Newt Gingrich: “So Busy Serving His Country That He Had To Cheat The Government To Save The Government”
While candidate Gingrich has been busy focusing on the tax return failings of his opponent, Governor Mitt Romney, a report by Forbes’ Janet Novack suggests that, once again, Newt may be using a good offense to keep from having to play some serious defense when it comes to his own failure to pay up on his tax obligations.
According to Novack, “Newt Gingrich avoided tens of thousands of dollars in Medicare payroll taxes in 2010 by using a technique the Internal Revenue Service has consistently and successfully attacked.”
Gingrich’s primary source of income, as revealed on the one tax return he has disclosed, comes from two “S” corporations owned by Newt and his wife, Callista. S Corporations are employed as a means to allow money to ‘flow through’ to the shareholder-owner as if it were a sole proprietorship or partnership, thus avoiding taxation at both the corporate level and re-taxation at the personal level.
It is a perfectly kosher way to do business.
However, according to the law, such corporations are supposed to pay out most of its earnings as direct payments to the owner/shareholder rather than as profits or dividends which are exempted from certain tax obligations— such as the 2.9 percent of earnings which are to be paid to Medicare.
As stated on the IRS website
Reasonable Compensation
S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.
Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for the service rendered to the corporation.
The key to establishing reasonable compensation is determining what the shareholder-employee did for the S corporation. As such, we need to look to the source of the S corporation’s gross receipts.
The three major sources are:
1. Services of shareholder,
2. Services of non-shareholder employees, or
3. Capital and equipment.
There is little question that the revenues flowing through Gingrich’s companies are the direct result of the services provided by Newt and his wife, whether by way of speaking fees, book royalties, film productions, etc. Thus, it would be reasonable to expect that the preponderance of revenue coming into the Gingrich corporations would pass through directly to Mr. and Mrs. Gingrich and be subject to taxes such as the Medicare tax.
Yet, in 2010, the Gingrich corporations paid out $444, 327 as salary to Newt and Callista while reporting some $2.4 million as profit or dividends – thus allowing the Gingrichs to avoid paying the 2.9 percent Medicare tax on the bulk of their earnings.
Of course, now that Gingrich is running for president, it is unlikely the IRS will come after him as he would simply call it an attack by the Obama administration.
And while there will, no doubt, be an agreement between Romney and Gingrich not to ‘go there’ – as both are now likely to be vulnerable on their respective tax returns—expect Rick Santorum to make a fuss unless he too turns out have some tax issues.
Personally, I can’t wait to hear Newt find a way to blame this on the media.
Or maybe he’ll tell us that he was so busy serving his country that he had to cheat the government in order to save the government.
By: Rick Ungar, Contributing Writer, The Policy Page, Forbes, January 23, 2012
“Deep Doo-Doo”: Newt Gingrich’s Surprise Win In South Carolina Panics Republicans
Reactions to Newt Gingrich’s stunning and impressive victory in the South Carolina primary form a symphony. First, of course, we hear the cheers of South Carolina Republicans who have chosen their champion. From Ronald Reagan in 1980 through John McCain in 2008, the winner of this primary has always gone on to be the Republican nominee.
Then, of course, we can hear the buttons popping from Newt Gingrich’s shirt as his ego swells to Macy’s parade size. If you listen carefully, you can hear the soft sobs of Mitt Romney and his consultants, crying in their chocolate milk.
But above it all we can hear the weeping, the wailing, the gnashing of teeth of the Republican establishment as Gingrich’s victory sends them into full-blown panic. I’m not talking about mere fear, nor normal nervousness. Not even the feeling you get when the captain says, “We’ve lost power in one of our four engines.” No, this is worse. Worse even than when your doctor says, “I don’t like the looks of that shadow on the X-ray.”
This is terror. Chest-clutching, breath-sucking, soul-shaking panic. This is your teenage daughter telling you, “I think I’m in trouble.” This is a Turkish border guard pulling you into a holding room when you’ve got a baggie of coke in your pocket. This is what George H.W. Bush famously called “deep doo-doo.”
The Republican Party has never seen anything like it. Republicans are hierarchical, orderly, disciplined—everything the Democrats are not. They nearly always nominate the guy who was runner-up last time: Ford beat Reagan, and Reagan got the next nod. Reagan beat George H.W. Bush, so Bush Sr. got the next turn. And then Bush beat Dole, who in turn was rewarded with the 1996 GOP nod. Then they got all wild and crazy and nominated the son of a former president, but then quickly reverted to form and nominated the guy he defeated, John McCain. And who did McCain beat? Mitt Romney.
As the anointed one, Romney had all the advantages, especially the most important: money. But as the Beatles taught us, money can’t buy you love. Romney and the super PAC that supports him outspent Gingrich and the pro-Gingrich super PAC in South Carolina by a 2–1 margin ($4 million to $2.16 million.)
Gingrich won the South Carolina primary not because of advertising, but rather because of his debate performances. Eighty-eight percent of South Carolina Republicans said the debates were important to making up their minds, and in the two key debates, Gingrich hit every GOP erogenous zone. He scolded Fox News’s Juan Williams when Williams asked him about the dog-whistle language Gingrich uses to stir up racial stereotypes. Williams, the author of Eyes on the Prize, a respected history of the civil-rights movement, knows of what he speaks. But Gingrich knows his party’s base, and the base loves both the coded language and attacking anyone who calls them on it.
But it was Thursday night’s CNN debate that sealed the deal. Going into the debate, Gingrich and Romney were tied in the polls. And each had an important and obvious question they were going to be asked: for Gingrich, it was his ex-wife’s explosive allegation that he had asked for an “open marriage.” For Romney, it was whether he would release his tax returns. Think about it: which question would you rather answer? Mitt had the easier challenge by a mile. Yet Gingrich got a standing ovation by bitterly denouncing moderator John King in particular and the media in general. Romney got booed for his weak, waffling non-answer.
Between now and the Jan. 31 Florida primary, we will hear a furious, frenzied response from the Republican establishment. Team Romney has already spent $7 million on TV ads there—Team Gingrich just $800. Not $800,000. Just 800 bucks. Look for popular former governor Jeb Bush to endorse Romney in the Sunshine State, leading a parade of establishmentarians.
Will Romney’s money and endorsements be able to overwhelm Gingrich’s electrifying debate performances? They weren’t in South Carolina. But Romney has an ace in the hole. The one person who has consistently derailed Newt Gingrich’s political career is Newt Gingrich.
By: Paul Begala, The Daily Beast, January 21, 2012
Mitt Romney Has Signed Paul Ryan’s Suicide Note
Suddenly Republicans are wondering: is Mitt Romney really so electable after all?
Turns out Rick Santorum won Iowa. Newt Gingrich’s attacks on Romney’s record at Bain have drawn blood. More blood has flowed from Romney’s own admission this week that he pays a tax rate of only about 15 percent on his ample income. Then there’s Romney’s offhand dismissal of the $374,000 he earned in speaking fees in 2011—enough in itself to qualify Romney for the top 1 percent—as “not very much.” All of which has led political analyst Jeff Greenfield to quip, “Only way for Mitt to look more like embodiment of wealth is to wear a top hat and monocle (thank God he doesn’t smoke cigars!)”.
Yet in itself, great personal wealth need not be an obstacle to the presidency. John F. Kennedy was wealthier than Mitt Romney, and Lyndon Johnson not a lot less so. The two Roosevelts were likewise far from poor; ditto the two Bushes.
Romney, however, seems already type-cast as a dangerously out-of-touch Richie Rich.
The journalists and commentators who watch his campaign tend to blame Romney personally for the disconnect. Little gaffes get magnified into campaign-wrecking disasters, like describing $374,000 in speaking fees as “not much.”
But when a campaign is connecting, it can ride out gaffes. Bill Clinton reached the White House despite Hillary Clinton dismissing at-home moms as “staying home to bake cookies,” and Obama rode out the fuss triggered by a tape recording of his description of rural white voters “clinging to their guns and religion.”
Romney’s trouble is not his too-pressed shirts or his too-coiffed hair or even his tax returns. Bill and Hillary Clinton also had a tax return problem in 1992: it was revealed that they had claimed a tax deduction for donating used socks and underwear to Goodwill. It looked petty and grasping. They won anyway.
Romney’s problem is not his wealth. It is his apparent lack of concern for others’ nonwealth. But that lack of concern has been sharpened to a dangerous point, not by Romney himself, but by the missteps of his party.
Why would the typical voter care whether Romney is rich or not? From the point of view of the typical voter at the median household income of $49,500, all the presidential candidates look rich. They almost always do.
The question of utmost concern to the voter is, what will these rich politicians do for me? Or to me?
And here’s where Romney faces his real challenge—2012 will be a tough re-elect for Barack Obama. When Democrats face tough elections, there is one thing they can always be counted on to do: accuse Republicans of having a secret plan to eliminate Medicare. Jimmy Carter did it in the presidential debate of 1980: “Governor Reagan, as a matter of fact, began his political career campaigning around this nation against Medicare.” Bill Clinton did it in his duel against Newt Gingrich in 1995-96: “Yesterday [congressional Republicans] sent me legislation that said—we will only keep the government going, and we will only let it pay its debts if and only if we accept their cuts in Medicare, their cuts in education, their cuts in the environment, and their repeal of 25 years of bipartisan commitments to protect the environment and public health.”
President Obama would dearly like to do it again in 2012. But this time, Republicans made it easy for him. Obama does not have to accuse them of having a secret plan to eliminate Medicare. In 2011, all but four House Republicans and all but five Senate Republicans voted for a very public plan to withdraw the Medicare guarantee from Americans younger than age 55.
The Paul Ryan plan would instead offer future retirees support to buy a private insurance plan—with the amount of the support rising at the rate of general inflation. If health care costs continue to rise during the next three decades at the same pace as in the past three decades, then—under this proposal—today’s 30-somethings would receive support sufficient to cover about 25 percent of their Medicare costs, leaving them to find the other 75 percent themselves. The money saved would be applied to balance the budget and finance a big tax cut, reducing the top income-tax rate to 28 percent from the otherwise scheduled 39.6 percent.
Conservative columnist Charles Krauthammer at the time expressed worry that the Ryan plan might prove a “suicide note.”
And at first Mitt Romney shrewdly kept his distance. “I appreciate what Paul Ryan has done,” Romney said on May 27, 2011, and cautiously added, “I’m going to have my own plan.” Asked whether he’d sign the plan, Romney demurred: “That’s the kind of speculation that is getting the cart ahead of the horse.”
A week later, Romney’s resistance was weakening. Asked June 2, 2011, whether he would sign the Ryan plan if it comes to him, he said yes, but added again, “I’m going to have my own plan.”
Through the fall, Romney yielded more and more ground to pressure from congressional Republicans entranced by Ryan’s vision.
In November, Romney did at last release that Medicare plan of his own. Structurally, the Romney plan resembled Ryan’s. But it remained vague on the key feature: how much premium support would future seniors get?
Then Gingrich began to rise in the polls, the first adversary to seriously worry the Romney campaign. To protect his right flank, Romney in December for the first time expressed unequivocal support for the Ryan plan—and the end of the Medicare guarantee for those now under 55.
Would a President Romney do such a thing? Would Congress really ultimately go along with it? Probably not and certainly not. But can President Obama credibly allege that a President Romney might do it? And will those allegations exact an electoral cost?
If the answers to those questions prove to be “yes,” conservative critics will blame Romney for his “weakness” as a candidate. But the real weakness will be that Romney acceded to those conservatives’ pressure to co-sign Paul Ryan’s suicide note.
By: David Frum, The Daily Beast, January 20, 2012
Mitt Romney’s Miserly Concern For The Poor
“I’m concerned about the poor in this country,” Mitt Romney said the other day. “We have to make sure the safety net is strong and able to help those who can’t help themselves.”
I perked up at those words, because they were something of a departure from his usual stump speech and because they happened to come on a day when I had written about the dire implications of Romney’s proposals for the social safety net.
I don’t question his sincerity. The problem: This fine sentiment doesn’t square with his actual policies.
Consider Romney’s support for the budget plan crafted by Wisconsin Rep. Paul Ryan and passed by the Republican House. It would cut Medicaid spending by $700 billion over 10 years, reduce food stamps by $127 billion and cut in half the funding of Pell Grants for low-income college students.
As Fox News’s Chris Wallace usefully pointed out in an interview with Romney last month, “You would cut all of these programs, Governor, that people depend on, and a lot more than that.”
Romney, in response, focused on his proposal for Medicaid. He would turn the program over to the states and allow funding to grow at inflation plus 1 percentage point — significantly less than the historical growth of health-care costs.
“By doing that, you save an enormous amount of money,” Romney said. “I happen to believe that states can do a better job caring for their own poor, rooting out the fraud and waste and abuse that exists within those programs.”
Wallace: “But you don’t think, if you cut $700 billion in aid to the states, that some people are going to get hurt?”
Romney: “By cutting welfare spending dramatically, I don’t think we hurt the poor. In the same way, I think cutting Medicaid spending by having it go to the states, run more efficiently with less fraud, I don’t think will hurt the people that depend on that program for their health care.”
Really? Reforming welfare to encourage work was a good idea, but for those who need temporary help, benefits are increasingly inadequate. Adjusting for inflation, benefits are now below the 1996 level in all but two states. And turning the program into a block grant has meant that states, reeling from the impact of the recession, have been unable to respond adequately to increased needs.
That history is hardly reassuring about Romney’s plan to cut hundreds of billions from Medicaid. But the welfare analogy isn’t the only cause for concern. The Congressional Budget Office (CBO), analyzing the Ryan cuts, found that states “would face significant challenges in achieving sufficient cost savings through efficiencies to mitigate the loss of federal funding.”
So much for Romney’s mythical world in which huge cuts can be accomplished with zero harm to the poor and disabled.
Instead, according to the CBO, states would face a menu of unappetizing choices. If they did not want to raise taxes or reduce other spending, they would have to choose among cutting already low provider payments; reducing the benefits that the program covers; or throwing people now eligible for help off the program.
The impact of Romney’s approach on the safety net would go far beyond Medicaid. The brutal arithmetic of his stated plan to cap spending at 20 percent of gross domestic product — while, unlike Ryan, increasing defense funding — is that safety-net programs would have to be chopped significantly beyond where even Ryan would take them.
Romney’s tax plan would exacerbate the unfairness. He would continue the Bush tax cuts for the wealthiest Americans and provide extra breaks that would primarily help the rich. According to a new analysis by the nonpartisan Tax Policy Center, taxpayers with incomes of $1 million or more would see an average tax cut of $287,000 compared to letting the Bush tax cuts for the wealthy expire.
At the same time, Romney would do away with recent increases in the child tax credit and the earned-income tax credit — provisions that help low-income families. As a consequence, between 16 and 20 percent of those with incomes of $50,000 or less would actually see their taxes rise under a President Romney.
In other words, Romney would spend hundreds of billions for a tax cut whose benefits flow overwhelmingly to the wealthiest Americans, even as he would cut even more from programs that help the most vulnerable.
Those skewed priorities are hard to square with Romney’s stated concern, however heartfelt, for the poor. The man from Bain Capital needs to take another look at his figures.
Mitt Romney’s Tax Plan: Very Progressive By 15th Century Standards
The Tax Policy Center has completed an analysis of the distributional effects of Mitt Romney’s tax plan, and as might be expected it’s quite good for you if you’re raking in the big bucks, and not particularly helpful if you’re not. For the bottom 80% of the income distribution, federal tax rates would drop between 0.6% and 3.4%. For the top 20%, they’d drop 5.9%; for the top 1%, they’d drop 8.6%. That means the regular-joe taxpayer at the middle of the distribution gets a cut of about $1,400, while a taxpayer in the top 1% gets a cut of $171,000. Kevin Drum cracks wise:
[C]onservatives are right to believe that Romney isn’t to be trusted. Sure, he lowers tax rates on millionaires by 9 percentage points, and you may think that’s a pretty sweet deal for the rich. But come on. Newt Gingrich would lower them by 24 percentage points. (No, that’s not a typo.) Rick Perry lowers them by 20 percentage points. Herman Cain lowers them by 15 points. Frankly, Romney is hardly even trying here.
Along similar lines, and because I’ve been reading about this stuff lately, I’d like to point out that in the long historical context the tax rates Mr Romney is proposing are still extremely progressive. In fact, up until at least the 15th century or so, tax rates in the Western world were generally higher for poor people than they were for rich people. In early Renaissance Florence, as Tim Parks explains in his highly readable “Medici Money“, almost all state revenues were raised from excise taxes on consumption, while the holdings of the wealthy were exempt from almost any form of routine taxation. This state of affairs persisted until 1427, when the cost of hiring mercenaries to protect the city from the Duke of Milan, the French, and basically everyone else in the free-for-all of Italian politics rose so high that they had to introduce a universal tax called the catasto. This exempted about a third of the poorest households, while everyone over a certain level of income had to pay a flat tax of 0.5% on their wealth—a wildly progressive move in its day.
Meanwhile in Flanders, as John Munro writes in “The Usury Doctrine and Urban Public Finances in Late-Medieval Flanders (1220-1550): Rentes (Annuities), Excise Taxes, and Income Transfers from the Poor to the Rich“, state finance came to rely increasingly on issuing annuities paying an annual income. This was because the Catholic church’s rulings on usury made it increasingly difficult for sovereigns to borrow at interest. The Pope said it was okay to issue the annuities as long as the taxes used to pay them came from the produce of the land, safely removing them from the unnatural auto-reproduction of money implied in usury. That meant, again, that taxation mainly consisted of excise taxes on consumption, and “the obvious significance of this form of public-finance related taxation was that it was essentially very regressive, in representing a far greater burden on the poor than on the middle classes, let alone the rich.” Since most people who could buy and hold state annuities were rich, it was a pretty direct transfer of wealth from the poor to rentiers.
So, again, while it’s true that Mr Romney’s tax plans represent a large net transfer from the poor to the rich if you start from the baseline of current tax law, they’re actually pretty progressive if you’re willing to start from a pre-modern baseline.
By: Democracy in America, published in The Economist, January 6, 2012
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