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Mitt Romney’s Unintentionally Hilarious Tax Return FAQ

by Kenneth Thomas

Mitt Romney’s Unintentionally Hilarious Tax Return FAQ

Unless you’ve been in a coma, you have certainly heard about Mitt Romney’s release of his 2011 tax returns last Friday. You no doubt know that he and his wife did not claim all the charitable tax deductions they were due, so their tax rate would not go below 13% of adjusted gross income. If you read Bloomberg or a newspaper that picked up the Bloomberg story, you know that Rafalca, the Romneys’ dressage horse, has disappeared from their 2011 tax deductions. This, of course, raises the question of whether it was a legitimate deduction in 2010 (or earlier?). After all, being in the Olympics probably raised the mare’s value, making the profit motive necessary for an allowable business deduction more plausible. So why would Rafalca not be eligible to deduct in 2011 if she were eligible in 2010 and probably gained value?

But have you read the Frequently Asked Questions page the Romney campaign put up about the 2011 returns and the PricewaterhouseCoopers (PwC) summary of the Romneys’ 1990-2009 taxes? You should, for the humor value, if nothing else.

In question 9, we learn how PwC calculated the average effective tax rate: they added the tax rate for each year, then divided by 20. This tells us almost nothing, as many observers (here’s one, h/t Think Progress) have pointed out: $50 million taxed at 10% (though the campaign claims it was never less than 13.7%) and $5 million taxed at 30% would yield an average tax rate of 20%, using the PwC method, when the true tax rate would be 11.8% ($6.5/$55) in this example.

In the very next question, however, we learn that for the total of federal taxes, state taxes, and charitable contributions (38.49%), PwC used the proper averaging methodology! In other words, adding up all the payment dollars and dividing by the total adjusted gross income (though we don’t know what tricks he used before adjusted gross income). Why didn’t they do that for tax alone?

In 2011, the Romneys’ charitable contributions came to just over twice their federal income tax ($4 million vs. $1.9 million). If that ratio applied for the entire 1990-2009 period, that would make the federal tax portion less than 13% (even lower because I have ignored state taxes). Of course, we have no way of knowing the real rate for federal or state taxes, or charitable deductions, without seeing the actual tax returns.
But wait, there’s more! Don’t forget all the offshore accounts! To do this question and answer justice, I’ll have to quote it in full:

12. There are some investments that seem to be established in offshore accounts, like the Cayman Islands and Bermuda. Are these investments evading taxes?
Note the misdirection in the question, “evading” rather than “avoiding” taxes, which describe illegal and legal maneuvers respectively. Few people think Romney has broken the law, though Nicholas Shaxson considers it to be a possibility.

No, the investments by the blind trusts in funds established in the Cayman Islands or other jurisdictions are taxed in the very same way they would be if the shares were held in the US rather than through a Cayman fund. No taxes are evaded or reduced. These funds are all registered with the IRS and report all income to investors and the IRS, just like domestic funds. Whether in Bermuda or Boston or elsewhere, there is no difference in how they are taxed.

If this were true, why would the funds need to be organized in the Cayman Islands? Boston would be a lot more convenient. No, as Richard Murphy of Tax Research UK told me, these funds are set up to allow round tripping by U.S. investors to avoid U.S. taxes, though some foreigners may also take advantage of them. Moreover, if foreigners are exempt from U.S. taxes like the Unrelated Business Income Tax, what need do they have to invest through the Caymans except to avoid taxes at home? Finally, we know from the Gawker revelations that at least two Cayman funds the Romneys invested in created five blocker corporations, which are set up precisely to allow round-tripping by Americans. How can these funds be established in the Cayman Islands, etc., for any reason other than tax avoidance?

In addition, it is important to note that there are no offshore accounts. These are investments in funds that are organized outside the US.

A fund organized in a secrecy jurisdiction like the Caymans, Bermuda, or Luxembourg is offshore by definition.

Further, it is important to note that Governor Romney did not make these investments. Governor and Mrs. Romney’s assets are managed on a blind basis. They do not control the investment of these assets. The assets are under the control and overall management of an independent trustee.

We’ve known since 1994 what Romney thinks of blind trusts, calling Senator Ted Kennedy’s “a ruse.”

Finally, the trustee did not choose where the investments were located any more than a stockholder in a Fortune 500 company chooses where that company is organized. Only the sponsor of the fund decides where it is organized. That responsibility is totally outside the control of a passive investor like Gov. Romney or the trustee of his blind trust.

And a stockholder can sell his shares. Has trustee Brad Malt never heard of “divestment”? I was one of thousands of people active in the late 1970s to get our universities to sell stock in companies doing business in South Africa, the “divestment movement.” While we weren’t very successful at Princeton, students and faculty at many other universities were, and some major local government funds divested from such firms, too, leading companies like Citicorp to end their South African operations. Malt could sell if he wanted to.
The bottom line is the “same as it ever was,” one tax system for the 1% and another one for the rest of us.

cross posted with Middle Class Political Economist

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57% of Leading Economists are Not Worried About an Inflationary Wage/Price Spiral

8% are. 23% are uncertain or have no opinion.

I really like this IGM panel (check out the roster — pretty damned impressive, or at least credentialed), but I wish they didn’t post such wishy-washy, softball questions. I post this one because it’s not.

The one I’d really like them to ask:

A modern, prosperous country taxing 40% of GDP is likely to grow significantly more slowly over the long term than one taxing 30% of GDP.

True or false?

Cross-posted at Asymptosis.

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Our Unserious Supreme Court: “Federalism,” “Jurisdiction,” Kiobel v. Royal Dutch Petroleum Co., and Anthony Kennedy – [Typo-corrected and updated TWICE]

In the comments to my post of yesterday titled, “Welcome Back, Supreme Court Justices! (Well, for the next two weeks, anyway.),” Angry Bear colleague Dan Becker wrote:

Hi Bev, 

I have read about this case. Still unclear even after reading your piece as to what the law was for, to do and how the new interpretation changes it. Would love some more expansion on it.

With that, I wonder if it will really matter if that Trans Pacific Partnership goes through.

I wrote back:

Hi, Dan.  In my opinion, the biggest problem with most mainstream-media coverage of the Supreme Court is that they mainly cover only Supreme Court decisions that address what lawyers call “substantive” issues—the stuff that actually addresses bottom-line issues that most people think of as what the Supreme Court decides, such as whether something violates the First Amendment or the Fourth Amendment (e.g., search-and-seizure).  But a huge, huge part of what the Supreme Court does is decide “procedural” issues, especially “jurisdictional” issues (which make up a huge, huge part of “procedural” issues—and those issues concern the threshold question of who has access to court, and under what circumstances.

The Reagan-era rightwing legal types—federal judges appointed in the 1980s and people like John Roberts and Samuel Alito, who worked as political appointees in the Reagan Justice Dept., and others who “came of age” during that period—have engaged in a decades-long, extremely effective crusade to turn federal law into mainly procedural/jurisdictional law, and to do so in a way that, in effect, lets judges interpret these procedural/jurisdictional (and, closely related to jurisdictional, “immunity”-from-liability) law to bar nearly all constitutional civil rights cases, and many other types of cases, that the ideological right disfavors on substantive grounds, while finding no such procedural/jurisdictional bars when the issue is, say, property “takings” rights or one of the other two or three type of constitutional rights favored by the right. 

Anthony Kennedy and Clarence Thomas are at the very forefront of this type of thing.  Kennedy’s views on this are truly bizarre and utterly unfounded in any reasonable interpretation of American law since the Fourteenth Amendment became part of the Constitution.  He believes that state courts, unlike the two other branches of state government—the executive and legislative branches—are free to ignore constitutional rights, because otherwise the federal government (the federal courts) would be undermining “federalism” and thus the “dignity” of the states as “sovereigns.”  But he never explains why he recognizes that the two other branches of state government have no such exemptions from the Constitution’s Supremacy Clause.  Thomas, by contrast, simply doesn’t recognize the Supremacy Clause at all, except for such things as gun-ownership rights, reverse-discrimination Equal Protection rights, property “takings” rights, and the right to commandeer, say, a public school event to proselytize on evangelical Christianity.

The Supremacy Clause is at Article VI, Clause 2.  It says:

This Constitution, and the Laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding.

All that said, the issues in Kiobel [v. Royal Dutch Petroleum Co.] concern only the interpretation of a federal court-jurisdiction statute—access to federal court in a personal-injury/property-damage case.  The issues and arguments are so arcane (inside-baseball) that it’s hard to summarize them briefly, mainly because the issues in this go-around at the Court are different that the ones argued there last spring—but that doesn’t mean that the earlier-argued ones won’t ultimately be the issues on which the case is decided. 

So, [here’s] a good article on it all, that I think is understandable to lay people.

I also posted a PS to Dan, saying:

I don’t know enough about the specifics of the Trans Pacific Partnership provisions to know whether or not it would affect the application of the Alien Tort Act*, Dan.  It seems to me, from googling the pact, that it could, but I really don’t know.

Basically, what that crowd has done is erect a series of classic violations of the constitutional construct of equal protection of the law.  They’ve done so in two separate ways:

First, they have effectively closed down the Supreme Court except for a tiny, tiny handful of cases, almost always only when asked by a state or local government, a state or local government official (usually a prosecutor), a crusader on some issue, represented* for free by some rightwing lawyers’ group, or a corporation or very wealthy federal criminal defendant represented by some $1,000 per hr. Supreme Court “specialist.”  
They do this increasingly these days, apparently largely at the behest of Kennedy (at least when a lower court has violated the “sovereign dignity” of a state court in a state criminal case) by acting as a “court of error,” correcting what they claim is legal error by the lower court in contradicting what the good justices say is clear Supreme Court precedent, but by ignoring, year after year, so many other clear instances of lower courts ignoring Supreme Court precedent that it’s downright jaw-dropping, because, after all, they continue to claim, the Supreme Court isn’t a “court of error.”  (Antonin Scalia is especially vocal on this, except, of course, when he decides that it can serve that very purpose.)

And, second, they have deliberately established such convoluted procedural/jurisdictional rules that those rules are inherently (and, surely, by design) open to whatever interpretation the lower-court judges wish.  And almost always, what they wish is to dismiss lawsuits.  And so that’s what they do.  Most judges, irrespective of which president appointed them, do this these days, simply to lighten their civil case to, roughly, cases filed by large corporations.  (State-court judges caught on to this free-for-all a while back, and do the same.) 

But, as for the Supreme Court, many, many of us who actually follow it closely recognize that it’s become a perverse joke—a non-serious institution that continues to have profoundly serious control over very serious matters.  Sort of like other venerable American institutions—the old, once-venerable Wall Street brokerage firms, for example—that have been commandeered, morally, by the ideological right in the last three decades.  With similar results.

—-

*Typo-corrected since original was posted.  The original said “repressed for free.”  It wasn’t Freudian; it was just a spell-check error.  I swear.
**Added since original was posted.

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SECOND UPDATE:Here’s a good discussion of the “law of nations” language in the Alien Tort Statute*, and why, at least in the opinion of environmentalists, that—i.e., this substantive issue—rather than the procedural issues that the conservatives raise, is what Kiobel should be about.  The Court will address this substantive issue only if it rules against the oil company on the jurisdictional issues—are foreign corporations “aliens” within the meaning of the statute, and if so, does the statute limit its reach to cases with ties to the United States?  It seems really unlikely that it will decide that the statute applies to conduct untied to the United States—even though drawing that conclusion requires—horrors!—looking beyond the text of the statute to legislative history. 

Which, as luck would have it, is perfectly appropriate if that’s what it takes to rule in favor of an oil company and other mega-corporations.

—-
*Correction, Oct. 2: The statute is known by two names: The Alien Tort Statute (ATS) and the Alien Tort Claims  Act (ATCA). 

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Base broadening, rate lowering…Robert asks?

Lifted from Robert’s site:

Ezra Klein defends an increased capital gains tax as necessary for distributionally neutral base broadening rate lowering tax reform..  I support a higher capital gains tax rate (did not have space for that in my comment).
 
My comment:

But why do you want base-broadening, rate-lowering tax reform  ?  The inside the beltway wonk consensus is that this must be good.  The claim is that it is more efficient.  Surely true if efficiency is measured as dollars raised per page of tax code or dollar of compliance cost.  But the argument is that the important advantage is that such reform will reduce distortions due to taxes.  Here the implicit arguments are both that high rates cause distortions and that deductions and credits and such allow socially costly tax avoidance. I consider them in turn:

1) High rates are bad. There is almost no evidence for this claim. It is an article of faith for Republicans and Democrats have decided that they can get more important changes in exchange for lower rates.  But as far as I know (and I’ve published in the Journal of Public Economics) the claim is not supported by actual evidence.

2) Tax expenditures are worse than just giving the money to corporations and rich individuals because they distort decisions.  Here I think opposition to tax expenditures in general is like opposition to government’spending in general.  No one likes either in the abstract. 

You wouldn’t really argue that way too many Americans had health insurance because employer provided health insurance was not taxed as income.  So that is one major bit of base broadening you would have opposed at least pre ACA (except on a ‘the worse it is the better it is’ Leninist principle). 

How about the EITC.  You know that is one tax expenditure that Republicans want to cut.  It is also one of the very best policies there is (one of the key ways US policy is vastly better than European policy along with … uh give me a minute).  How about the charitable gift deduction ? It can be abused but seems basically OK to me.
 
I think a lot of the broad support for base broadening is based on hatred of the mortgage interest deduction.  It means huge houses far from work and driving cars and global warming.  It diverts saving from productive capital labor productivity and wage increasing capital to houses which just sit there.  Suburban and Exurban because that’s where the new building is.  Also completely totally politically untouchable and you know it.  You might as well base your hopes on cutting rates and increasing the tax on gasoline by a dollar a gallon plus imposing a $100 dollar a ton carbon tax.  Fine policy, but not a policy proposal of any relevance to the US debate.
 
The most extreme case is someone (not you a friend of yours) who said we have to radically simplify the corporate tax code so corporations spend money on engineers not lawyers and accountants.  That is to increase corporate R and D and eliminate the R and D tax credit.
 
3) This is not an argument for base broadening and not at all relevant to this blog, but I think every aging Washington wonk’s favorite year is 1986.  Genuinely bipartisan, wonk driven reform.  It was great.  But what good did it do ?

(Dan here…Light editing for readability)

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Patents, innovation, asset class, and weapon

While the issues involved are complex and also involve the use of government force to make it stick, and drug patents have a long and debated history, New asset class and much more at Dealbook points to a growing phenomenon for the global economy as well. Patents and innovation deserve a separate post, but the weapons of choice is heating up and involves much more than ‘competition’:

“Patents are a volatile, spot market,” he said. “This is a market, but a market that is more like art than stocks or oil.”
Ron Epstein, chief executive of Epicenter IP Group, agreed that pricing patents, especially large portfolios, was difficult. But he said he thought corporate trading in patents would become more commonplace, and pricing more routine. Someday, he predicted, patent acquisition costs may be a standard line item in corporate earnings statements.
“By fits and starts, we are moving to a more efficient marketplace for innovation,” Mr. Epstein said.
Calling patents an asset class is shortsighted, said Kevin Rivette, a founder of 3LP Advisors. The larger value of a portfolio, he said, can be as a strategic tool to negotiate lower costs from a supplier or to alter a rival’s product plans.
“You can use patents to change the competitive landscape,” he said.

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Welcome Back, Supreme Court Justices! (Well, for the next two weeks, anyway.)

Well, it’s that time of year again—when the Supreme Court justices interrupt their primary careers of flitting around the world (some of them), or at least around the country (the remainder of them), to teach a law school course or two, to instruct high court justices in other countries on how to feign working full-time, and to reassure us all yet again that they’re all great friends. With one another.

That last one is not least.  It is instead a perennial, and a great relief to those of us who care more about the justices’ working conditions during their occasional-days job than with, say, the fact that as a practical matter, we really have no Supreme Court.  Which we don’t, except for the 68-or-so occasions each year when they deign to answer the call of duty, usually of a state whose dignity has been affronted by a federal appeals court that has placed some importance of a constitutional magnitude upon the dignity of an individual [pdf required] who wasn’t complaining of one of infringement upon one of the three or four rights that conservatives privilege over the right of states to violate them, or by a corporation that otherwise would have to deal with a class action lawsuit.  Or by the group Citizens United.

So … no more tips to law students to stay upbeat and focused.  Not from the leading expert on such matters, anyway.  And no more sycophantic predictions of the horrors that would befall society if cameras were allowed at the Court’s arguments and the news media selected only short clips of Antonin Scalia’s snideness or Anthony Kennedy’s state-courts-but-not-state-executive-or-legislative-branches-are-entitled-to-flip-the-Supremacy-Clause-in-order-to-save-our-republican-form-of-government rants.  Not to mention in order to save our Republican form of government.  Which the court did not, in an actual oral argument, anyway, opting instead for a summary order rather than full briefing and an in-court airing.

No, sir, no more such helpful insights from the ultimate experts until at least the third week of October, anyway.  They break then, after an exhausting five full—er, five half—days of oral argument and two, count- ’em, two, afternoon conferences, but, unlike other breaks during the winter and spring, only for about 12 days.  During which time, they do read a few of the law clerk “cert. pool” one- or two-paragraph memos recommending a denial of review on virtually every petition filed by a private party who is not represented in the petition by one of the—what? ten, or so?—de facto-gatekeeper Supreme Court“specialist” lawyers, who by sheer virtue of the fact that they charge about $1,000 an hour and will guarantee that at least one actual justice will read the petition—most certainly are special.  So it’s not as if these folks don’t work during their (many, many) off hours.  (I mean, on Court business! What?  Did you think I meant on writing incessantly banal or downright misleading and deeply self-serving books?)

Anyway … the justices kick off their term this year with a bang.  Of sorts.  This particular bang was supposed to occur last term, in a case called Kiobel v. Royal Dutch Petroleum Company, that will decide whether a statute called the Alien Tort Statute, passed in 1789 to deal with piracy on the high seas, gives our country’s federal courts the authority to hear cases filed by non-Americans against foreign corporations, or foreigners at all, for injury to person or property that occurred outside the United States.  The statute provides that “[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.”  The case gained a lot of attention last spring when the justices heard oral argument on it, and some of them, but surprisingly not Samuel Alito, indicated that they wanted to rule that “aliens” did not include corporations, irrespective of whether they’re offshore ones or are instead incorporated in, say, Delaware and are therefore people at least for purposes of First Amendment free-speech and free-association rights.   

But shortly after the oral argument, a majority of the justices decided that Alito, not to mention Mitt Romney, had the better argument.  Corporations should be considered people, my friend, even when that means they can be sued under the Alien Tort Statute*.  At least until Super Pacs funded by these people can put in place enough members of Congress to enact a change to that statute.  Like, to repeal it.  But as it currently exists, the Statute should apply only to corporate people who also are American corporate citizens. 

Which is what Alito had suggested. The majority, egged on by Kennedy from the very outsetof the argument, already had decided that they should rewrite the statute to limit it to actions to which the United States has some association.  “No other nation in the world permits its court to exercise universal civil jurisdiction over alleged extraterritorial human rights abuses to which the nation has no connection,” Kennedy said. The quote was itself a quote, verbatim, from an amicus brief filed by Chevron Corporation.

So … voila!  So much for textualism in judicial interpretation of statutes. The text of this particular statute requires … originalism, the first-line-of-defense fall-back for the likes of Scalia and Clarence Thomas.  Unless, of course, some of those pirates targeted by the statute back in circa 1789 weren’t Americans. 

Ooops.

Back to plan A?

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*Correction, Oct. 2: The statute is known by two names: The Alien Tort Statute (ATS) and the Alien Tort Claims  Act (ATCA).  My original post called it the Alien Tort Act. 

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Romney’s "revenue neutral" 20% rate cut may not be achievable, Hassett admits

Lifted from Linda Beale’s:

Romney’s “revenue neutral” 20% rate cut may not be achievable, Hassett admits

…For months, many tax experts have been saying that even what is known about Romney’s plan–skimpy as it is on any real information–shows that it is unworkable.  One of Romney’s sometimes advisers finally sort of acknowledged that.  Kevin Hassett (an American Enterprise Institute propaganda tank “expert” who coughs out Friedmania economic assumptions as though they were clearly settled laws of nature) admits that unless there is a “broadening of the tax base” Romney couldn’t reduce rates by 20% across the board in a revenue-neutral way.

Now, “broadening of the tax base” in connection with reduced rates was possible back inn 1986 when we had maximum rates much higher than today.  But most broadening that should be done won’t be done, because there is no political will for it in Washington either because Romney won’t favor it or because the Tea Party crazies won’t.  (We won’t be eliminating the capital gains preference under a Romney administration, for example, or eliminating the tax subsidies that we give to Big Oil and other extractive industries that make oilmen billionaires–like letting them get the “domestic manufacturing deduction”, which they currently are able to use to reduce their US taxes even more.)  Hassett admitted that “if you think the base broadeners don’t add up, if you think that he can’t get [top rates down] to 28%, well then the right thing that would happen, as you know if you’re going to have revenue neutral reform, is that they would have a different change in rates.”  BNA Daily Tax RealTime (Sept 24, 2012 at 7:19 pm)….

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UNACCOUNTABLE:

by Tom aka Rusty Rustbelt

Health Care Thoughts: Book Review

There has been a lot of buzz about a book published on September 18th. (Dan here..See here for one buzz)

UNACCOUNTABLE: What Hospitals Won’t Tell You and How Transparency Can Revolutionize Health Care by Marty Makary, MD

This is an important book because in plain English it discloses much of what is wrong with clinical medicine today.

The dirtiest secret: physicians and hospital administrators protect incompetent and volatile physicians.
Several years ago I wrote an editorial on malpractice reform and mentioned that in any hospital the nurses have a “don’t let that hack touch me” list. It was a good editorial, I offended hospital executives and trial lawyers in one piece.

Anyway, if you have any interest in health care policy read this book. FWIW, finding the problems is easier than finding the solutions.

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