Romney’s Accountants Busted in New Tax Justice Network Study
by Kenneth Thomas
Romney’s Accountants Busted in New Tax Justice Network Study
When Mitt Romney released the second of his tax returns last month, he also gave us a summary of his 1990-2009 taxes prepared by his accounting firm, PricewaterhouseCoopers (PwC). The whole point of that exercise, aside from trying to distract people from demanding the actual returns, was to muddy the waters and hide behind the supposedly strong reputation of PwC: an accounting firm would never lie, would it?
Of course, this is a silly question on its face. Who do you think designs abusive tax shelters, other than tax accountants and tax attorneys?
Now, in a new study by the Tax Justice Network, we see that there is a positive correlation between a jurisdiction’s (remember, not all tax havens are independent countries) secrecy index and the number of banks and Big Four accounting firms (PwC, Ernst & Young, KPMG, and Deloitte) per capita present there. The report documents one “leveraged partnership transaction” that PwC both designed and then pronounced to be legally valid (in what is usually termed an “opinion,” for which it was paid $800,000), which the U.S. Tax Court strongly criticized as a “conflict of interest” when it upheld the Internal Revenue Service’s squashing of this arrangement.
More specifically, we find that the Cayman Islands had the third most Big Four accounting offices per 1000 population at 0.95, compared with just .001 per 1000 for the United States (see Graphs 4 and 5, p. 24, in the report). This density is almost 100 times higher in the Caymans than in the U.S. The Caymans also had more than twice as many banks per 1000 as any other country, at 4.5 per 1000, compared to .023 per 1000 for the U.S. (Graphs 1 and 2). The graph below shows Big Four offices per 1000:
Source: Tax Research UK
Note, too, that Bermuda (which the Romneys also have used) comes in at about .06 per 1000 population, or about 60 times the U.S. rate.
Similarly, we find that comparing the secrecy score of the 20 worst tax havens with the Tax Justice Network’s broader list of 71 tax havens and with the G-20 nations shows a much higher mean and median secrecy score in the tax havens than in the non-havens, as the next graph shows.
Source: Tax Research UK
As Richard Murphy, one of the authors of the report, comments at Tax Research UK:
This research lets us conclude that working in conditions of secrecy has become an inherent part of the work of bankers and accountants. It suggests that this has led to a culture of creative non-compliance with laws and regulations, which is likely to increase the potential for, and volume of, crime. At the same time, banks’ and Big 4 firms’ lobbying for laws and regulations that reduce transparency is likely to have resulted in further opacity in the world’s financial system.
This, then, is the world in which Mitt Romney travels, a world in which accounting firms actively seek to create tax avoidance opportunities with little concern for whether they step outside the law’s boundaries, and in so doing facilitate the transfer of the tax burden from the 1% to the 99%. In my opinion, PwC’s assurances about Romney’s tax situation are not worth the paper they’re printed on.
Bonus question for President Obama to pose in the third debate: Why is the “McCain precedent” (2 years of tax returns) more important to you than the George Romney precedent (12 years of returns)?
cross posted with Middle class Political Economist
See this is why Ryan wants the US to be the world’s newest tax haven. So we can have more Big Four offices located here to help us help others avoid paying their taxes too. It’s win-win! It’s a jobs program and massive tax giveaway in one great taste!
I continually wonder, what is all this money accomplishing in these tax havens? There has to be a benefit to the host country. None of them seem to show signs of improving economic conditions for the citizens that would corrolate with the amount of money flowing into these places.
I posted this on Thomas’ blog.
If one of my tax undergrad students wrote a commentary this ridiculous it would be slashed with red ink and returned for a rewrite.
If one of my students cited the Tax Justice Network as an expert source I would send the paper back.
If one of my students made broad sweeping generalizations, such as directed at PWC and the Big 4, I would mark up the paper and send it back for some evidence and some clear thinking. (I have no connection to PWC and don’t care much for the Big 4 in general).
I don’t care much for Mitt Romney, but this screed is ridiculous. This is an opinion piece disguised as scholarship.
Rusty,
Tax accounting courses teach tax evasion.
Dan,
Opacity. Safe bets.
Who is financing/laundering for the drug cartels? Who finances the death squads of the petty dictators?
Latin Banks have been US run since Monroe.
US Marines no longer needed the financiers hire the “protection”.
STR: what a crappy comment! PwC’s reputation at this point is, at best, pretty iffy. They’ve been investigated (and fined) many, many times. How is Thomas’ opinion (which he clearly stated was his OPINION) controversial? We’ve seen over and over again accounting companies in collusion with their clients.
As for the Tax Justice Network, I know nothing about them other than what is up at Wikipedia, which doesn’t look very controversial, either. But surely, the validity of a study is (or should be) based on the methodology; did you bother check into that at all? From the tenor of your comments, I surely doubt it.
Sounds to me like you have little paper hearts pasted to your fridge door with “Price Waterhouse Coopers” written in with glittery ink.
@ Daniel Becker – Actually, the Caymans do very well for their citizens, judging by the CIA state.
No Hugh, I just think scholars should as least have a sophomore level of work.
The TJN is a progressive group with an agenda, that is fine except but like Cato that does not create scholarship.
Anonymous, I have taken and taught many tax accounting courses and have never been trained in creating tax evasion scenarios. Where do you get your information?
Apparently gross generalizations are the stock in trade of both the left and right these days.
@str, the same Richard Murphy who coauthored the TJN study has been published by Cornell University Press, the top-ranked publisher in international political economy. Ignore him at your own risk.
@Daniel, all tax havens receive fees for their service. They vary in how much that benefits their citizens; certainly, a few do very well.