Wednesday, July 18, 2012
Romney's 2010 tax return, when combined with his FEC disclosure, reveals red flags that raise serious tax compliance questions with respect to his possible tax minimization strategies in earlier years. The release in October of his 2011 return will at best act as a distraction from these questions.
So, what are the issues?
The first is Romney's Swiss bank account. Most presidential candidates don't think it appropriate to bet that the U.S. dollar will lose value by speculating in Swiss Francs. ... The Swiss bank account raises tax compliance questions, too. ... The IRS announced in 2009 a partial tax amnesty for unreported foreign bank accounts, in light of the Justice Department's criminal investigations involving several Swiss banks. To date, some 34,500 Americans have taken advantage of such amnesty programs. Did the Romneys avail themselves of any of these amnesty programs? ...
Second, Romney's $100 million IRA is remarkable in its size. Even under the most generous assumptions, Romney would have been restricted to annual contributions of $30,000 while he worked at Bain. How does this grow to $100 million? One possibility is that ... Romney stuffed far more into his retirement plans each year than the maximum allowed by law by claiming that the stock of the Bain company deals that the retirement plan acquired had only a nominal value. ...
Third, the vast amounts in Romney's family trusts raise a parallel question: Did Romney report and pay gift tax on the funding of these trusts or did he claim similarly unreasonable valuations, which likewise would have exposed him to serious penalties if all the facts were known?
Fourth, the complexity of Romney's one publicly released tax return, with all its foreign accounts, trusts, corporations and partnerships, leaves even experts (including us) scratching their heads. Disclosure of multiple years' tax returns is part of the answer here, but in this case it isn't sufficient. Romney's financial affairs are so arcane, so opaque and so tied up in his continuing income from Bain Capital that more is needed, including an explanation of the $100 million IRA.
Finally, there's the puzzle of the Romneys' extraordinarily low effective tax rate. For 2010, the Romneys enjoyed a federal tax rate of only 13.9% on their adjusted gross income of roughly $22 million, which gave them a lower federal tax burden (including payroll, income and excise taxes) than the average American wage-earning family in the $40,000 to $50,000 range. The principal reason for this munificently low tax rate is that much of Romney's income, even today, comes from "carried interest," which is just the jargon used by the private equity industry for compensation received for managing other people's money. ...
For a nominee to America's highest office, a clear and transparent reporting of his finances should be nothing more than routine.
- ataxingmatter: What's Romney Got to Hide? It's Past Time for Financial and Tax Transparency, by Linda Beale (Wayne State)
- Bloomberg: What's Romney Hiding in His Tax Returns?, by Joshua Green
- Daily Beast: The Emerging Theory on Mitt's Taxes: It's 2009, by Michael Tomasky
- National Review Editorial: Release the Returns
- New York Magazine: McCain Can ‘Personally Vouch’ That There’s Nothing Wrong With Romney’s Tax Returns
- Start Making Sense: More on the Mystery of the Swiss Bank Account, by Dan Shaviro (NYU)
- Wall Street Journal: National Review to Romney: Release More Tax Returns
- Washington Post: Experts: Mitt Romney’s Returns Could Show He Paid Very Low Tax Rates, by Greg Sargent
- Washington Post: Romney’s Right Not to Give Up the Tax Returns, by Jennifer Rubin
(Hat Tip: Josh Blank, David Miller.)