What is Mitt Romney Hiding?
by Kenneth Thomas
What is Mitt Romney Hiding?
Mitt Romney has so far released only one year of tax returns (2010), plus an estimate for 2011. This stands in stark contrast to his father, Michigan Governor George Romney, who released 12 years of tax returns when he began running for President in 1967. As his father said at the time, “One year could be a fluke.” So the questions remain about what is in Romney’s older returns.
Two stories this week and last have ratcheted up the pressure. One is a recent web exclusive for “The Last Word with Laurence O’Donnell” where David Cay Johnston has five questions for Romney that can only be answered with his tax returns. The other is a blockbuster story by Nicholas Shaxson (h/t TPM) in the new Vanity Fair on the shadowy world of Romney’s tax havens. Together, they put a laser-like focus on the finances of the man who could become our 45th President.
Johnston is a well-known former New York Times reporter, Pulitzer Prize winner, and the author of the major books Perfectly Legal and Free Lunch. If you don’t have time to watch his 3:45 video, here are the five questions:
“1. Did you buy any illegal or gray area tax shelters?
“2. Did an IRS audit ever uncover serious problems with any of your tax returns?
“3. Did you make use of offshore vehicles to defer, or avoid paying, federal income taxes?
“4. Did you take advantage of any tax strategies that the IRS did not uncover in audits?
“5. Did you fully tithe to the Church of Jesus Christ of Latter Day Saints every year and take a deduction on your tax return that shows that?”
These are important questions. We know that Governor Romney has had a Swiss bank account, as well as money in other tax havens like the Cayman Islands, Luxembourg, Bermuda, and Ireland. Romney’s answer to any question about his taxes has basically been, “Trust me.” But the guy’s running for President, for Pete’s sake. He owes us more than that.
Shaxson, a researcher for the Tax Justice Network and author of the book Treasure Islands, asks us to consider the possibility that maybe not everything Romney has done tax-wise has been legal. He opens with a story told by a former Bain employee about how Romney encouraged him to lie to get secret information on competitors. There is, of course, the fact that Romney has funds parked in numerous tax havens and the fact that his supposedly “blind” trust invested in a business started by Romney’s son Tagg, and the fact that he has $102 million in his IRA despite a contribution limit of $2000 per year for the entire 15 years Romney ran Bain. Obviously nothing to see here…
The standard answer of the Romney campaign to all this is that he always followed the law. As Jon Stewart had to point out since the major media did not, Romney did plenty to affect the law he was supposedly “just following,” including his defense of the “covered interest” tax loophole that let him treat his fees at Bain as if they were capital gains (15% tax) rather than wages (35% tax). All perfectly legal and as Johnston points out in his book by that name, that is the real scandal.
Further, Shaxson reveals that an early filing of the original Bain Capital fund in 1984 showed that many of its foreign investors were routed through tax havens and that at least one was a notorious financial criminal, Robert Maxwell. Thus, Bain helped foreigners take advantage of the fact that the United States has set itself up as a tax haven for non-citizens (see also Jason Sharman’s paper on setting up anonymous companies in the U.S. and elsewhere; h/t Robert Kudrle). Shaxson quotes Rebecca Wilkins of Citizens for Tax Justice, “It is shocking that a presidential candidate should think that is O.K.” for Bain to service the likes of Robert Maxwell.
The bottom line is that there is a lot of unsettling information in what investigators have so far been able to piece together about Romney’s finances. The easiest way for Governor Romney to put to rest what his campaign described to Shaxson as “unfounded allegations and insinuations” would be to release his tax returns. Yet he has not done so and shows no sign of changing his mind. Josh Marshall calls the questions “kryptonite” and thinks Romney will come under a lot of pressure to release more tax returns. Let’s hope so. The guy’s running for President, for Pete’s sake.
President?
I’d say King.
Or Emperor.
First of all, it’s “carried interest” not “covered interest”. Second of all, please don’t conflate the “hedge fund loophole” with the “private equity loophole” as you did at the cross-posting blog – they’re two completely different things.
Also, can you please define loophole? In the context in which you use the term, it strikes me as simply a component of the tax code with which you don’t agree.
Also, considering that Romney left Bain’s employment in 1999, or even giving credence to the most liberal interpretation of his involvement with Bain, no later than 2002, why does the Private Equity Council’s lobbying efforts on behalf of the “carried interest loophole”, starting in 2007, have anything to do with Romney. I could be wrong, but I assume that you have a retirement plan, and in that retirement plan you own shares in at least one mutual fund or ETF, perhaps a passive fund that tracks the S&P500. That likely makes you an owner of Exxon-Mobil, which extending the logic means that you’re ownership interests lobby against anthropogenic climate change and for oil and gas partnership tax “loopholes”.
Nice try. If these components of the tax code are so legal and proper why doesn’t Mr. Romney simply put them aside by demonstrating his compliance? If he presumes a role as trusted arbiter of public policy including tax policy, why isn’t his behavior and decision making regarding his own tax liability a worthwhile question?
I realize there may be another strategy at work. Maybe he is trying to become president of the tax dodgers. I am not certain they constitute an electoral plurality but maybe we’ll find that out.
Re Robert Maxwell.
In 1984 he was known as being slightly dodgy…..but his vast thefts of pension funds etc started after that and weren’t actually known until after his death in, 1991 I think?
Hindsight is always 20/20 but to blame Mitt for this particular thing seems a little harsh.
Poor litttle Mitty Mitt, so misunderstood. Up next, his association with scam artists and tax cheats will be part of his missionary work!
Why is Willard not just opening up his books for all to see? Well, why is he not taking solid policy positions, showing the details of hos policy plans? The received wisdom in our politics is that detailed information makes one vulnerable. Romney seems to have swallowed that received wisdom whole.
Lots depends on strategy. Do Romney and his advisors view Obama as so vulnerable to economic news that they see avoiding bad news of their own as sufficient to win? If so, then keeping books closed and policy statements vacuous makes sense.
Romney certainly isn’t like most of us, and that’s clearly part of Obama’s message. Romney’s tax filings could become an easy source of material for repeating that “Romney isn’t like you” story. If you make that story easy to tell by offering reporters lots of detail, reporters (in their laziness and love of sensation) could keep that story on the front page all the way to November.
I’m not saying Romney has nothing to hide. Just that Romney may have reasons to hide evidence of his financial dealings other than the appearance of illegality.
Re Mitt’s IRA… I’ve got more in my IRA than the contribution limit would imply is possible. Is it illegal or questionable? No. When you leave a company, the contents of your 401(k) can be rolled into your IRA. Lump-sum settlements from qualified pension plans can be rolled into your IRA. It may look bad that he took a large pension settlement when he left Bain (in light of Bain’s cutting pensions at companies they acquired), but there’s nothing illegal about it.
Re Mitt’s IRA… I’ve got more in my IRA than the contribution limit would imply is possible. Is it illegal or questionable? No. When you leave a company, the contents of your 401(k) can be rolled into your IRA. Lump-sum settlements from qualified pension plans can be rolled into your IRA. It may look bad that he took a large pension settlement when he left Bain (in light of Bain’s cutting pensions at companies they acquired), but there’s nothing illegal about it.
Re Mitt’s IRA… I’ve got more in my IRA than the contribution limit would imply is possible. Is it illegal or questionable? No. When you leave a company, the contents of your 401(k) can be rolled into your IRA. Lump-sum settlements from qualified pension plans can be rolled into your IRA. It may look bad that he took a large pension settlement when he left Bain (in light of Bain’s cutting pensions at companies they acquired), but there’s nothing illegal about it.
Mr. Cain, I think you miss the point entirely. Perhaps there is a problem in the rules. I wonder, for example, about recharacterization to Roth. Anyone know? (I assume this is a deferred IRA.)
Thanks for the catch on carried interest. I have corrected it on my blog and credited you. Not sure what you mean re conflating the hedge fund and private equity loophole.
Jon Stewart’s piece has video of Romney opposing the abolition of the carried interest provision. Shaxson’s article says Romney announced $2 million more in Bain income just last month and tries to parse – with the obviously limited info available – what his relationship with Bain currently is.
I agree that “loopholes” are in the eye of the beholder. But I think at minimum a loophole has to be a tax expenditure, not any tax provision.
Shaxson’s account is that the probable answer is undervalued “A” shares of various deals being put into his IRA is the explanation. Your rollover point is a good one, and it could be cleared up with a release of Romney’s tax returns.
Private Equity “loophole” is different than the hedge fund “loophole”. HFs place deferred compenstation in their offshore accounts, which then compound tax-deferred until deferred compensation becomes realized compensation. HF gains are typically short-term in nature and thus not subject to capital gains treatment. Of course, deferred compensation, means lower immediate compensation for the employee, which means higher profit for the firm, which means the partners pay higher corp/LLC taxes, so I’m pretty sure there’s no net impact to Treasury. PE “loophole” is not a “loophole”, rather IRS taxes based on the character of income and the character of carried interest is capital gains.
Consider a situation where you have capital and your brother has labor skill in managing a book store but no capital. You each take a 50% equity stake in the new book store he opens, you as a passive investor and he as management. He gets paid a salary for managing the store, on which he pays ordinary income taxes, FICA, etc. 5 years later you sell it to Borders at 2x your original investment. You as the capital would get capital gains treatment on your 50% and your brother would owe no taxes (your basis would be 1x, your gain would be your 50% stake of 2x)
Now use a similar situation, but instead of brothers, have it with two people who don’t know each other, but find each other through a third-party intermediary. You take 40% for your capital, the manager takes 40% for his labor, and the intermediary takes 20% for the labor of putting the two of you together. When the business is sold, the character of the capital gain doesn’t change simply because there’s an intermediary that owned 20% of the equity.
I suspect that Romney probably still has ownership interests in the LPs (aka investment funds) that Bain created which have undistributed proftis. This is very common in the industry.
Err, no. But given that Geoffrey Robertson, who went on to become Paymaster General in the UK Government (a Cabinet position) went into business with Maxwell after 1984 (a company called Central and Sherwood) doing business with Maxwell in the 80s isn’t quite as appalling as later knowledge makes it seem.
Which was my only point.
And just for the record I don’t play for Team Republican: indeed, think Romney would be marginally worse than Obama. Not that I have a vote, being foreign and all that.
It doesn’t have to be illegal to be damn unfair. This is Johnston’s key point including in his excellent books btw.
Ahh fairness.
His 2010 tax bill was $6.2 million dollars. And yes, his income was roughly 560x a median family’s. But his Federal income tax bill was roughly 1470x.
How much of Mitt’s earnings do you feel you’re entitled to, AS?
To take an $80K taxdeduction for Ann’s horses is a nice loophole in my opinion.
But the Wall Street Journal is reporting that multiple Bain executives, not just Romney, got huge gains within their IRAs by depositing grossly undervalued shares in them, just as Shaxson says. This would render moot any speculation about rollovers. See the second update to my original post at Middle Class Political Economist.
Ah, young m.jed,
I don’t see AS claiming he/she is entitled to any of Romney’s earnings. I think the discussion here concerns taxes levied by the federal government.
And although you didn’t ask, I think a top marginal federal income tax rate of 50% (all income, including interest, dividends and capital gains) would be reasonable.