“Dubious Legal Tactics”: How Mitt Romney’s Millions Went Tax-Free Overseas
On the same day that Mitt Romney cracked his birther “joke,” new evidence indicated that he and his partners at Bain Capital have used questionable methods to avoid federal taxes – including a scheme that transforms corporate stock into untaxed offshore “derivatives,” and a practice that converts management fees into capital gains, which are taxed at a far lower rate.
While nobody has asked to see the Republican candidate’s birth certificate, as he said at a Michigan rally on Friday, everybody has a renewed interest in examining the tax returns he continues to withhold.
The complex and tricky tax shelters used by Bain Capital continued to emerge from as lawyers and other experts examined the hundreds of pages of previously confidential company documents uncovered by the Gawker website in an exclusive series this week. The authenticity of the documents was confirmed by a Bain spokesperson, who said that the company deplores the public posting of its proprietary materials.
In a sense, the latest revelations about how Bain protected its vast income from taxation are scarcely surprising to anyone familiar with the world of private equity where Romney made his fortune, estimated at $250 million or more. Avoiding taxes is among the most important attractions of that industry for the wealthy clients it aims to attract.
But several experts who have looked over the new Bain documents have warned that dubious legal tactics may have been employed by some of the company’s investment vehicles, including several that are listed on the partial returns that Romney has already released. Those experts, such as Victor Fleischer, a law professor at the University of Colorado, and Daniel Shaviro, who teaches tax law at New York University’s law school, have raised questions about both the equity “swap” and fee conversion maneuvers.
Companies like Bain make money both from investment income, which is taxed at the lower capital gains rate, and from management fees, which are taxed as ordinary income like wages. If the firm can somehow transform its management fees into capital investments, then it can avoid the 35 percent top federal income tax rate, and pay the 15 percent capital gains rate instead. That is what Bain evidently does to keep its partners’ taxes low – around the 13 percent rate that Romney admits to paying. But critics like Fleischer say this is an abusive tactic that cannot be justified by law, even though the IRS has never attempted to stop companies that use it.
“Unlike carried interest, which is unseemly but perfectly legal, Bain’s management fee conversions are not legal,” the Colorado professor wrote on his blog. “If challenged in court, Bain would lose. The Bain partners, in my opinion, misreported their income if they reported these converted fees as capital gain instead of ordinary income.”
Equally troubling is the use of offshore accounts to avoid taxation on stock holdings. This tactic is called a “total return equity swap,” because it involves swapping real equities for derivative paper investments that provide all the same dividends as the stock itself – but aren’t subject to federal taxes. According to Shaviro, this practice was sufficiently blatant to elicit a warning from the IRS two years ago. He wrote recently that those who used it over the past decade “were coming perilously close to committing tax fraud, in cases where the economic equivalence to direct [stock] ownership was too great.”
In the complex territory of tax law, precise boundaries aren’t always clear. What makes the “total return equity swap” potentially perilous for Romney, however, is the use of foreign accounts to avoid taxes, which is what many Americans suspect him of doing. Despite the accounts that he has maintained in Switzerland, the Cayman Islands, Luxembourg, Bermuda and other tax havens, Romney’s campaign has repeatedly denied, with little credibility, that his wealth was invested abroad to evade taxes.
The proof may well lie within the tax returns that he is so determined to conceal. Wisecracks about the president’s alleged foreign birthplace may not distract concerned voters from the overseas accounts where Romney’s money has been hidden.
By: Joe Conason, The National Memo, August 25, 2012
“Passing And Punting On The Trail”: Mr. Thirteen Percent’s “Just Trust Me Campaign”
Mitt Romney, returning to New Hampshire on Monday with his new running mate, lasted only about 30 seconds before stumbling right into the issue that has dogged his candidacy like no other.
“Gosh, I feel like I’m almost a New Hampshire resident,” the winner of the state’s Republican primary told the crowd at Saint Anselm College in Manchester. “It would save me some tax dollars, I think.”
D’oh! Does Mr. Thirteen Percent really want to remind everybody how determined he is to keep his tax returns private?
Maybe so. The Republican standard-bearer seems to take a stubborn pride in his refusal to cough up details. My colleague Greg Sargent argues that Romney seems to be running a “just trust me” campaign that extends beyond 1040s and into the policy realm. It’s an intriguing observation, and so I kept an ear out for specifics as I listened to Romney and Paul Ryan hold their joint town hall meeting at Saint Anselm. Sure enough, they spoke and fielded questions for about an hour but deftly avoided detail.
“I’m going to do five things when I’m in Washington,” Romney announced. This was a promising start.
“Number one, we’re going to take advantage of our energy resources,” he offered. Excellent! Drilling? Pipelines? Nuclear? Romney did not say: Just trust him.
“Number two, I’m going to make sure that our schools are second to none,” Romney said. “We need our kids to have the skills to succeed. That’s number two,” he went on. Thus ended the education-policy segment of the program.
“Number three, I want trade that works for America,” Romney said. The closest he got to specifics here was to say he would “crack down on cheaters like China when they play on an unfair basis.”
“Go, Mitt!” somebody shouted.
Mitt did go — right to No. 4, to “show America that this team can put America on track to a balanced budget and stop the deficit spending.”
“Mitt, Mitt, Mitt, Mitt, Mitt!” the audience chanted.
He moved on to No. 5: reducing regulations. And here he had a specific, sort of: “I want to make sure that we get Obamacare out of the way and replace it with something which will help encourage job growth in this country.”
Replace it with . . . something?
Of course, Romney is hardly the first presidential candidate to avoid specific commitments and promises. His opponent, President Obama, was caught on a hot mike telling Russia’s Dmitry Medvedev to wait until after the election for a new Russia policy.
The difference with Obama, though, is he has already established a track record in office. By declining to put meat on the bones of his policy proposals, Romney wouldn’t have any mandate from the voters if he does defeat Obama. In policy speeches, he’s somewhat more specific than he is at typical campaign stops, but even then there’s nothing resembling a comprehensive plan for budget balancing, job creation or tax reform.
Romney and Ryan, in rolled-up sleeves and open collars, took the stage at Saint Anselm to the orchestral tune “Tryouts,” from the college-football film “Rudy.” This was appropriate, because the two men were about to pass and punt on issue after issue.
Ryan, the policy wonk of the pair, teased the crowd with the prospect of specific proposals (“We’re going to win this debate about Medicare!”) but then floated the idea of letting younger Americans, when they retire, “have a choice of guaranteed coverage options, including traditional Medicare.” That is a specific policy — but it hasn’t consistently been Ryan’s; he got the House last year to approve his plan phasing out traditional Medicare.
Still, that was apparently enough detail for one day. “I won’t go into all the things that we’re proposing to do to get jobs back, because I want to leave something for Mitt to talk about,” Ryan said. “The point is, we’re offering you solutions.”
Just trust them.
In fact, Romney didn’t furnish the promised proposals, and his foreign policy didn’t get much more elaborate than “American strength is critical.”
The audience members were friendly, but they wanted more details. His plan to reduce the debt?
“We want to grow this economy and cut federal spending.”
His tax plan? “I will not raise taxes on the American people.”
His Afghanistan plan? “Bring our men and women home, and do so in a way consistent with our mission.”
His plan to reduce student costs? “Make sure that when you graduate, you can get a job.”
Just trust him.
By: Dana Milbank, Opinion Writer, The Washington Post, August 20, 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
“Mitt’s Most Shameless Lie”: So Craven And Demagogic, You’d Think Even He Would Be Embarrassed
People who lie a lot also tend to whine a lot, particularly when their prevarications are exposed. As a presidential candidate, Mitt Romney gives the impression of never having been in a fair fight. He’s remarkably thin-skinned for somebody in public life.
Everybody expects politicians to embellish the truth, but Romney’s epic misrepresentations continue to astonish. Yet he appears flabbergasted that anybody’s allowed to talk back. Why, my dear fellow, it simply isn’t done.
Maybe this works in the executive suites and country clubs where Romney’s spent his life. But it’s a dubious strategy in an American presidential campaign. Regarding his taxes, for example, Romney could easily quell suspicion that he’s hiding something politically disqualifying. Release five years’ worth of returns (half the number President Obama’s put on the record), and move on.
Instead, he essentially demands that voters take his gentleman’s word that he’s never paid less than (a meager) 13% in taxes. However, his recent statement didn’t specify “federal income taxes,” a significant omission for somebody who made his fortune manipulating the tax code. If Romney’s arrived at the 13% figure by combining state, local, sales, excise, as well as real estate taxes on his several mansions, voters deserve to know.
Reporters should also ask, straight up, if Romney took advantage of the IRS’s 2009 one-time amnesty for money hidden in foreign bank accounts.
Yes or no?
But Romney’s taxes are trivial compared to the ugly falsehoods his campaign’s spreading about Medicare—sowing fear and division among seniors in a transparent attempt to divert attention from his and Paul Ryan’s plan to “save” the program by turning it from a guaranteed insurance benefit to a privatized voucher system.
Here’s the script of a new TV ad the Romney campaign’s running:
“You paid in to Medicare for years. Every paycheck. Now, when you need it, Obama has cut $716 billion from Medicare. Why? To pay for Obamacare. So now the money you paid for your guaranteed health care is going to a massive new government program that’s not for you.”
Got that? Your benefits, paid for by your Medicare taxes, are supposedly being taken away and given to others. In case that’s too subtle, Romney himself has said “there’s only one president that I know of in history that has robbed Medicare.” He told an audience in Ohio that Obama “has taken $716 billion out of the Medicare trust fund. He’s raided that trust fund.”
And do you know what he did with it? He used it to pay for Obamacare, a risky, unproven, federal takeover of health care.”
On “Meet the Press,” Republican National Committee chairman Rience Priebus declared that “This president stole…$700 billion from Medicare to fund Obamacare. If any person in this entire debate has blood on their hands in regard to Medicare, it’s Barack Obama.”
Robbed, stole, raided, blood on his hands.
Then who IS Obamacare for, if not for you and yours?
A recent letter to my local newspaper spelled out what Romney’s too tasteful to say: “obese, lay-about, cigarette-smoking, drug-taking, welfare-sucking, emergency-room-visiting no-accounts…[who] expect the government to provide them everything for free.”
That’s right, THEM.
THEY are getting YOUR benefits.
Of course Romney’s smart enough to understand what the letter writer clearly doesn’t, which is that YOU’VE ALWAYS PAID for others’ medical care in the most wasteful, inefficient way possible. No matter who’s elected, you’ll keep paying until Congress passes a law saying hospitals can refuse sick and injured patients who can’t pay. Which would not only be immoral, but a public health menace.
That’s why Massachusetts has “Romneycare,” the only worthwhile accomplishment of Mitt’s public career, which he now wants people to forget.
Romney’s also smart enough to know that not a single dime has been robbed, stolen or otherwise removed from the Medicare trust fund. Indeed, its life has been extended. Nobody’s benefits have been altered in any way.
That’s a lie so craven and demagogic you’d think even Mitt Romney would be embarrassed.
What the Affordable Care Act does do is something conservatives have long clamored for: It cuts, not benefits, but Medicare’s future costs by roughly 10% (or $700 billion) over a ten year period by A.) Reducing corporate subsidies to insurance companies administering Medicare Advantage plans, and B.) Slowing the rate of growth in payments to hospitals.
Furthermore, the health care industry agreed to these changes during negotiations over the new law: Insurance companies because they’re gaining millions of new customers; hospitals because Obamacare virtually eliminates their huge problem of non-paying patients.
Got that? Because almost everybody will have health insurance under Obamacare, hospitals, private insurance companies, Medicare and Medicaid alike can quit robbing Peter to pay Paul, effecting significant savings.
These economies are in your interest whether you’re a Medicare beneficiary or not.
That is, if you’re clear-eyed enough to see through the Republican candidate’s shameless falsehoods.
By: Gene Lyons, The National Memo, August 22, 2012
“Mitt’s 13% Tax”: Romney’s Embodiment Of The Principle Of Equal Sacrifice
Mitt Romney says “every year I’ve paid at least 13 percent [of my income in taxes] and if you add in addition the amount that goes to charity, why the number gets well above 20 percent.”
This is supposed to be in defense of not releasing his tax returns.
Assume, for the sake of the argument, he’s telling the truth. Since when are charitable contributions added to income taxes when judging whether someone has paid his fair share?
More to the point, Romney admits to an income of over $20 million a year for the last several decades. Which makes his 13 percent — or even 20 percent — violate the principle of equal sacrifice that lies at the core of our notion of tax fairness.
Even Adam Smith, the 18th century guru of free-market conservatives, saw the wisdom of a graduated tax embodying the principle of equal sacrifice. “The rich should contribute to the public expense,” he wrote, “not only in proportion to their revenue, but something more in proportion.”
Equal sacrifice means that in paying taxes people ought to feel about the same degree of pain regardless of whether they’re wealthy or poor. Logically, this means someone earning $20 million a year should pay a much larger proportion of his income in taxes than someone earning $200,000, who in turn should pay a larger proportion than someone earning $50,000.
But Romney’s alleged 13 percent tax rate is lower than that of most middle class Americans who earn a tiny fraction of what he earns.
At a time when poverty is increasing, when public parks and public libraries are being closed and when public schools are shrinking their offerings and their hours, when the nation’s debt is immense, and when the 400 richest Americans have more wealth than the bottom 150 million of us put together — Romney’s 13 percent is shameful.
By: Robert Reich, Robert Reich Blog, August 17, 2012
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