of passing laws to dismantle unions in order to prevent average workers from gaining economic leverage by means of pooling the one resource they possess – their labor. Yet, at the same time, Republicans define as “persons” those legally incorporated enterprises that are nothing more than creatures of the state and of those laws which allow the wealthy to pool that resource which they have in such abundance – their capital.
And once this basic inequity receives the attention it deserves, that low roar you hear gaining volume in the distance will be the sound of Americans waking up to fact that for far too long the plutocrats in this country have been using Adam Smith’s famous “Invisible Hand” to pick their pockets.
By: Ted Frier, Open Salon, January 15, 2012
“Meritocracy” Fantacy: America’s Unlevel Field
Last month President Obama gave a speech invoking the spirit of Teddy Roosevelt on behalf of progressive ideals — and Republicans were not happy. Mitt Romney, in particular, insisted that where Roosevelt believed that “government should level the playing field to create equal opportunities,” Mr. Obama believes that “government should create equal outcomes,” that we should have a society where “everyone receives the same or similar rewards, regardless of education, effort and willingness to take risk.”
As many people were quick to point out, this portrait of the president as radical redistributionist was pure fiction. What hasn’t been as widely noted, however, is that Mr. Romney’s picture of himself as a believer in a level playing field is just as fictional. Where is the evidence that he or his party cares at all about equality of opportunity?
Let’s talk for a minute about the actual state of the playing field.
Americans are much more likely than citizens of other nations to believe that they live in a meritocracy. But this self-image is a fantasy: as a report in The Times last week pointed out, America actually stands out as the advanced country in which it matters most who your parents were, the country in which those born on one of society’s lower rungs have the least chance of climbing to the top or even to the middle.
And if you ask why America is more class-bound in practice than the rest of the Western world, a large part of the reason is that our government falls down on the job of creating equal opportunity.
The failure starts early: in America, the holes in the social safety net mean that both low-income mothers and their children are all too likely to suffer from poor nutrition and receive inadequate health care. It continues once children reach school age, where they encounter a system in which the affluent send their kids to good, well-financed public schools or, if they choose, to private schools, while less-advantaged children get a far worse education.
Once they reach college age, those who come from disadvantaged backgrounds are far less likely to go to college — and vastly less likely to go to a top-tier school — than those luckier in their parentage. At the most selective, “Tier 1” schools, 74 percent of the entering class comes from the quarter of households that have the highest “socioeconomic status”; only 3 percent comes from the bottom quarter.
And if children from our society’s lower rungs do manage to make it into a good college, the lack of financial support makes them far more likely to drop out than the children of the affluent, even if they have as much or more native ability. One long-term study by the Department of Education found that students with high test scores but low-income parents were less likely to complete college than students with low scores but affluent parents — loosely speaking, that smart poor kids are less likely than dumb rich kids to get a degree.
It’s no wonder, then, that Horatio Alger stories, tales of poor kids who make good, are much less common in reality than they are in legend — and much less common in America than they are in Canada or Europe. Which brings me back to those, like Mr. Romney, who claim to believe in equality of opportunity. Where is the evidence for that claim?
Think about it: someone who really wanted equal opportunity would be very concerned about the inequality of our current system. He would support more nutritional aid for low-income mothers-to-be and young children. He would try to improve the quality of public schools. He would support aid to low-income college students. And he would support what every other advanced country has, a universal health care system, so that nobody need worry about untreated illness or crushing medical bills.
If Mr. Romney has come out for any of these things, I’ve missed it. And the Congressional wing of his party seems determined to make upward mobility even harder. For example, Republicans have tried to slash funds for the Women, Infants and Children program, which helps provide adequate nutrition to low-income mothers and their children; they have demanded cuts in Pell grants, which are designed to help lower-income students afford college.
And they have, of course, pledged to repeal a health reform that, for all its imperfections, would finally give Americans the guaranteed care that everyone else in the advanced world takes for granted.
So where is the evidence that Mr. Romney or his party actually believes in equal opportunity? Judging by their actions, they seem to prefer a society in which your station in life is largely determined by that of your parents — and in which the children of the very rich get to inherit their estates tax-free. Teddy Roosevelt would not have approved.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 8, 2012
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