This is basically the introduction to my next post. You probably know all this, since it's certainly been in the news lately. But please bear with me, because I do plan to go somewhere with it. eventually.
Mitt Romney is a very rich man. He was born rich, and he made even more money at Bain Capital. How rich is he? Well, he's apparently rich enough to think that $370,000 a year is "not very much":
Mitt Romney revealed for the first time today that his effective tax rate is “closer to 15 percent,” suggesting that he pays less in taxes than many middle income Americans despite being worth an estimated $250 million.
“What’s the effective rate I’ve been paying? It’s probably closer to the 15 percent rate than anything,” Romney said during a press conference after an early morning rally. “Because my last 10 years, I’ve…my income comes overwhelmingly from some investments made in the past, whether ordinary income or earned annually. I got a little bit of income from my book, but I gave that all away. And then I get speakers fees from time to time, but not very much.”
According to his personal financial disclosure report released in August, Romney was paid more than $370,000 for speaking appearances in the 2011-2011[February, 2010 to February, 2011, I think] filing period.
It's comments like this which make Mitt Romney seem out of touch. Well, the rich aren't like you or me. Romney claims to be "unemployed," when he's actually independently wealthy, living off passive investments. He thinks nothing of making a $10,000 bet on the spur of the moment. And he doesn't imagine that "firing people" - or getting fired - could be traumatic at all.
Well, he's never in his life had to worry about losing a job, because he's always been wealthy. Ordinary middle class worries are foreign to him. He's an anthropologist - a rather clueless anthropologist - studying a primitive culture. Despite his studies, he has a hard time taking our concerns seriously.
And as a wealthy man, of course he's taken advantage of all the tax breaks, the loopholes, and the myriad other advantages wealthy investors get. Why wouldn't he? But now that he's running for office, he's realizing that - oops! - maybe ordinary middle class voters might not be too happy to see that he's been making out like a bandit.
Sure, all rich people do this. But Warren Buffett, for example, speaks out about how wrong this is, that he shouldn't be paying a lower tax rate than his secretary. Romney, on the other hand, proposes a tax plan which will further slash taxes on the wealthy, while raising taxes on the less affluent (and causing a massive increase in our budget deficit, too).
From Greg Sargent:
The revelation that Mitt Romney pays a tax rate of around 15 percent opens the door to another question: How much would his own taxes fall under the tax plan he would pass if elected president?
Here’s the answer, according to a new analysis by Citizens for Tax Justice that was provided to me this morning. Under his plan, Romney in 2013 would see his taxes cut by nearly half of what they would be if you use current law as a baseline. ...
“This doesn't even include Romney’s proposal to cut corporate taxes from 35 percent to 25 percent, which would primarily benefit wealthy shareholders like himself,” Robert McIntyre, the director of Citizens for Tax Justice, tells me.
Going back to that ABC News article:
What Romney admitted is exactly what billionaire Warren Buffet has railed against – the fact that many multi-millionaires actually pay far less in taxes than the people who work for them.
In addition to hinting at his tax rate, Romney suggested that if he does release his returns, he will only release those from 2011 and not those from years prior.
Romney admitted that his tax rate is "probably closer to the 15 percent rate than anything." That gives him a bit of wiggle room. And after constant pressure to release his tax returns, he's reluctantly planning to release his 2011 return this spring, when his accountants finish preparing it.
What do you want to bet that they'll be desperately looking for ways to increase Romney's taxes? If he's not going to be releasing his prior returns, you have to wonder just how low a rate he's been paying. Maybe 15 percent actually looks good, compared to the truth.
Jamison Foser, in fact, wonders if Romney has been paying anything at all. Some millionaires don't.
Incidentally, Romney has been misleading about that "tradition" of presidential candidates releasing their tax returns. From a different post at ABC News:
By the way, President Obama released his tax returns in March 2008, well before he clinched the Democratic nomination. And George W. Bush, as governor of Texas, released his returns before he was even a candidate.
And from Steve Benen:
Barack Obama released nearly a decade’s worth of tax returns in 2008. When George Romney ran for president, he released 12 years of returns. Disclosure for one year won’t exactly meet any fair standard for transparency.
Clearly, this worries Mitt Romney. Should it?
But tax experts tell ABC News there are other reasons Romney may not want the public viewing his returns. As one of the wealthiest candidates to run for president in recent times, Romney has used a variety of techniques to help minimize the taxes on his estimated $250 million fortune. In addition to paying the lower tax rate on his investment income, Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.
Official documents reviewed by ABC News show that Bain Capital, the private equity partnership Romney once ran, has set up some 138 secretive offshore funds in the Caymans.
Romney campaign officials and those at Bain Capital tell ABC News that the purpose of setting up those accounts in the Cayman Islands is to help attract money from foreign investors, and that the accounts provide no tax advantage to American investors like Romney. Romney, the campaign said, has paid all U.S. taxes on income derived from those investments. ...
Tax experts agree that Romney remains subject to American taxes. But they say the offshore accounts have provided him -- and Bain -- with other potential financial benefits, such as higher management fees and greater foreign interest, all at the expense of the U.S. Treasury. Rebecca J. Wilkins, a tax policy expert with Citizens for Tax Justice, said the federal government loses an estimated $100 billion a year because of tax havens.
[Jack] Blum, the D.C. tax lawyer, said working through an offshore investment vehicle allows the investor to "avoid a whole series of small traps in the tax code that ordinary people would face if they paid tax on an onshore basis."
Wilkins agreed, saying the "primary advantage to setting those funds up in an offshore jurisdiction like the Cayman Islands or Bermuda is it helps the investors avoid tax."
"It helps U.S. investors avoid U.S. tax," said Wilkins, "it helps foreign investors avoid taxes in their home country, so it's not illegal or improper to set those funds up in a foreign jurisdiction, but it makes it more attractive to investors because it helps them avoid paying taxes on that income."
Sure, many - probably most - wealthy Americans use such techniques. But as Blum said, "His personal finances are a poster child of what's wrong with the American tax system."
Furthermore, this tax system has been heavily promoted by the Republican Party, and by Romney himself. Remember how the rich are supposed to be the "job creators"? Remember the promise of an economic boom if we just slashed taxes on the wealthy? Well, the Bush administration did just that. How do you like the results?
Romney's remark about liking to fire people was taken out of context, but there are real reasons, valid reasons, why Mitt Romney has a Bain Capital problem.
The so-called "carried interest" rule has been the source of extensive debate in Washington, with opponents criticizing the allowance to tax those earnings at 15 percent a glaring loophole that benefits only the wealthiest Americans. Under the carried interest rule, income that is determined to be capital gains – like the profit reaped by hedge fund managers -- is subject to the lower 15 percent rate.
Wilkins said Romney's arrangements reminded her of the now famous remarks by billionaire financier Warren Buffet, who revealed in 2007 that he was paying taxes at a lower rate than his receptionist.
"Well, I think it's the issue that is sort of on the front page every day, when we look at the Occupy Wall Street movement and that people are really losing patience with the idea that a lot of multinational corporations have and a lot of wealthy people have that while they benefit from everything this country has to offer … they don't seem to be willing to pay their fair share," she said.
Romney's campaign objected to that ABC News article, but since we haven't seen his past tax returns, even the Wall Street Journal is wondering:
But the campaign’s assertions may be wrong or misleading. Tax experts said some of the offshore holdings are likely intended to help Mr. Romney avoid paying an obscure but hefty tax of as much as 35% on some of those investments, held in a tax-deferred retirement account.
As The Wall Street Journal reported in Thursday’s paper, many of Mr. Romney’s offshore investments are held through his individual retirement account, which has grown to between $20.7 million and $101.6 million. IRAs are tax-deferred accounts, in which earnings accrue tax-free until the money is withdrawn during retirement. ...
However, tax experts said that had Mr. Romney’s IRA invested in Bain funds in the U.S., he would likely have been forced to pay an obscure levy called the “unrelated business income tax,” also known as UBIT.
This tax, assessed for individuals at a maximum 35% rate, is meant to discourage tax-exempt entities such as an IRA or college endowment fund from unfairly competing with for-profit, taxpaying entities by operating a business without paying taxes on it. Investing in a partnership such as a Bain Capital fund that uses debt to buy companies would trigger the tax, experts said.
For this reason, the experts said, it is very common for private-equity funds such as Bain to set up vehicles in offshore locales such as the Cayman Islands. Such a structure allows American tax-exempt entities, including IRAs, to avoid paying UBIT.
Hmm,... I'm kind of wondering how you'd get as much as $100 million in an IRA when the maximum annual contribution limit is only $5,000 (OK, $6,000 if you're over 50). That's some return, don't you think!
But that's the point. I'm sure there are loopholes. The rich aren't like you or me. And for decades, our tax code has been increasingly focused on benefiting the rich. Yet today's Republicans think that we haven't gone far enough at benefiting the wealthiest of the wealthy, and they've convinced a lot of our most gullible citizens that we really need to help the "job creators."
Well, all of this stuff normally stays under the radar. Your tax returns are private. Yet there's a tradition that presidential candidates show they have nothing to hide by releasing past tax returns. And now Mitt Romney is probably wishing he'd done things differently. (But maybe not. He did save a hell of a lot of money by not having to pay taxes like those of us in the middle class.)
Again, from Steve Benen:
It’s hard to say with confidence exactly what Romney’s up to with these investments since he won’t release his returns and as the AP added, “Neither Romney nor his campaign are providing details, including how much he has invested there, or why, or if any of his money is invested elsewhere outside the United States.”
But the story itself has the potential to do some real damage to Romney. Even if we assume the typical voter doesn’t know or care about the nuances of offshore banking strategies, I suspect when the American mainstream hears “guy who keeps money in the Caymans,” questions about trust necessarily follow.
It’s also part of a larger picture. Again, the Republican frontrunner amassed a vast fortune after laying off thousands of American workers, he now pays a lower tax rate than most of the middle class, he wants to give himself another tax cut, he owns multiple luxury homes, and stashes cash in the Caymans — all while pursuing an agenda that would make things tougher on American’s working class.
And the same guy wants to keep the details from the public and refuses to release his tax returns.
This is Mitt Romney's Bain Capital problem. In my next post, I'll talk about why the rest of us might have a problem with Bain Capital.
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