“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
“Ann Romney’s Inconvenient Facts”: Other Than tax Returns, “There’s Nothing We’re Hiding”
As a rule, family members of candidates shouldn’t be considered political players, but once those family members become campaign surrogates and enter the political sphere making partisan arguments, there’s nothing inappropriate about scrutinizing their comments.
Take Ann Romney’s latest defense of her husband’s secrecy, for example.
Ann Romney sat down with NBC’s Natalie Morales and when the subject turned to the still-hidden tax returns, the Republican became quite agitated. Romney insisted that her husband’s campaign has done “what’s legally required of us,” which is true, but fails to meet accepted norms, standards, and expectations.
She added, “There’s going to be no more tax releases given.” I assume that means outside of the 2011 returns Mitt Romney has promised to release, but has not yet disclosed, though Ann Romney didn’t elaborate.
She went on to say, “There’s nothing we’re hiding.” Except the tax returns, the tax rates paid, and the explanation for the Swiss bank account, the shell corporation in Bermuda, and the cash in the Cayman Islands. Other than hiding all of that, they’re not hiding anything.
And why will the Romneys refuse all additional calls for disclosure, even from Republicans? According to Ann Romney, it’s because Democrats might use the materials to make Mitt Romney look bad.
I continue to marvel at this deeply odd argument. As Dahlia Lithwick and Raymond Vasvari recently explained, “[Romney] isn’t actually claiming that his opponents will lie. He’s claiming he’s entitled to hide the truth because it could be used against him…. These are tax returns. Factual documents. No different than, say, a birth certificate. But the GOP’s argument that inconvenient facts can be withheld from public scrutiny simply because they can be used for mean purposes is a radical idea in a democracy.”
And yet, this radical idea is now the Romneys’ only talking point on the issue.
By: Steve Benen, The Maddow Blog, August 15, 2012
“Mitt’s Financial Mysteries”: Romney Didn’t Send His Money Overseas For The Weather
PRESSURE is mounting for Mitt Romney to release more of his financial records. Mr. Romney has made public only his 2010 tax returns and has said his 2011 documents will be released soon. “That’s all that’s necessary for people to understand something about my finances,” he said recently. He is “simply not enthusiastic,” he also said, about giving the Obama campaign “hundreds or thousands of more pages to pick through, distort and lie about.”
But it is a good bet that Mr. Romney’s vetters have picked through more than two years of returns of his vice-presidential contenders. And the Senate typically requires more for confirmation to a cabinet or even a subcabinet post. Until Mr. Romney recognizes the right of voters to understand the finances of their leaders, all we are left with is speculation.
Some commentators have suggested, for example, that — like tens of thousands of other Americans who have taken advantage of an Internal Revenue Service amnesty — he might not have declared and paid taxes on his Swiss bank account. I can’t imagine that he would have engaged in such blatant tax cheating. He is far too smart for that.
Another suggestion is that in 2009 he paid income taxes significantly below the 13.9 percent he paid in 2010. This is more plausible, and potentially more damaging politically, even if perfectly legal.
After all, the one year’s tax returns that he has released raise doubt about his campaign’s claims that his offshore accounts did not save him one penny of tax. Putting business assets into an individual retirement account invested in a Cayman Islands corporation allows Mr. Romney to avoid the “unrelated business income tax” — a 35 percent levy — on at least some of his I.R.A.’s earnings, a tax that he would have had to pay if his I.R.A. were held directly by a financial institution in the United States.
With an I.R.A. account of $20 million to $101 million, the tax savings would be more than a few pennies.
The I.R.A. also allows Mr. Romney to diversify his large holdings tax-free, avoiding the 15 percent tax on capital gains that would otherwise apply. His financial disclosure further reveals that his I.R.A. freed him from paying currently the 35 percent income tax on hundreds of thousands of dollars of interest income each year.
Given the extraordinary size of his I.R.A., we have to presume that Mr. Romney valued the assets he put in his retirement account at far less than he would have sold them for. Otherwise it is quite a trick to turn contributions that are limited to $30,000 to $50,000 a year into the $20 million to $101 million he now has there. But we cannot be certain; his meager disclosure of tax records and financial information does not indicate what kind of assets were put into the I.R.A.
Mr. Romney’s Cayman Islands and Bermuda corporations also probably allowed him to avoid limitations on deductions for investment expenditures that would otherwise apply. So we don’t need any more tax returns to know that Mr. Romney is an Olympic-level athlete at the tax avoidance game. Rich people don’t send their money to Bermuda or the Cayman Islands for the weather.
Moreover, we have no clue whether Mr. Romney paid any gift tax on transfers, now valued at $100 million, to a trust he set up in 1995 for the benefit of his five sons. Until this year, the federal gift tax had a lifetime exemption of $1 million, and it taxed gifts in excess of that amount at rates between 29 and 44 percent. A gift of $100 million to one’s children could, therefore, require paying a tax of as much as $29 million to $44 million.
But every good tax professional knows that gift tax returns are rarely audited, except after the transferor’s death. And normally the I.R.S. cannot challenge such a return after three years from its filing. But if the values of the gifts were not properly appraised and disclosed on Mr. Romney’s gift tax returns, a challenge may still be possible. If he did not file any gift tax return, he would still be liable for the tax, plus interest and penalties.
Based on his aggressive tax planning, revealed in the 2010 returns he has released and his approval of a notably dicey tax avoidance strategy in 1994 when he headed the audit committee of the board of Marriott International, my bet is that — if Mr. Romney filed a gift tax return for these transfers at all — he put a low or even zero value on the gifts, certainly a small fraction of the price at which he would have sold the transferred assets to an unrelated party. Otherwise, he should be happy to release his gift tax returns. According to a partner at Mr. Romney’s trustee’s law firm, valuing carried interests, such as Mr. Romney’s interests in the private equity company Bain Capital, at zero for gift tax purposes was common advice given to clients like Mr. Romney in the 1990s and early 2000s.
If detected, undervaluing large gifts to one’s children could provoke large penalties from the I.R.S. These are the kinds of tax penalties that even multinational corporations try to avoid because they fear how the public would react to the adverse publicity that would inevitably follow.
To settle these questions, Mr. Romney should release his gift tax returns, or other documents showing how he valued his transfers to his family’s trust and to his I.R.A., and at least three additional years of income tax returns.
No one should begrudge Mr. Romney or his family the wealth they have earned. But if he has not paid the taxes that apply to transfers of such wealth, this should concern us all. After all, who do you think pays for the shortfall?
By: Michael Graetz, Op-Ed Contributor, The New York Times Opinion Pages, July 30, 2012
“Not Squaring With Common Sense”: Romney Stayed Longer At Bain Beyond The Date He Said He Ceded Control
Government documents filed by Mitt Romney and Bain Capital say Romney remained chief executive and chairman of the firm three years beyond the date he said he ceded control, even creating five new investment partnerships during that time.
Romney has said he left Bain in 1999 to lead the winter Olympics in Salt Lake City, ending his role in the company. But public Securities and Exchange Commission documents filed later by Bain Capital state he remained the firm’s “sole stockholder, chairman of the board, chief executive officer, and president.”
Also, a Massachusetts financial disclosure form Romney filed in 2003 states that he still owned 100 percent of Bain Capital in 2002. And Romney’s state financial disclosure forms indicate he earned at least $100,000 as a Bain “executive” in 2001 and 2002, separate from investment earnings.
The timing of Romney’s departure from Bain is a key point of contention because he has said his resignation in February 1999 meant he was not responsible for Bain Capital companies that went bankrupt or laid off workers after that date.
Contradictions concerning the length of Romney’s tenure at Bain Capital add to the uncertainty and questions about his finances. Bain is the primary source of Romney’s wealth, which is estimated to be more than $25o million. But how his wealth has been invested, especially in a variety of Bain partnerships and other investment vehicles, remains difficult to decipher because of a lack of transparency.
The Obama campaign and other Democrats have raised questions about his unwillingness to release tax returns filed before 2010; his offshore assets, which include investment entities based in Bermuda and the Cayman Islands and a recently closed bank account in Switzerland; and a set of “blind trusts” that meet the Massachusetts standards for public officials but not the more rigorous bar set by the federal government.
Romney did not finalize a severance agreement with Bain until 2002, a 10-year deal with undisclosed terms that was retroactive to 1999. It expired in 2009.
Bain Capital and the campaign for the presumptive GOP nominee have suggested the SEC filings that show Romney as the man in charge during those additional three years have little meaning, and are the result of legal technicalities. The campaign declined to comment on the record. It pointed to a footnote in Romney’s most recent financial disclosure form, filed June 1 as a presidential candidate.
“Since February 11, 1999, Mr. Romney has not had any active role with any Bain Capital entity and has not been involved in the operations of any Bain Capital entity in any way,’’ according to the footnote. Romney made the same assertion on a financial disclosure form in 2007, during his first run for president.
Evidence emerged last week in a report by Mother Jones that Romney had maintained an ongoing leadership role at Bain beyond February 1999. Citing SEC documents, the magazine said Romney had control of Bain Capital’s shares in Stericycle, a medical waste company, in November 1999. Talking Points Memo reported this week on additional SEC filings listing Romney’s position with Bain in July 2000 and February 2001.
According to a statement issued by Bain Wednesday, “Mitt Romney retired from Bain Capital in February 1999. He has had no involvement in the management or investment activities of Bain Capital, or with any of its portfolio companies, since that time.”
A former SEC commissioner told the Globe that the SEC documents listing Romney as Bain’s chief executive between 1999 and 2002 cannot be dismissed so easily.
“You can’t say statements filed with the SEC are meaningless. This is a fact in an SEC filing,” said Roberta S. Karmel, now a professor at Brooklyn Law School.
“It doesn’t make a whole lot of sense to say he was technically in charge on paper but he had nothing to do with Bain’s operations,” Karmel continued. “Was he getting paid? He’s the sole stockholder. Are you telling me he owned the company but had no say in its investments?”
The Globe found nine SEC filings submitted by four different business entities after February 1999 that describe Romney as Bain Capital’s boss; some show him with managerial control over five Bain Capital entities that were formed in January 2002, according to records in Delaware, where they were incorporated.
A Romney campaign official, who requested anonymity to discuss the SEC filings, acknowledged that they “do not square with common sense.” But SEC regulations are complicated and quirky, the official argued, and Romney’s signature on some documents after his exit does not indicate active involvement in the firm.
A spokesman for the SEC said the commission could not comment on individual company filings or address the meaning of Romney’s name and title on the documents.
Karmel, the former SEC commissioner, said the contradictory statements could have legal implications in some instances.
“If someone invested with Bain Capital because they believed Mitt Romney was a great fund manager, and it turns out he wasn’t really doing anything, that could be considered a misrepresentation to the investor,’’ she said. “It’s a theory that could be used in a lawsuit against him.”
Romney first deployed the defense that he left the firm in February 1999 as a candidate for governor in 2002, when Democrat Shannon O’Brien featured a laid-off worker from a Kansas City steel mill that went bankrupt in 2001, after Bain Capital had reaped a handsome profit from its investment in the company. “Romney has taken responsibility for making the initial investment but has said he could not be blamed for management decisions at the company,” the Globe reported at the time.
Romney’s exit from Bain Capital also served as a ready-made rebuttal when in May President Obama’s reelection campaign began its public scrutiny of Romney’s business record with an ad focusing on former laborers at the same mill, GST Steel. But the SEC filings examined by the Globe indicate Romney remained at the helm of Bain Capital when the steel mill declared bankruptcy, in February 2001.
And financial disclosure documents Romney filed in Massachusetts show that he was paid as a Bain Capital executive while he directed the Olympics.
When he was named chief executive of the Salt Lake Organizing Committee on Feb. 11, 1999, Romney declared that he would not accept the job’s $285,000 annual salary until the Games were over and he had proven his turnaround worth.
Romney continued to draw a six-figure salary from Bain Capital, according to State Ethics Commission forms.
In Romney’s 2002 race for governor, he testified before the state Ballot Law Commission that his separation from Bain in 1999 had been a “leave of absence” and not a final departure.
By: Callum Borchers and Christopher Rowland, The Boston Globe, July 12, 2012
“Shady Opportunism”: The Political Risks Of Mitt Romney’s Financial Skills
You can conduct byzantine transactions through opaque investment accounts and private corporations in offshore tax havens such as Bermuda and the Cayman Islands. Or you can credibly run for president at a time of great economic distress.
I don’t think you can do both.
Let me be clear that I have nothing against wealth. In fact, I have nothing against great wealth, which is how I would classify Mitt Romney’s estimated $250 million fortune. We can argue about the social utility of private- equity firms such as Bain Capital, but Romney isn’t responsible for distorting the system so that financiers are grossly overpaid. He just took advantage of the situation.
Increasingly, however, I have to wonder whether the achievement Romney touts as his biggest asset in running for president — his business success — might be seen by many voters as a liability.
The question isn’t whether people can relate to a candidate who has tons of money. It’s whether they will connect with a man who didn’t make his money the old-fashioned way — by building a better widget — but by sending capital hither and yon via clicks of a computer mouse to take advantage of arcane opportunities most people never even know about.
Most Americans, for example, do not have an individual retirement account valued at between $20 million and $101 million, as Romney stated last year in a financial disclosure report.
When Romney was running Bain and building up his IRA, the maximum annual contribution permitted by the tax code was $2,000. So how did Romney’s IRA get so huge? He won’t say. It’s possible that he rolled over some money that was originally in a 401(k) retirement plan of the kind offered by many employers. But annual 401(k) contributions were then capped at $30,000, including an employer match — in Romney’s world, chump change.
Analysts surmise that Romney may have placed his interests in various Bain investment partnerships in the IRA, taking advantage of Internal Revenue Service rules that allow these interests to be undervalued for IRA purposes. In some cases they can even be valued at zero, since partnership interests represent future income, not present income, and . . .
Okay, I know I’m losing you here — but you get the point. Individual retirement accounts were created as a way for middle-class Americans to save some tax-deferred money for their senior years. It isn’t clear exactly what Romney is using his gargantuan IRA for, but it’s certainly not what Congress intended.
Then there’s the question of a Bermuda-based company that Romney and his wife, Ann, own, Sankaty High Yield Asset Investors Ltd. According to the Associated Press, the company has been part of Romney’s portfolio for nearly 15 years, but it was not mentioned in any state or federal disclosure reports. It surfaced in Romney’s 2010 tax returns, which he reluctantly released earlier this year.
According to those returns, Sankaty is little more than an empty shell at the moment. But the AP reports that the company “served as Romney’s partnership stake” in a larger group of Sankaty-named funds that Bain once used to manage more than $100 million in investments. (Sankaty, by the way, is the name of a lighthouse on Nantucket.) Channeling private-equity and hedge-fund investments through offshore firms in places such as Bermuda and the Caymans can allow investors to avoid a tax on what is known as “unrelated business income.”
Romney’s campaign says that he pays every penny he is required to pay in taxes — although his income is taxed at about 15 percent, a lower rate than most middle-class Americans pay. Hey, I understand; if I could get away with paying less in taxes, I’d do it, too. And I suppose that if God didn’t want us to have offshore pass-through accounts in sun-drenched tax havens, he wouldn’t have invented them.
But one of the sources of anger and anxiety in this country — on the left and the right — is the sense that there are two sets of rules, one for the rich and powerful and one for everybody else. I don’t think voters want a “regular guy” as president; they want someone who is exceptional. But there is a point at which opportunism begins to shade into rapacity.
In making and managing his money, Romney appears to take every possible, conceivable, imaginable inch that the law arguably allows. That’s good finance. But I doubt it’s good politics.
By: Eugene Robinson, Opinion Writer, The Washington Post, July 5, 2012
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