Romney’s association with corporate tax shelter schemes

By Linda Beale

Romney’s association with corporate tax shelter schemes

Bloomberg’s Jesse Drucker has been doing some research into presidential candidate Mitt Romney and come up with some interesting information–at least for those of us who find corporate involvement in aggressive tax shelter phantom loss generating schemes a worrisome problem. See Drucker, Romney as Audit Chair Saw Marriott Son of Boss Shelter Defy IRS, (Feb. 22, 2012).

Mitt Romney has been on the board of Marriott INternational Inc. on and off since 1993, and has served as chair of the audit committee for 6 years. During that period, the company has used aggressive tax avoidance deals, including (i) the “Son of BOSS” tax shelter structure for generating artificial losses that could be used to offset gains from other sources, thus reducing taxable income and tax liabilities and (ii) shifting profits to a Luxembourg shell company. Marriott’s effective tax rate has been as low as 6.8%, even though the federal statutory rate for corporations is 35%.
These factoids demonstrate two things.

First, as the article points out, Romney claims that his business experience is the primary reason that Americans should want to see him in the White House. Contrary to his claim, it seems to me that the more we hear about his business experience the less I think he is suited to the White House.

At Bain Capital, as at most private equity firms, Romney was willing to reap millions from taking a stable, operating company and turning it into a bankrupt by leveraging it up, firing employees, and otherwise destroying the stable business. Yeah, sometimes the “creative destruction” worked and the company exited making profits. But often it didn’t, and the company wasn’t a loser until Bain Capital got hold of it. Further, Romney doesn’t appear to have developed much of a sense of corporate social responsibility through his “earning” of multi-millions taxed at low rate through Bain Capital. So he didn’t see anything amiss in the very aggressive tax planning engaged in by Marriott when he served as a Marriott director with oversight responsibility–of which he certainly knew, as head of the audit committee. Even John McCain was aghast at Marriott’s wanton use of tax shelters, when he complained about the federal tax credits Marriott claimed in an accidental loophole in the law on synthetic fuels. As the piece notes, McCain called Marriott’s use of this loophole to claim the credits an “expensive hoax” or “scam.”

Do we want as president a man who thinks it is okay for taxpayers to gin up artificial losses to reduce their tax liability or use provisions of the Code in ways that clearly go against their underlying purpose to get an unintended subsidy from the Federal government? I don’t think so. Such a person would likely be quite willing to see further cuts to the corporate taxes and taxes on the wealthy, no matter what that does to the federal fisc. And Romney has certainly demonstrated his willingness to cut taxes even in the face of deficit claims that are being used to demand privatization of Social Security and cuts to Medicare. (See his plan for a 25% corporate rate, a zero percent estate tax, a lower top rate on earned income for the wealthy, and other items.)

I want a president who considers that every taxpayer has an obligation to the integrity of the system, and who would not look kindly on businesses that engage in aggressive tax minimization transactions that don’t hold up to the laugh test.

Second, major corporations aren’t paying enough–much less too much –in taxes these days. We have a statutory rate of 35%, but most very profitable corporations end up paying very little in taxes, through a combination of excessive loopholes built into the Code by their accommodating buddies in Congress (quid pro quo for campaign contributions or, after Citizens United, “independent” super-PAC donations?) and outright tax sheltering through aggressive customized transactions intended to generate tax benefits.

Why in the world would anybody in his/her right mind propose cutting the corporate tax rate in this context of minimal tax payments by corporations? Makes no sense at all. Get rid of the loopholes. Bear down with enforcement clout on the phony tax-loss shelters. But don’t cut the corporate tax rate. There’s absolutely no substance to the constant whine we hear from corporate lobbyists that the corporate tax code is “too complex” (my JD students in corporate tax are quite capable of understanding it, so I am sure Corporate Tax Counsel are, too); or that the corporate tax code is “anticompetitive” (Marriott is making a fine rate of return); or that the corporate tax code is “preventing investments” (corporations have lots of cash floating around–if they want to make expansion investments, they can do so already).

Tax policy should be based on reasonable considerations of efficiency and simplicity, not exorbitant and unfounded claims of how the tax code is wrecking business. But even more importantly, tax policy should be based on fairness considerations. And Romney hasn’t shown much understanding of what fairness is, or how to make the tax code fairer rather than even more of a government program for redistribution upwards.

crossposted with ataxingmatter

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