Relevant and even prescient commentary on news, politics and the economy.

Romney’s CRUT Tax Shelter

by Linda Beale

Romney’s CRUT Tax Shelter\

The Bloomberg press has looked further at Romney’s use of trusts and other arrangements to avoid taxes, using Freedom of Information Act requests to obtain more information than was released by Romney in his meager tax return release. Romney established a charitable trust in 1996 of a type that Congress cracked down on in 1997 (regrettably, a crackdown that grandfathered existing arrangements, which is the way so many rich people get to keep using abusive shelters). See Jesse Drucker, Romney Avoids Taxeds via Loophole Cutting Mormon Donations, (Oct. 29, 2012).

So what did Romney do.  He used a “charitable remainder unitrust” (CRUT) in a way that alllowed him to use the tax-exempt status of the Mormon Church (his primary charitable beneficiary) to defer taxes for more than 15 years.  The trust benefits Romney considerably, by letting him benefit from the tax-free treatment that the charitable beneficiary has when they sell assets for a profit.and leaves the church less than current law requires for a trust.   And it favors Romney over the church, because he gets a guaranteed payout from the trust (which converted most of its assets to cash in 2007) and the church only gets what’s left at the end, if anything.  Current trends suggest there won’t be anything left for the charity at the end.

“The main benefit from a charitable remainder trust is the renting from your favorite charity of its exemption from taxation,” [Jonathan] Blattmachr [, a trusts and estates lawyer] said. Despite the name, giving a gift or getting a charitable deduction “is just a throwaway,” he said. “I used to structure them so the value dedicated to charity was as close to zero as possible without being zero.”

When individuals fund a charitable remainder unitrust, or “CRUT,” they defer capital gains taxes on any profit from the sale of the assets, and receive a small upfront charitable deduction and a stream of yearly cash payments. Like an individual retirement account, the trust allows money to grow tax deferred, while like an annuity it also pays Romney a steady income. After the funder’s death, the trust’s remaining assets go to a designated charity.

Romney’s CRUT, which is only a small part of the $250 million that Romney’s campaign cites as his net worth, has been paying him 8 percent of its assets each year. As the Romneys have received these payments, the money that will potentially be left for charity has declined from at least $750,000 in 2001 to $421,203 at the end of 2011. Id.

Under the 1997 change to the law, Congress required that the present value projected to be left for charity must equal at least 10% of the initial contribution. Romney’s CRUT doesn’t satisfy this requirement but was grandfathered in.  The principal of the CRUT has dwindled to about half what it was.  In the meantime, the Romney’s have enjoyed considerable tax savings due to the way the CRUT works.

This information is revealing for two reasons.  First, it demonstrates yet again that the Romney’s are eager to use whatever mechanisms they can to reduce taxes, even though their millions are due in no small part to the way taxpayers make business possible (from courts to roads to police to the military to “rule of law” to relatively low funding costs for borrowing in the United States, etc.).   One suspects that the reason Romney has stonewalled the public on his tax returns is that there is lots more of this nature shown therein, including possibly his participation in voluntary disclosure regarding offshore accounts (that otherwise might have resulted in criminal tax evasion charges).

Second, it shows that Congress recognized that CRUTs didn’t make sense.  So we have to ask why Congress didn’t eliminate CRUTs altogether, rather than continuing to allow the gambit, and why, if it were going to continue to allow the gambit, it didn’t terminate the favorable treatment of any existing CRUT that didn’t satisfy the minimal funding requirement the new law included (10% of the original contribution has to go to charity before the donor can enjoy the immense benefit of the capital gains deferral thereby).   Congress should allow the estate tax to lapse back to the pre-Bush levels, and it should then buttress the estate tax by legislating the end to the many different devices used by estate lawyers to get around the tax while still providing most of the benefits of the assets to the estate planners–CRUTs and similar estate-planning trusts are prime targets for action by Congress.

cross posted with ataxingmatter

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The Economic System of the Apostles

by Mike Kimel

The Economic System of the Apostles

I am not a Christian, but if I was, I suspect the following verses from the Acts of the Apostles would have an impact on my life.

Acts of the Apostles, 2: 44-47

And all that believed were together, and had all things
common; And sold their possessions and goods, and parted them to all
[men], as every man had need. And they, continuing daily with one
accord in the temple, and breaking bread from house to house, did eat
their meat with gladness and singleness of heart, Praising God, and
having favour with all the people. And the Lord added to the church
daily such as should be saved.

Acts of the Apostles, 4: 32-35

And the multitude of them that believed were of one heart
and of one soul: neither said any [of them] that ought of the things
which he possessed was his own; but they had all things common. And
with great power gave the apostles witness of the resurrection of the
Lord Jesus: and great grace was upon them all. Neither was there any
among them that lacked: for as many as were possessors of lands or
houses sold them, and brought the prices of the things that were sold,
And laid [them] down at the apostles’ feet: and distribution was made
unto every man according as he had need.”

Acts of the Apostles, 5: 1-11

But a certain man named Ananias, with Sapphira his wife,
sold a possession, And kept back [part] of the price, his wife also
being privy [to it], and brought a certain part, and laid [it] at the
apostles’ feet. But Peter said, Ananias, why hath Satan filled thine
heart to lie to the Holy Ghost, and to keep back [part] of the price
of the land? Whiles it remained, was it not thine own? and after it
was sold, was it not in thine own power? why hast thou conceived this
thing in thine heart? thou hast not lied unto men, but unto God. And
Ananias hearing these words fell down, and gave up the ghost: and
great fear came on all them that heard these things. And the young
men arose, wound him up, and carried [him] out, and buried [him]. And
it was about the space of three hours after, when his wife, not
knowing what was done, came in. And Peter answered unto her, Tell me
whether ye sold the land for so much? And she said, Yea, for so much.
Then Peter said unto her, How is it that ye have agreed together to
tempt the Spirit of the Lord? behold, the feet of them which have
buried thy husband [are] at the door, and shall carry thee out. Then
fell she down straightway at his feet, and yielded up the ghost: and
the young men came in, and found her dead, and, carrying [her] forth,
buried [her] by her husband. And great fear came upon all the
church, and upon as many as heard these things.

How do you interpret these selections?

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Discussing Tax Increment Financing on TV

by Kenneth Thomas

Discussing Tax Increment Financing on TV

I recently appeared on a local public access TV show, Conversation with Lee Presser, discussing tax increment financing and European Union subsidy control regulations. It’s a great format, just an almost 30-minute discussion without interruption, which allowed me to explain the problems with TIF as it has been used in Missouri in great detail. We also had a shorter conversation about EU regulations to control investment incentives and other subsidies, which covered the basics of transparency, maximum subsidy rates that vary by how rich the region is, and the reduction in those rates for large projects. Many thanks to Lee Presser for having me on. If you are interested in economic development issues, I think you will enjoy the program.

(“A Conversation with Kenneth Thomas – UMSL Professor of Political Science – 10/23/12”)

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Hurricane Sandy and climate change

Reader Jan Galkowski sends this caution about promoting Hurricane Sandy as the result of climate change.  The following is taken from an e-mail to me yesterday:

There’s a lot being written about Hurricane Sandy in connection with climate change. It is likely that this hurricane was exacerbated by human induced climate change, notably the excessively warm waters off New England, but it is not scientifically correct to say the hurricane or its merging to become a nor’easter were caused by climate change. It is possible that the blocking high over Greenland contributed to that, however the attribution is dilute, if present.

Andy Revkin in the New York Times has a nice summary of the current science.

Although we know all is affected by greater energy on the planet, the fraction of Sandy’s fury attributable is perhaps 10%. Thus, comments like the following from are simply incorrect, and are misleading:

It’s as out of kilter as the melting Arctic or the acidifying ocean. And if there were any poetic justice, it would be named Hurricane Chevron or Hurricane Exxon, not Hurricane Sandy.

The ends do not justify the means.
If there’s something to be learned by this experience, it is that climate change is expanding and enlarging the oceans by thermal effects, and eventually by ice mass melting, both through displacement and gravitational effects. Eventually, common nor’easters will suffice to breach Battery Park walls and drown barrier islands. And there may be surprises in store as well.

As some of you have seen, I myself have done a calculation showing that the frequency of out of season hurricanes has increased since the late 19th century. That increase is statistically significant, although it may not be enough for everyone to notice.

Despite the great need to move policy towards a global economy that grows without more material consumption, which I very much agree with, distorting the facts destroys trust and disturbs the healthy ecosystem of scientific funding and research. It is also unethical.

It may be inconvenient that people are not moved by reason as much as by fear. But that is their choice, even if they suffer the consequences. It’s the responsibility of science to educate and be principled, even if we know that delay implies additional cost, additional deaths. It will also be the responsibility of science to tell policymakers and people that certain aspects of climate change are no longer reversible in any time frame that makes political or economic sense, and the longer we wait, the more of that kind of thing there will be.
I ask your collective understanding of this matter, and draw your attention to what will be the increasing problem of mitigating rather than preventing climate-related risks, as they are described in the SREX report from the IPCC. (Revkin alludes to this at his page.) 

Thanks. Hope everyone’s healthy and safe.
– Jan

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Starve the state; support traditional families (only)

by Linda Beale

The right-wing’s “breadwinner conservatism”–starve the state; support traditional families (only)

Many of us who think about tax and economic policy have been confounded by the tendency of lower-middle-class families to vote Republican, which means they are ultimately voting against their own economic interests for a party that wants all the benefits of the federal government to accrue to the already wealthy, and sets policies to ensure that is true, from tax cuts to capital gains, estate taxes and progressive rates (all favoring the wealthy) to the kinds of subsidies represented by the “active business exception” that allows tax free reorganizations to move business assets and jobs out of the country without any tax “toll” on the departure.

Michelle Goldberg , a Newsweek and Daily Beast writer, provides some answers to this mystery in her review of Robert Self, “All in the family: The realignment of American Democracy since the 1960s” Hill & Wang (2012) in The Nation (Oct. 22, 2012), at 32.  While she finds the Self book lacking in the in-depth analysis that would make it not only a great read but also a revealing informational source on the changes in the American polity, she does note  the  label he attaches to the right-wing resurgence (“breadwinner conservatism”) as an apt descriptor of the way social traditionalism–opposition to gay rights; eagerness to encourage governmental support of fundamentalist Christian dogmas and impose them on others; belief that the only kind of family that should receive government subsidies and support are those with a mother (ideally non-working), breadwinner father and children–intersects with radical market fundamentalism and its “starve the beast” approach to government.  Instead of the paradox that liberals sense between”values” voting and market fundamentalist economic theory that supports an oligarchy at odds with most of the “values” voters’ economic self-interest, Self describes the way “social and economic conservatism buttress each other”.  Id.

“[T]he defense of the autonomous, idealized nuclear family ‘was intimately linked to the way [conservative activists] also sought to limit government interference in the private market,” Self writes. Id. at 33.
Thus, when two women with children are paid about the same at their job in a daycare center but one is firmly in the middle class because she is married with a husband in a good job and the other is struggling on food stamps because she is not married, the attitudes of progressives and conservatives differ starkly on the remedies.  Progressives see this is a failure of the system to support all kinds of families and consider the right’s denigration of the hardworking single mother as hypocrisy. 

The right, however, believes that “encouraging traditional faimilies is of paramount social importance” so it is okay with a system that makes the lives of single mothers more difficult while rewarding more traditional mothers.  Because the right also dislikes any form of government intervention in the markets or government intervention that might upset the applecart regarding the dominance of traditional families (and traditional religious institutions), it wants to keep government small and ineffective, assuring that it does not provide public support such as “food stamps, subsidized daycare, and after-school programs” that would make life easier for single mothers.  As Paul ryan made clear in his “path to prosperity” budget plan, the right-wing prefers to undermine government because it wants nongovernmental institutions to determine who gets aid, and how.  When fundamentalist churches are the arbiters of aid, single women experience the shame and public ignominy that the right believes they deserve.

Goldberg adds substance beyond what she finds in Self.  She notes that ‘[a]s long as big-government liberalism worked to uphold the nuclear family, it was supported by a fairly broad social consensus.”  When traditional ideas about gender and about the innate heroism of the military started to fray in the 1960s and 1970s with feminism, gay rights, and sexual liberation, and calls for the end of patriarchy,  the right responded.  Radical anti-feminists like Phyllis Schlafly, notes Goldberg, saw feminists as “radicals who are waging a total assault on the family, on marriage, and on children.”  George Gilder, radical anti-feminist and hardcore supply-sider who wrote many speeches for Reagan, “was upfront about opposing reproductive rights because he believed they undermined male power and about how his economic theories depended on women’s submission. Goldberg quotes the following passage from Gilder:

When the women demanded’ control over our own bodies,’ they believed they were couching the issue in the least objectionable way. … But as Norman Mailer pointed out at the time, they were in fact invoking one of the most extreme claims of the movement and striking at one of the most profound male vulnerabilities.  For, in fact, few males have come to psychological terms with the existing birth-control technology; few recognize the extent to which it shifts the balance of sexual power in favor of women.  A man quite simply cannot now father a baby unless his wife is fully and deliberately agreeable. … Male procreativity is now dependent, to a degree unprecedented in history, on the active pleasure of women.”  Id. at 34 (quoting Reagan speechwriter George Gilder).

Goldberg concludes that “[t]he contemporary conservative movement has succeeded in part by painting the government as the ultimate cause of emasculation.”  Id. at 34.  She suggests that Ryan’s speech at the convention personified this view, arguing essentially that men who want more authority and control of their families and their destinies should battle the “suffocating power of the state” and beware of the problems when “government accords [privileges] to women or minorities or the poor”.  Id. at 34.

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The Public Learns Disaster Relief Was Etched Out of the Sketch. Uh-Oh.

MITT ROMNEY: “Every time you have an occasion to take something from the federal government and send it back to the states, that’s the right direction. And if you can go even further, and send it back to the private sector, that’s even better. Instead of thinking, in the federal budget, what we should cut, we should ask the opposite question, what should we keep?”

DEBATE MODERATOR JOHN KING: Including disaster relief, though?”

ROMNEY: We cannot — we cannot afford to do those things without jeopardizing the future for our kids. It is simply immoral, in my view, for us to continue to rack up larger and larger debts and pass them on to our kids, knowing full well that we’ll all be dead and gone before it’s paid off. It makes no sense at all.

Republican primary campaign debate last year

Slate’s Matthew Yglesias points to that today andcomments:

More prosaically, though the Romney campaign was understandably circumspect over the weekend about his spending plans the fact is that his overall budget requires sharp cuts in everything. The central issue is that Romney wants to cap government spending at 20 percent of GDP while boosting military spending to 4 percent of GDP and leaving Social Security harmless. That means a 34 percent across-the-board cut in other programs according to the Center on Budget and Policy Priorities. Unless, that is, Medicare is also exempted from the cuts in which case you’d need a 53 percent cut. …

If a storm damages basic physical infrastructure (power lines, bridges) and imperils human life it would be the height of penny-wise, pound-foolish thinking to suppose that the afflicted area should wait months or years to repair the damage. Ultimately, anyplace is going to go back to robust wealth creation faster if basic stuff gets fixed up faster. But that requires financing by an entity capable of rapidly financing expensive projects—i.e., the federal government. Left to its own devices a storm-ravaged Delaware or Louisiana is going to be squeezed between balanced budget rules and falling sales tax receipts and be forced into an increasing state of dilapidation.

How about a storm-ravaged Florida?  According to current polls, slightly more than half of Florida voters want their state to take over disaster relief, at least until arrangements can be made for the private sector to take it over.

And, about that question Romney asked: What should we KEEP?  Well, in addition to the Bush tax cuts for the wealthy and defense spending for private contractors, what DOES Romney think we should keep?

We cannot – we cannot afford to do things like disaster relief without jeopardizing the future of our kids.  We CAN, though, afford to give massive additional tax cuts to the wealthy, and huge additional contracts to Republican defense contractors, without jeopardizing the future of our kids.  Right?

What’s truly unconscionable is that it’s taking Hurricane Sandy to educate the public about the plans Romney and Ryan have stated so clearly.  I’ve been utterly unable to understand why the Obama campaign hasn’t been running video clips of Romney’s primary-campaign statements as the foundation of their ads.  I’ve thought all along that this is all Obama would need to do in order to win.  I think Sandy will prove me right.

And, here’s a shout-out to New York Time columnist Bill Keller for exposing for the absurd myth that it is the punditry’s “in” refrain that we don’t know what either of the two candidates would use the office to do in the next four years, because, well, neither has specified sufficiently.  As Keller says, actually both have specified sufficiently. 

And Romney’s already begun to reverse-sketch his etchings.  Suffice it to say that he’s not spent the last week promising “BIG CHANGE” because he plans to etch out of his sketch all those primary-campaign promises. 

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McMahon’s WWE has taken $36.7 million in Connecticut subsidies

 by Kenneth Thomas

McMahon’s WWE has taken $36.7 million in Connecticut subsidies

U.S. Senate candidate Linda McMahon’s World Wrestling Entertainment (WWE) has received $36.7 million in Connecticut film tax credits in 20 separate deals since 2006, reports (thanks to Karin Richmond on the LinkedIn Public Incentives Forum). As in many states, what historically began as tax credits for motion pictures are now available for TV and online media as well, and it is in these two latter categories that the WWE received its subsidies. Also as is typical of other states, the Connecticut program has no job creation requirements, but is calculated simply as a percentage of “qualified expenditures,” with the rate being 30% in Connecticut. In fact, in WWE’s case, the company had laid off about 60 workers in 2009, yet continued to receive the credits.
Moreover, according to the Sacramento Bee blog, “Cageside Seats,” WWE has so little state tax liability that it sells the vast majority of its tax credits via a broker, including 93% of the tax credits it earned in 2007-9. While selling tax credits is perfectly legal (in David Cay Johnston’s memorable phrase), it also increases the subsidies that states give, because they wind up giving subsidies to companies that did nothing to qualify for them under any subsidy program.

Nor is WWE alone in its sale of Connecticut tax credits. According to a 2010 article at the CT Post, “of the 80 productions that received credits, only nine applied them to state taxes.” The rest, presumably, sold their credits via brokers. The article also states that the national tax credit market had reached $500 million annually in 2010, from $50 million per year in 2005.
Robert Tannenwald of the Center for Budget and Policy Priorities (CBPP) has analyzed state film subsidies and concluded they provide very little bang for the buck. This should not be surprising. Unlike most subsidies, film/TV/digital media subsidies do not go to an investment, but to operating costs. There is nothing left after the crew packs up. Tannenwald points out that even the early adopters of film subsidies (New Mexico and Louisiana), which appeared to have built up some in-state film capacity, are now finding it difficult to maintain their position as the number of states offering such incentives skyrocketed to over 40 by 2010. The increased competition has led states to bid up their reimbursement percentages, to over 40% in Alaska and Michigan. Moreover, it’s hard to have job creation requirements for jobs that are inherently temporary.
Tannenwald estimates that the 43 states that gave film tax credits in fiscal 2010 spent $1.5 billion. This is enough to hire back 30,000 state workers laid off since the recession began, at an average of $50,000 per year in salary and benefits.
Although not members of the Forbes 400, Linda and Vince McMahon follow their example in collecting millions in subsidies from government. This is particularly hypocritical since as a Senate candidate McMahon has tried to portray herself as an opponent of “corporate welfare.”
Besides having little bang for the buck, film subsidy programs have been rocked by scandal in both Iowa and Louisiana, where the film commissioner was convicted of bribery to accept inflated expense submissions. The Iowa Film Office director was convicted of felonious misconduct, but acquitted on eight other felony charges. A number of credit claimants in Iowa were convicted of felonies as well in other trials.
As I have argued before, investment incentives generally constitute a race to the bottom. However, film and related media subsidies have shown us a high-speed race to the bottom for amazingly little economic benefit. While a few states have cut back on the subsidies due to the recession (and Iowa suspended its program for three years due to the scandal), only federal controls can truly address this problem. My research in Canada (paywalled) found the provinces there similarly unable to control their film subsidy wars. At this point, only only transparency in program costs, plus information on the low benefits and frequent scandals, is the only way to generate political pressure for reform.

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Mainstream and Semi-Mainstream Allegations Against Sitting Presidents

by Mike Kimel

Mainstream and Semi-Mainstream Allegations Against Sitting Presidents

I think back to each of the Presidents who was in office since Reagan,
under whom I was old enough to start paying attention. And I was
thinking of the allegations that were made against each by their
political enemies. I’m going to ignore the real fringe stuff, stuff
you might hear only from, say, the Neo-Nazis on one side or those who
call themselves communists on the other. Call this a list of things
regularly believed by tens of millions of people, regularly stated by
individuals commanding an audience of tens of millions of people, or
regularly stated by political press that commands respect by members
of one of the two political parties.

Its four AM and I am working from memory, so maybe I’m missing
something but here’s the basic worst allegations list:

Allegations against Reagan: October surprise, senile,
prone to making up stories, appointed corrupt officials, support for
dictators in Latin America, illegal wars in Central America, selling
arms to Iran

Allegations against George HW Bush: Involved in Iran
Contra, involved in war crimes while head of the CIA, Zapata Oil was a
CIA front, ties to Noriega while head of the CIA

Allegations against Bill Clinton: a drug dealer,
personally shot several individuals in the Mena airport, ordered the
execution of many of his cronies (Vince Foster et. al.), black
helicopters and UN bases bases on US soil, appointed corrupt
officials, taking away everyone’s guns, multiple affairs and several
rapes, sold military secrets to China, will cancel the elections in
the year 2000

Allegations against George Bush: Used National Guard to
avoid service in Vietnam, used his father’s influence to avoid
National Guard duties, close ties to the Saudi Royal family, did not
really win the election in 2000, ties to Ken Lay, hired known
criminals into his cabinet, knew that Iraq did not have WMDs, will
cancel elections in the year 2008

We’re in the middle of a contentious election, and too close to things
right now for me to list allegations against Obama, so I’ll end my
short list right there. Feel free to expand it in comments, but
please avoid fringe allegations. And one more thing – I think its
worth asking: what do you notice about this list?

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