TaxProf Blog

Mitt Romney's Tax Mysteries: A Reading Guide

Pro Publica:  Mitt Romney’s Tax Mysteries: A Reading Guide:

Last week, the website Gawker published more than 900 pages of documents from Bain Capital, the private equity firm Mitt Romney founded, and headed from 1984 until 1999. The document dump didn't reveal much about Romney's personal investments, but it added a bit more to the pressure on Romney to release more of his tax returns. Romney and his wife Ann have repeatedly rebuffed such calls. In a primary debate in January, Romney said he'd paid "all the taxes that are legally required and not a dollar more."

So what do we know about how he avoided that extra dollar? For an overview of the questions surrounding Romney's tax strategies, see Vanity Fair's comprehensive story Where the Money Lives, and this [plus this] commentary from tax lawyers Edward Kleinbard and Peter Canellos. We've also rounded up the best reporting on the central controversies.

• What's Been Disclosed?
• Romney's Bain Career
• Romney's Tax Rate
• Overseas Accounting
• Romney's Children's Trust
• Romney's Enormous IRA
• Blind Trusts
• Rafalca the Horse

Feldstein: Romney's Tax Plan Can Raise Revenue

Wall Street Journal op-ed:  Romney's Tax Plan Can Raise Revenue, by Martin Feldstein (Harvard University, Department of Economics):

Mitt Romney's plan to cut taxes and offset the resulting revenue loss by limiting tax breaks has been attacked as "mathematically impossible." He would reduce all individual income-tax rates by 20%, eliminate the Alternative Minimum Tax and the estate tax, and limit tax deductions and loopholes that allow high-income taxpayers to reduce their tax payments. All this, say critics, would require a large tax increase on the middle-class to avoid raising the deficit.

Careful analysis shows this is not the case.

The critics' claims are based on calculations by the Tax Policy Center (update here) ... , which used a computer model to forecast personal tax revenue and AMT liabilities of taxpayers at each income level in 2015. Such forecasts are inevitably speculative.

To avoid the resulting uncertainties, I decided to analyze the Romney plan using the most recent IRS data, which is based on tax returns for 2009 and published in the current issue of the IRS quarterly publication. (Although 2009 was a low-income year because of the recession, using that year is preferable to looking back to some earlier period.) ...

Since broadening the tax base would produce enough revenue to pay for cutting everyone's tax rates, it is clear that the proposed Romney cuts wouldn't require any middle-class tax increase, nor would they produce a net windfall for high-income taxpayers. The Tax Policy Center and others are wrong to claim otherwise.

The Romney plan can reduce the current tax system's distortions, increasing national income in the short run and economic growth in the years ahead. That was the key to the very successful Reagan tax cuts of 1986. It was also the tax-reform strategy embraced by the bipartisan Bowles-Simpson commission in 2010. And it could put the economy back on the right track in 2013.

Update: Tax Vox Blog: Feldstein’s Analysis Doesn’t Refute TPC Findings, It Confirms Them:

Romney economic adviser Martin Feldstein attempts to contradict our finding. Instead, his analysis actually confirms our central result. Under the stated assumptions in Feldstein’s article, taxpayers with income between $100,000 and $200,000 would pay an average of at least $2,000 more.

Math, Taxes, and the War on Women

From Legal Insurrection Branco.

Tax Planks in 2012 Republican Platform

Tax Relief to Grow the Economy and Create Jobs

Taxes, by their very nature, reduce a citizen’s freedom. Their proper role in a free society should be to fund services that are essential and authorized by the Constitution, such as national security, and the care of those who cannot care for themselves. We reject the use of taxation to redistribute income, fund unnecessary or ineffective programs, or foster the crony capitalism that corrupts both politicians and corporations.

Our goal is a tax system that is simple, transparent, flatter, and fair. In contrast, the current IRS code is like a patchwork quilt, stitched together over time from mismatched pieces, and is beyond the comprehension of the average citizen. A reformed code should promote simplicity and coherence, savings and innovation, increase American competitiveness, and recognize the burdens on families with children. To that end, we propose to:

• Extend the 2001 and 2003 tax relief packages—commonly known as the Bush tax cuts—pending reform of the tax code, to keep tax rates from rising on income, interest, dividends, and capital gains;
• Reform the tax code by reducing marginal tax rates by 20 percent across-the-board in a revenue-neutral manner;
• Eliminate the taxes on interest, dividends, and capital gains altogether for lower and middle-income taxpayers;
• End the Death Tax; and
• Repeal the Alternative Minimum Tax.

American Competitiveness in a Global Economy

American businesses now face the world’s highest corporate tax rate. It reduces their worldwide competitiveness, encourages corporations to move overseas, lessens investment, cripples job creation, lowers U.S. wages, and fosters the avoidance of tax liability— without actually increasing tax revenues. To level the international playing field, and to spur job creation here at home, we call for a reduction of the corporate rate to keep U.S. corporations competitive internationally, with a permanent research and development tax credit, and a repeal of the corporate alternative minimum tax. We also support the recommendation of the National Commission on Fiscal Responsibility and Reform, as well as the current President’s Export Council, to switch to a territorial system of corporate taxation, so that profits earned and taxed abroad may be repatriated for job-creating investment here at home without additional penalty.

Fundamental Tax Principles

We oppose retroactive taxation; and we condemn attempts by activist judges, at any level of government, to seize the power of the purse by ordering higher taxes. We oppose tax policies that divide Americans or promote class warfare.

Because of the vital role of religious organizations, charities, and fraternal benevolent societies in fostering benevolence and patriotism, they should not be subject to taxation, and donations to them should continue to be tax deductible.

In any restructuring of federal taxation, to guard against hypertaxation of the American people, any value added tax or national sales tax must be tied to the simultaneous repeal of the Sixteenth Amendment, which established the federal income tax.

Romney Tax Returns Show Strategy for Moving Money to Kids

Bloomberg:  Romney Tax Returns Show Strategy for Moving Money to Kids:

Republican presidential candidate Mitt Romney and his wife, Ann, have used sophisticated estate- planning techniques for more than a decade to minimize taxes and amass at least $100 million for their family outside of their estate.

The couple created trusts as early as 1995, when Romney was building wealth as chief executive officer of Bain Capital LLC. They packed one for their children with investments that stood to appreciate and set up another for charity that provides a tax deduction and income. The candidate’s retirement account, valued at as much as $87.4 million, may benefit his heirs for decades. “It’s beneficial for your kids and grandkids to push the money downstream,” said David Scott Sloan, chairman of the national private wealth services estate-planning practice at the law firm Holland & Knight LLP in Boston. “The Romneys appear to be doing things that are similar to what other high-net-worth families do.”

Wealthy couples use strategies allowed under the federal tax system such as moving assets to trusts so that the money may be subject to little or no gift and estate taxes, Sloan said. The Romney family trust is worth $100 million, according to the campaign. That money isn’t included in the couple’s personal fortune, which the campaign estimates at as much as $250 million.

Romney Reaped Huge Tax Benefits From 'Active' Role at Bain Capital

Huffington Post:  Mitt Romney Reaped Huge Tax Benefits Based on 'Active' Role at Bain Capital:

When tax experts charged that he benefited from legally dubious tax avoidance strategies employed by Bain, his campaign noted that the investments are kept in a blind trust completely out of his control. ...

But according to his 2010 tax return, when the IRS comes calling in April, Romney has a different answer: The presumptive GOP nominee reaps lucrative tax breaks for "active" participation in the private equity firm he founded, as well as a host of other investments. ... For tax purposes, he claims an active status; for political purposes, he claims to have zero to do with the investments. ...

The distinction is valuable, for the IRS treats passive and active income and losses differently. If a passive investment loses money, the taxpayer can only write off that loss if passive gains have also been made and only at a 15% rate. But active losses can be written off at a 35% rate and deducted from the taxpayer's ordinary income. In other words, a taxpayer wants active losses, not passive losses. So by describing many of his investments as active, Romney saves himself millions of dollars in taxes.

With those active investments, he is also securing a tax break few Americans enjoy: When he wins, he's paying a 15% rate on the gain. When he loses, he's writing it off at 35%, meaning that tax policy is subsidizing Romney's risk in his Bain investments. In other words, Romney didn't build that, at least not without taxpayer backing. ... These kinds of deductions are only available to "active" participants in business partnerships. While Romney filed as an active participant for tax purposes, there is no evidence that he took part in Bain management decisions in 2010, and he has denied doing so. ...

"Governor Romney appears to be saying one thing to the American people and one thing to the IRS," Rep. Brad Miller (D-N.C.) said to The Huffington Post. "Right now we are just seeing inconsistent statements. The American people are entitled to know more than that. If there's a legalistic distinction, we are entitled to know what that is. ... Has he played too close to the line or over the line?"

It is also possible that these deductions are all legitimate expenses for Bain and the handful of Goldman Sachs subsidiaries in which Romney is a partner. But they all appear on a tax document where individuals usually list personal expenses, known as Schedule E. And listing personal expenses as business expenses is not allowed.

(Hat Tip: Francine Lipman.)

NY Times: Two-and-Twenty Tax Dodges

New York Times editorial:  Two-and-Twenty Tax Dodges:

Mr. Romney and his partners may have abused the tax system by paying far less in taxes than they should have.

Back in 2007, The New York Times published an editorial that explained what was wrong with the tax treatment of Bain-like pay. It cited the work of Victor Fleischer, a law professor at the University of Colorado, who had written a let-us-count-the-ways report on how private equity partners avoid taxes [Two and Twenty: Taxing Partnership Profits in Private Equity Funds, 83 N.Y.U. L. Rev. 1 (2008)].

In a nutshell, they collect a management fee on their funds of 2%, which is supposed to be taxed as ordinary income. And they collect performance fees, usually 20% of any profits, which – thanks to a loophole that should have been closed long ago – are taxed as capital gains, at a mere 15%, about the lowest rate in the tax code.

It is no secret that Mr. Romney has availed himself of the super-low capital gains rate on his Bain performance-fees – an obscene privilege, but not illegal. What the Gawker documents indicate is that the Bain/Romney tax avoidance went further than that.

In brief, it looks like four Bain funds in which the Romney family’s trusts are invested converted $1.05 billion in management fees — which should be taxed as ordinary income – into capital gains, which are taxed at the much lower rate. The tax savings: $220 million.

Mr. Fleischer was all over it, writing on his blog that “the Bain partners, in my opinion, misreported their income if they reported those converted fees as capital gains instead of ordinary income.” What would the IRS say? It is unclear, but Mr. Fleischer says the practice is illegal and has no doubt a court would agree if ever asked to rule on the question. What does Mr. Romney say? The campaign declined to comment.

NY Times: Tax Credits Shed Light on Romney

New York Times:  Tax Credits Shed Light on Romney, by James B. Stewart:

The presumptive Republican presidential nominee’s refusal to disclose more than his most recent two years of tax returns has spawned wide-ranging and sometimes far-fetched speculation from water coolers to talk shows. But a few tax experts are zeroing in on an esoteric corner of the tax code and pointing to some intriguing clues buried in the returns Mr. Romney has already revealed.

Mr. Romney has insisted that his returns from 2010, and preliminary returns for 2011 (until he provides a final version) are enough for voters to evaluate his fitness for office. But even though he has not released his returns from earlier years, the 2010 return sheds some light on those years.

That’s because Mr. Romney paid income tax to foreign countries, and as result claimed in 2010 a $129,697 foreign tax credit, which he used to offset taxes he owed in the United States. American taxpayers who claim the foreign tax credit are required to report their total foreign taxes paid and tax credits used for the previous 10 years. So that return contains foreign tax data going back to 2000.

The good news for Mr. Romney is the forms suggest that he paid at least some federal income tax every year, as he has said he did. He used the foreign tax credit every year to offset his taxes in the United States, and American taxpayers can’t use a tax credit if they owe no federal income tax. This casts even more doubt on the claim by the Senate majority leader, Harry Reid, attributed to an unnamed Bain Capital source, that Mr. Romney paid no income taxes during that time.

But the data does suggest that Mr. Romney was able to reduce his taxable income in 2009 to a very low level, and thus might have paid relatively little tax — even if it did, as Mr. Romney claims, amount to at least 13 percent of his taxable income. ...

Mr. Romney’s return shows how wealthy Americans with foreign earnings can sharply reduce their tax liability in the United States. In 2010 Mr. Romney reported $2.73 million of gross foreign income. On that amount, he paid foreign taxes of $67,173, or just 2.5 percent of his gross foreign income.

After all his deductions (including the kind of noncash charges that are central to all tax shelters, like depreciation) that multimillion-dollar sum declines to just $392,000 in taxable income. This amount appears on his federal tax return, but at his 13.9 percent effective rate, the federal tax on that income — $54,627 — was more than offset by a $129,697 tax credit for foreign taxes he paid in 2010 and earlier years.

Dan Shaviro (NYU), Has Romney Pid All the U.S. Federal Income Taxes That He Legally Owes?:

As usual, I feel half-apologetic about the degree of speculation that I am engaging in here.  But it's Romney's unprecedented tax return secrecy, and the inferences reasonably derived from it, that makes such speculation necessary.

WSJ: A Clue Emerges to Romney’s Gift-Tax Mystery

Wall Street Journal:  A Clue Emerges to Romney’s Gift-Tax Mystery, by Mark Maremont:

One of the mysteries surrounding Mitt Romney’s taxes is how the former private-equity executive managed to get $100 million into a family trust for his children without incurring federal gift taxes.

A potential clue may be found in a previously unreported 2008 presentation made by a partner at law firm Ropes & Gray LLP, which represents the GOP presidential nominee. It focuses on how private-equity executives could minimize gift and estate taxes by giving family members some of their “carried interest” rights, a major form of compensation that entitles private-equity executives to a slice of the firm’s future investment profits. ...

The attorney at Ropes & Gray wrote that in the 1990s and early 2000s estate-planning lawyers “commonly advised” that executives could claim a value of zero on these transfers of carried-interest rights for federal gift-tax purposes. He said the practice ended by 2005.

Gifts of carried-interest rights are common, but several estate-planning attorneys at major New York firms said they are puzzled by the claim that the rights ever could have been valued at zero, particularly at an established private-equity firm. They said long-standing rules require taxpayers to value all gifts at fair-market value, or what a willing buyer would pay a willing seller.

In response to a reporter’s questions, a Romney adviser said the presentation by the Ropes & Gray lawyer was aimed at educating other attorneys about industry practices, not a description of Ropes & Gray’s advice to clients. Based on the presentation, the adviser said, “you should not assume” that was the firm’s advice to clients or that Mr. Romney’s gift-tax returns ever valued carried-interest rights at zero. ...

Jay Waxenberg, an estate-planning attorney at Proskauer Rose LLP in New York who advises private-equity executives, said valuations “tend to be very low,” but he has never known anybody at an established firm claim a zero value. ...

In his 2008 presentation, the law firm partner, Marc J. Bloostein, said the basis for believing that carried-interest rights could have a zero gift-tax value stemmed partly from a 1993 IRS ruling related to income tax treatment of the rights. [Rev. Proc. 93-27, 1993-2 C.B. 343,] The IRS said taxpayers could claim the rights had no immediate value when they were received, but would have to pay capital-gains tax on any income that later flowed from them.

Mr. Bloostein indicated that gift-tax valuation practices changed by 2005, saying that although there was once “reason to think” that a zero valuation could be claimed, “it has become clear” that fair-market value is the correct standard and “it is advisable to engage a professional appraiser.”

• Forbes, Romney's Taxes: It's The Carried Interest, Stupid, by Janet Novack

Confidential Bain Financial Documents Released on Romney Family Trust Investments

New York Times, Documents Show Details on Romney Family Trusts:

Hundreds of pages of confidential internal documents from the private equity firm Bain Capital published online Thursday provided new details on investments held by the Romney family’s trusts, as well as aggressive strategies that Bain appears to have used to minimize its investors’ and partners’ tax liabilities.

The documents include annual financial statements and investor letters circulated to limited partners in more than 20 Bain and related funds where Mitt Romney’s financial advisers have at times invested large parts of his personal fortune, estimated at more than $250 million.

The documents, obtained and published by Gawker.com, do not specify the stakes held in the funds by the Romney family trusts or by other investors. But they highlight the range and complexity of Mr. Romney’s investments at a time when those very qualities have been the subject of the Obama campaign’s main attacks against him, including demands that Mr. Romney release his tax returns to clear up any suggestion that he might be benefiting financially from legal loopholes or tax shelters.

Many documents disclose information that, while routinely provided to Bain’s investors, is not typically disclosed to the public: the dollar value of Bain investments in specific companies, fees charged by Bain and other investment managers, and the value of different Bain funds in some years....

Bain private equity funds in which the Romney family’s trusts are invested appear to have used an aggressive tax approach, which some tax lawyers believe is not legal, to save Bain partners more than $200 million in income taxes and more than $20 million in Midicare taxes.

Annual reports for four Bain Capital funds indicate that the funds converted $1.05 billion in accumulated fees that otherwise would have been ordinary income for Bain partners into capital gains, which are taxed at a much lower rate.

Although some tax experts have criticized the approach, the Internal Revenue Service is not known to have challenged any such arrangements.

In a blog post Thursday, Victor Fleischer, a law professor at the University of Colorado, said that there was some disagreement among lawyers, but that he believed: “If challenged in court, Bain would lose. The Bain partners, in my opinion, misreported their income if they reported these converted fees as capital gain instead of ordinary income.”...

In an article that appeared in the journal Tax Notes in 2009, Gregg D. Polsky, a tax law professor at the University of North Carolina School of Law, called the tax strategy “extremely aggressive” and said it was “subject to serious challenge by the IRS.”

• Bloomberg, Romney’s Bain Funds Showcase Deals for Wealthy Only
• Business Insider, We Got Excited About Gawker's Huge Dump Of Romney Investment Info... But Here's The Truth About What's There
• Daily Beast, Inside Mitt Romney’s Bain Files
• Forbes, Gawker's Worthless 'Bain Files'
• Forbes, Romney's Taxes: It's The Carried Interest, Stupid
• NPR, Gawker Releases 950 Pages of What It Says Are Internal Bain Documents
• Dan Shaviro (NYU), The Bain Document Drop
• Washington Post, Bain Documents Reveal Tax and Offshore Details

Bartlett: Exploring Mitt Romney’s Taxes and Tax Plan

New York Times:  Exploring Mitt Romney’s Taxes and Tax Plan, by Bruce Bartlett:

An examination of the two years of tax returns that the Republican presidential nominee Mitt Romney has made public sheds light on some fundamental concepts of taxation that illuminate his proposed tax cut. These include the meaning of “taxes” and “income.”

For most people, income is simple: it means wages or perhaps a pension or Social Security benefits. Income from capital – dividends, interest, rent and capital gains – seldom enters into the calculation. The vast bulk of such income is earned by the ultrawealthy, like Mr. Romney. ...

This is the key reason that Mr. Romney paid a federal income tax rate of 13.9% in 2010 and 15.4% in 2011. By contrast, his running mate, Representative Paul D. Ryan of Wisconsin, paid a rate of 15.9% in 2010 and 20% in 2011, despite an income that was 10% of Mr. Romney’s in 2010 and 15% in 2011. ...

The distribution of income is extremely relevant for Mr. Romney tax plan. He has said that he will close enough tax loopholes so that the wealthy will pay the same share of taxes they are paying now, even though he will cut their income tax rates by 20%. However, he has also said that the current low rates on dividends and capital gains, which expire at year’s end, will be made permanent. Thus Mr. Romney would preserve exactly those provisions of the tax code most responsible for millionaires like himself paying tax rates considerably lower than those with a fraction of his income, like Mr. Ryan. ...

The Tax Policy Center recently concluded that Mr. Romney’s numbers don’t add up. Either he will greatly increase the deficit or he will have to raise taxes on the middle class to maintain revenue neutrality. Even if every deduction, exclusion and credit for the wealthy was abolished, their taxes would still go down under Mr. Romney’s plan. Democrats have said that the Romney tax plan would raise taxes on the middle class. While this is logically consistent with what Mr. Romney has said about his plan, I do not believe that is his intention or what will happen if he is elected president. Rather, I think he and his advisers simply made up a proposal that was everything to everybody without bothering to check for internal consistency.

For someone who has made his business acumen and expertise with finance a cornerstone of his presidential run, that Mr. Romney’s signature campaign proposal doesn’t add up may be the most telling fact voters need to know about him. 

Kleinbard: Paul Ryan's Tax Roadmap to Inequality

Edward D. Kleinbard (USC), Paul Ryan's Roadmap to Inequality:

The purest articulation of Paul Ryan’s fiscal belief system is his 2010 Roadmap for America’s Future. The tax provisions of this extensive proposal would convert the current personal and corporate income taxes into two consumption taxes, and repeal the gift and estate tax.

This report explains how the Roadmap, like Herman Cain’s 9-9-9 Plan, would operate in practice like a large new payroll tax. The Roadmap would directly immunize the highest labor income earners from this tax through a large reduction in the top rate of the Roadmap’s labor earnings tax, compared with current law or policy. Unlike the 9-9-9 Plan the Roadmap further would largely immunize “old” capital from the efficient (if arguably unfair) imposition of consumption tax when that capital was consumed, by providing a write-off of existing depreciable basis. And finally the Roadmap would reduce the tax burdens on the most affluent capital owners further by eliminating the gift and estate tax.

For these reasons, it is not surprising that the Roadmap contemplates an extraordinarily large redistribution of tax burdens from the affluent to middle-class and lower income Americans. For middle-class families, tax burdens would increase on the order of 50 percent. At the same time, the Roadmap’s reprioritization of government spending also would be regressive in its impact. Proponents of the Roadmap or plans like it must explain how any projected increase in economic growth will compensate the majority of Americans for shouldering more tax burdens while receiving smaller government benefits.

NY Times: Paul Ryan and Tax Policy

New York Times op-ed:  Paul Ryan and Tax Policy, by Ross Douthat:

Scott Galupo, the former Capitol Hill staffer turned blogger for the American Conservative, responds to my last post on Paul Ryan’s policy record, mixing some praise for Ryan with the following critique:

My problem with Ryan isn’t on the entitlement reform side; it’s on the revenue side. His assumption that another round of supply-side tax cuts will spark growth and unleash pent-up consumer demand strikes me as just as wooly-headed as the Tea Party freshmen’s knowledge of the federal budget.

And it’s this outmoded Kemp-ism that undermines his best idea, i.e., premium support. If Ryan and the GOP would have agreed to a sensible compromise on new revenue — which can be accomplished without the higher marginal tax rates that Obama calls for — then a deal on Medicare would have been far more likely.

I agree with Galupo’s first point; I’m more doubtful about the second one. Ryan’s supply-side zeal is probably his most significant weakness as a policy entrepreneur: Like most Reaganites, he has a Kemp-ian belief in the growth-unleashing power of lower marginal tax rates, but he’s operating in an era when (thanks to Kemp and Reagan) those rates are already low enough that there’s a lot less to be gained from slashing them even further. This doesn’t mean that some kind of rate-lowering, base-broadening tax reform isn’t still a good idea — it is, and Ryan’s right to champion it. But it isn’t the only good idea in the world, and the disappointing returns to the Bush-era tax cuts strongly suggest that the interests of the investor class are not always identical to the interests of middle-income Americans, and that the goal of lower rates needs to be balanced against other policy objectives.

Hence my persistent argument that the right needs to embrace a kind of small-government egalitarianism, which focuses on means-testing entitlements and ending corporate welfare and capping upper-income tax breaks (all ideas that Ryan supports) but then plows some of the savings into payroll tax cuts or a family-friendly tax reform or an expanded earned income tax credit, rather than just using them to keep (ahem) Mitt Romney’s taxes as low as possible. This has always been my biggest problem with the Ryan budget: In an age of stagnating incomes in the middle and reduced mobility at the bottom, its proposed reform of the welfare state doesn’t do enough to foster equality of opportunity.

Fleischer: Romney's Tax Claim Is Bulls***

Following up on Friday's post, Romney Says He Paid 13% in Taxes for the Last 10 Years:  A Taxing Blog: Romney Paid 13% in 2009? I Call BS, by Victor Fleischer (Colorado):

What’s interesting is that Romney’s claim could be literally true but misleading — which means that Romney is full of bullshit, but not a dirty liar.  ... Romney’s claim may be literally true only because our method of tax accounting doesn’t calculate economic gains until those gains are realized through a sale or some other disposition.  Romney may have paid tax at a rate higher than 13% on his 2009 return, but the dollar amount was likely to be embarrassingly small as a percentage of his economic income and wealth.  That’s why he doesn’t want to release his tax returns.  Normal people don’t think like tax lawyers — they would see a tiny amount of tax paid and recognize the injustice.

Even though Romney’s economic income was probably high in 2009 -- the Dow went up about 15% that year -- savvy investors know they can cherry-pick losses to offset realized gains.  The capital loss carry-forward on Romney’s 2010 return suggests that he did just that.

According to Harry Frankfurt, bullshitters, unlike liars, do not deliberately make false claims about what is true. In fact, bullshit need not be untrue at all. Rather, bullshitters convey a favorable impression of themselves while remaining casually indifferent about whether what they say is true.  They quietly change the rules governing their end of the conversation so that claims about truth and falsity are irrelevant.

• Fox Denver, CU Professor Calls “BS” on Romney’s 13% Tax Rate Claim

Romney Says He Paid 13% in Taxes for the Last 10 Years

Washington Post:  Romney Says He Paid 13% in Taxes for the Last 10 Years. That Doesn’t Tell Us Much, by Ezra Klein:

“I did go back and look at my taxes, and over the last 10 years, I’ve never paid less than 13%,” Romney said today.

To which the obvious answer is: Well, then, why won’t you prove it?

I find it a bit difficult to believe that Romney has paid more than 13% every year. What we know about Romney’s taxes is that he paid 13.9% in 2010. But Romney’s taxes primarily accrue to income from investments. And the market — along with the global economy — collapsed in 2009. Romney should have had big losses to deduct.

I asked Ed Kleinbard, a professor of tax policy at USC, whether I was missing something. “It is extremely improbable that he paid 13% in 2009, just as it’s extremely improbable that he paid zero for 10 years straight,” he replied.

Kleinbard pointed out something I hadn’t thought of. “He didn’t specify 13% of what. That is, if you look at taxable income, well of course he paid 13% tax on his taxable income, but that’s an absurd base on which to measure an effective tax rate — it’s completely circular.  The better base is adjusted gross income, because that gets closer to economic income.”

Daniel Shaviro, a professor of tax policy at NYU, made the same point. “The key question here is 13.9 % of what. We know he paid zero tax at the capital gains rate in 2009, since he had loss carryovers for 2010.  So he may have had ridiculously low adjusted gross income (AGI), relative to his economic income for the year.”

Confused? Don’t be. “Adjusted gross income” (AGI) is pretty close to what you think about when you think about income. “Taxable income” is what you’re left with after accounting for deductions like the home mortgage interest deduction.

Here’s how this looks for a guy like Romney. In 2010, Romney’s adjusted gross income was $21,646,507. That’s the number we’re talking about when we say he paid a 13.9 percent tax rate. But, due to various credits and exemptions, his taxable income was $17,127,367. If he’d been using that figure as the denominator, his 2010 tax rate would have been closer to 18 percent.

So one thing he could be doing when he says he paid more than 13 percent every year for the past 10 years is referring to the rate he paid on his taxable income as opposed to his AGI. That would make it easy for him to say that he paid more than 13 percent, but he wouldn’t have paid more than 13 percent by the normal standards of accounting.

Is there any proof he’s doing this? Of course not. But there’s no proof he’s not doing it, either. That’s why people want Romney to actually release the returns: Then we can find out what’s really going on in them. Just having Romney tell us what’s in the returns doesn’t do us any good.

• Associated Press
• Bloomberg
• New York Times
• Dan Shaviro (NYU)
• Wall Street Journal

More on the Romney Economic/Tax Plan

Following up on last week's post, Romney Tax Plan Would Increase GDP by 5.4%, Add 6.8 Million Jobs:

• Ezra Klein (Washington Post), Economists to Romney Campaign: That’s Not What Our Research Says
• Paul Krugman (Princeton University), Culture of Fraud
• Dan Shaviro (New York University), Hassett-Hubbard-Mankiw-Taylor Piece Issued by the Romney Campaign 
• John Taylor (Stanford University), Paul Krugman is Wrong

WSJ: Mathematically Possible -- Correcting the False Assumptions of Obama's Tax Gurus

Following up on my previous posts (links below):  Wall Street Journal editorial:  Mathematically Possible: Correcting the False Assumptions of Obama's Tax Gurus:

It isn't easy being the intellectual frontmen for President Obama's re-election campaign, as the boys at the Brookings-Urban Institute Tax Policy Center are discovering. Their ballyhooed study of Mitt Romney's tax plan looks worse with each new examination.

Mr. Romney's tax plan would cut income tax rates across the board by 20%, while cutting loopholes that mostly benefit those in the highest income classes. The Tax Policy Center claims it is "mathematically impossible" to finance the rate cut without jacking up taxes by $86 billion on the middle class and poor. Mr. Obama has jumped on the study to support his claims that Mr. Romney would raise taxes, though the Republican has proposed no such thing.

The study's biggest distortion is its raw assertion that Mr. Romney would refuse to close certain loopholes. In the appendix, the Tax Policy Center lists, among others, two giant tax deductions that it says would go untouched: the exclusion of interest on tax-exempt municipal bonds, and the exclusion of interest on life insurance savings. The study claims that Mr. Romney won't close these because they are incentives for saving and investment.

One problem: Nowhere do Mitt Romney or his advisers say that these deductions can't be touched. Senior economic adviser Glenn Hubbard says these deductions are definitely "on the table." ...

Scholars at the American Enterprise Institute examined what happens to the Tax Policy Center math when this error is corrected. AEI economic research associate Matt Jensen found that "Both of these exclusions largely benefit the wealthy, and, according to the Treasury Department, added together their repeal would net upwards of $90 billion that could be redistributed to lower-income individuals. That would go a long way towards balancing the supposed $86 billion windfall for the rich and tax hike on the middle class and poor, and it could make the impossible suddenly possible." [How the Tax Policy Center Could Improve its Romney Tax Study]

The AEI analysis warns that these numbers change from year to year, but it concludes that by eliminating these two deductions and a few other smaller ones, Mr. Romney can make his math add up. In other words, poof, no tax hike on the middle class.

This won't stop the Obama campaign from making its false claims, but it ought to at least embarrass the media into questioning them. It should also embarrass the analysts at the Tax Policy Center who claim to be nonpartisan, above-the-fray economists but somehow always seem to provide analysis that serves those who want to raise tax rates.

Prior TaxProf Blog coverage:

• WSJ: The Romney Hood Tax Fairy Tale (Aug. 9, 2012)
• The Romney Tax Plan, the Tax Policy Center, and the Wall Street Journal (Aug. 10, 2012)

Romney, Ryan, and Taxes

Don't Mess With Taxes, Ryan v. Romney on Taxes:

Tax	Romney	Ryan
Individual income tax rates	Reduce all current tax rates by 20%, creating six rates of 8%, 12%, 20%, 22.4%, 26.4% and 28%	10% rate on income up to $50,000 for single filers and $100,000 for joint filers; 25% on taxable income above these amounts. Eliminate most tax deductions, credits and exclusions but increase the standard deduction and personal exemption amounts. Taxpayers also would have the option to use existing tax laws if that provided a better filing result.
Corporate taxes	25% U.S. tax rate and for multinational corporations a territorial system where taxes basically would be collected only by the countries in which the money was made	Replace corporate income tax with a border-adjustable business consumption tax of 8.5%
Investment taxes	No tax on any investment income for individuals with adjusted gross income of less than $200,000; 15% tax on interest, dividends and capital gains for individuals making $200,000 or more	No taxes on any investment earnings regardless of taxpayer's income
AMT	Repeal	Repeal
Estate tax	Repeal	Repeal

• The Atlantic: Mitt Romney Would Pay 0.82% in Taxes Under Paul Ryan's Plan, by Matthew O'Brien
• Center on Budget and Policy Priorities: Ryan Roundup: Everything You Need to Know About Chairman Ryan’s Budget
• Forbes: Romney, Ryan and Reagan: The Winning Team?, by Kelly Phillips Erb
• The New Republic, Why Ryan Makes Romney's Tax Problem Even Worse
• Politico: Mitt Romney, Paul Ryan Have Some Taxing Differences, by Steven Sloan
• Talking Points Memo: Under Paul Ryan’s Plan, Mitt Romney Would Pay Virtually No Taxes, by Benjy Sarlin
• Tax Policy Center: 2013 House Republican Budget Proposal (Excluding Unspecified Base Broadeners): Impact on Tax Revenue, 2012-22
• Tax Vox Blog, Paul Ryan’s Budget Plan: More Big Tax Cuts for the Rich, by Howard Gleckman
• Washington Post: Ryan Wants to Give the Wealthy Even Bigger Tax Cuts Than Romney Does, by Suzy Khimm

Janna Ryan, Tax Lawyer

Janna Little Ryan, wife of Republican Vice Presidential candidate Paul Ryan, is a former Washington, D.C. tax lawyer:

Born Janna Little, she is originally from Oklahoma where her mid-western values and his conservative politics were figurative bedfellows before they became physical bedfellows as husband and wife. She is a graduate of the prestigious (and expensive) Wellesley girls college. After obtaining her 4-year degree there she one-upped her sterling education by continuing on to attend one of the best law schools in the country, George Washington University. After graduating she became a high-powered tax attorney in the nation’s capitol of Washington DC. ...

She married Ryan in December, 2000 while he was just a babe in the woods during his very first term in Congress at the young age of 30 years old. They were married in her hometown of Oklahoma City. ... In short time Paul Ryan’s wife turned to a favorite activity of Republican wives everywhere: child bearing. The couple now have three children. The first born was a daughter named Elizabeth Anne Ryan. Two sons followed named Charles Wilson and Samuel Lowery Ryan.

(Hat Tip: Bob Kamman.)

NY Times: Tax Returns of Richest 400 Americans Provide Clues to Romney's Unreleased Tax Returns

New York Times:  In Superrich, Clues to What Might Be in Romney’s Returns, by James B. Stewart:

On the face of it, Senator Harry Reid’s explosive but flimsily sourced claim that Mitt Romney paid no income tax seems preposterous. Mr. Romney has denied it, and without his returns no one can say for sure. But for someone who makes millions of dollars a year, would it even be possible?

Evidently it is.

It so happens that this summer the IRS released data from the 400 individual income tax returns reporting the highest AGI. This elite ultrarich group earned on average $202 million in 2009, the latest year available. And buried in the data is the startling disclosure that six of the 400 paid no federal income tax.

The IRS has never before disclosed that last fact.

Not even Mr. Romney, with reported 2010 income of $21.7 million, qualifies for membership in this select group of 400. But the data provides a window into the financial lives and tax rates of the superrich. ... And that data demonstrates that many of the ultrarich can and do reduce their tax liability to very low levels, even zero. Besides the six who paid no federal income tax, the IRS reported that 27 paid from zero to 10% of their AGI and another 89 paid between 10 and 15%, which is close to the 13.9% rate that Mr. Romney disclosed that he paid in 2010. (At the other end of the spectrum, 82 paid 30 to 35%. None paid more than 35%.) So more than a quarter of the people earning an average of over $200 million in 2009 paid less than 15% of their AGI in taxes.

How do they do it? ...Tax experts I consulted said these results almost certainly reflected aggressive use of tax-loss carry-forwards from 2008, since the stock market bottomed in March 2009 and rallied strongly during the rest of the year.

The superrich also accounted for a disproportionate amount of dividend income [and capital gains] ... taxed at a maximum rate of 15%, as opposed to the maximum rate on earned income of 35%, which helps explain why so many of the superrich pay a relatively low rate. Still, that preferential rate doesn’t get them anywhere near zero, or even 10%.

Edward Kleinbard, professor of law at the Gould School of Law at the University of Southern California, explained it this way, “You start with income dominated by tax-preferred income — capital gains and qualified dividends. That gets you to 15%. Then you use charitable contributions of appreciated securities to reduce ordinary income. But the charitable contribution deduction is capped at 50% of AGI. Now you’re way down, but you’re not at zero.”

What does it take to get to zero, or close to it? According to Professor Kleinbard, there are only two additional ways: tax loss carry-forwards to offset capital gains, and tax shelters, many of which have been deemed abusive by the IRS, to offset any remaining ordinary income after other deductions. ...

Since Mr. Romney seems to have had relatively little ordinary income since leaving Bain Capital, he may have been able to get to a very low rate in 2009 using tax loss carry-forwards from 2008 to offset capital gains and charitable contributions to offset up to 50% of his ordinary income. Without access to the returns, it’s impossible to know whether he would also have needed some additional form of tax shelter, aggressive or otherwise, to get even lower, or even to zero. ...

[E]ven Professor Kleinbard doubts that Mr. Romney paid no income tax. “It’s possible theoretically that Romney didn’t pay, but improbable,” he said. Far more likely is that he paid a very low rate that would generate renewed criticism. ...

There’s no reason to fault Mr. Romney for taking advantage of loopholes the tax code offers the superrich, however ill advised they may be as a matter of public policy. Mr. Romney didn’t make the law, and he’s called for broadening the tax base, which presumably means eliminating some of the breaks that benefited him. He could easily speak to that issue, since who would know better than he does which loopholes should be closed? ...

As long as Mr. Romney withholds his returns, continued speculation, and even outlandish conjecture, will probably flourish. “It’s reinforced my view that he’d be better off just releasing the returns rather than having people blindly speculating,” Leonard E. Burman, a tax specialist and professor of public affairs at the Maxwell School of Syracuse University, told me this week. “It seems like one of those slow-drip water torture things, and eventually he’s going to have to do it.” ...

What’s abundantly clear, both from Mr. Romney’s 2010 returns and from the returns of the top 400, is that at the very pinnacle of taxpayers, the United States has a regressive tax system. The top 400 earn more than 1% of all income in the United States, more than double their share in 1992. These 400 earned a total of $81 billion in 2009 — but paid an average tax rate of just 19.9%.

Shaviro on Romney, Marriott, Son-of-BOSS Tax Shelters, and Mea Culpas

Dan Shaviro (NYU):

• Someone Said Something Stupid on the Internets (and Unfortunately It Was Me) (Aug. 9, 2012)
• Romney and Marriott (Aug. 10, 2012)

The Romney Tax Plan, the Tax Policy Center, and the Wall Street Journal

Following up on yesterday's post, WSJ: The Romney Hood Tax Fairy Tale:

• Tax Policy Center: Understanding TPC’s Analysis of Governor Romney’s Tax Plan, by David Marron:

The Tax Policy Center’s latest research report went viral last week, drawing attention in the presidential campaign and sparking a constructive discussion of the practical challenges of tax reform. Unfortunately, the response has also included some unwarranted inferences from one side and unwarranted vitriol from the other, distracting from the fundamental message of the study: tax reform is hard.

• Forbes:  GOP Establishment's Shameless Attack on Nonpartisan Think Tank, by Len Burman (Syracuse University, Maxwell School):

The GOP establishment is in full attack mode after a Tax Policy Center report concluded that Mitt Romney couldn’t offset the effect of his proposed tax cuts by simply closing loopholes benefiting the rich. Either he would have to raise taxes on middle- and/or lower-income households, or his proposal will increase the deficit.

The Obama campaign ran with the first possibility and started saying that Mr. Romney was proposing a giant tax increase on the middle class. The Romney campaign attacked the study–perhaps not surprisingly (TPC was attacked from both sides for their analysis of the 2008 campaign proposals) and then its various surrogates started attacking the credibility of the TPC.

I’ll admit that I am certainly not unbiased on this issue as I was a co-founder of the TPC and served as its director until 2009, when I moved to Syracuse University. I’m enormously proud of TPC and think it has done a great deal to shed light on the tax policy debate, which had previously been incomprehensible to all but a few Washington insiders and academics. ... I should also point out that there has never ever been a political litmus test for employment at TPC, although there is a very high bar for competence.  Several top TPC affiliates, including director Donald Marron, have held high level  Republican appointments in the executive branch and CBO. Several have held positions in Democratic Administrations.

WSJ: The Romney Hood Tax Fairy Tale

Wall Street Journal editorial:  The Romney Hood Fairy Tale: The False, Invented Analysis Behind Obama's Tax Claims:

As he escalates his class war re-election campaign, President Obama has taken to calling Mitt Romney's economic plan "Robin Hood in reverse" or "Romney Hood." The charge is that even though Mr. Romney is proposing to cut tax rates for everybody across the board, Mr. Romney will finance this by imposing a tax increase on the middle class. His evidence is a single study by the Tax Policy Center, a liberal think tank that has long opposed cutting income tax rates.

The political left always says Daddy Warbucks gets all the tax-cut money. So this is hardly news, except that the media are treating this joint Brookings Institution and Urban Institute analysis as if it's nonpartisan gospel. In fact, it's a highly ideological tract based on false assumptions, incomplete data and dishonest analysis. In other words, it is custom made for the Obama campaign.

By the way, even the Tax Policy Center admits that "we do not score Governor Romney's plan directly as certain components of his plan are not specified in sufficient detail." But no matter, the study plows ahead to analyze features of the Romney plan that aren't even in it. ...

So on four separate occasions what TPC says is "mathematically impossible"—cutting tax rates and making the tax system more progressive—actually happened. Hats off to the scholars at TPC: Their study manages to claim that what happens in real life can't happen in theory.

The TPC analysis also fails to acknowledge how highly dependent the current tax system is on the very rich. As the Tax Foundation explains in a recent report based on CBO data: "The top 20 percent of households pay 94 percent of federal income taxes. The bottom 40 percent have a negative income tax rate, and the middle quintile pays close to zero." ...

What the Obama campaign and its acolytes at the Tax Policy Center are really saying is that tax reform that reduces rates and makes all income groups better off is impossible. This is a far cry from what Democrats used to believe, going back to Jack Kennedy in 1964 and in the 1980s when prominent Democrats Bill Bradley, Dick Gephardt and Don Rostenkowski helped to write the 1986 tax reform.

The Obama Democrats, by contrast, favor income redistribution and raising rates on the wealthy for their own partisan political sake, no matter the damage to growth, the cost in lost revenue, or a less progressive tax code as the rich exploit loopholes.

The great irony is that the candidate most likely to raise taxes on the middle class is Mr. Obama. He could raise every tax on the rich he proposes and still not come up with enough revenue to finance the increases in spending he wants in a second term. Where do you think he'll turn then?

Kleinbard & Canellos: Romney's Role in Tax Shelter Raises Questions

CNN op-ed:  Romney's Role in Tax Shelter Raises Questions, by Edward D. Kleinbard (USC) & Peter C. Canellos (Wachtell, Lipton, Rosen & Katz, New York):

A key troubling public manifestation of Romney's apparent insensitivity to tax obligations is his role in Marriott International's abusive tax shelter activity.

Romney has had a close, long-standing, personal and business connection with Marriott International and its founders. He served as a member of the Marriott board of directors for many years. From 1993 to 1998, Romney was the head of the audit committee of the Marriott board.

During that period, Marriott engaged in a series of complex and high-profile maneuvers, including "Son of Boss," a notoriously abusive prepackaged tax shelter that investment banks and accounting firms marketed to corporations such as Marriott. In this respect, Marriott was in the vanguard of a then-emerging corporate tax shelter bubble that substantially undermined the entire corporate tax system.

Son of Boss and its related shelters represented perhaps the largest tax avoidance scheme in history, costing the U.S. many billions in lost corporate tax revenues. In response, the government initiated legal challenges that resulted in complete disallowance of the losses claimed by Marriott and other corporations.

In addition, the Son of Boss transaction was listed by the Internal Revenue Service as an abusive transaction, requiring specific disclosure and subject to heavy penalties. Statutory penalties were also made more stringent to deter future tax shelter activity. Finally, the government brought successful criminal prosecutions against a number of individuals involved in Son of Boss and related transactions, including principals at major law and accounting firms.

In his key role as chairman of the Marriott board's audit committee, Romney approved the firm's reporting of fictional tax losses exceeding $70 million generated by its Son of Boss transaction. His endorsement of this stratagem provides insight into Romney's professional ethics and attitude toward tax compliance obligations. ...

What emerges from this window into corporate tax compliance behavior is the picture of an executive who was willing to go to the edge, if not beyond, to bend the rules to seek an unfair advantage, and then hide behind the advice of so-called experts to deflect criticism when a scheme backfires.

Mitt Romney's La Jolla Property Tax Cut

L.A. Times, Romneys, Caught in Housing Bust, Got Tax Cut in La Jolla:

Mitt and Ann Romney were easily able to afford a $12-million La Jolla home. But that didn't insulate them from the winds buffeting the real estate market in the months following their purchase in 2008. After paying cash for the Mediterranean-style house with 61 feet of beach frontage, they asked San Diego County for dramatic property tax relief....

Initially, the Romneys asked that their 2009 assessment, $12.24 million, be reduced to $6.8 million, maintaining that their home had lost about 45% of its value in the first seven months they owned it.

Thirteen months later, after hiring an attorney to guide them, the Romneys filed an amended appeal, contending the home had suffered a less-dramatic fall of 27.3%, to $8.9 million.

They also filed an appeal for the 2010 tax year, claiming the house had dropped further, to $7.5 million, 38.7% less than the home's assessed value.

As a result, the Romneys have saved about $109,000 in property taxes over four years.

• CBS News
• Don't Mess With Taxes
• San Diego 10 News
• San Diego Union-Tribune

Mitt Romney House - Powered by: Celebrity House Pictures

Romney Tax Plan Would Increase GDP by 5.4%, Add 6.8 Million Jobs

John W. Diamond (Rice University), The Economic Effects of the Romney Tax Plan:

There is widespread recognition that the U.S. income tax is a complex, highly inefficient, and costly way of raising revenues to finance government expenditures. In this paper, I analyze a rough sketch of the Romney Tax Plan -- a rate-reducing, base-broadening tax reform. The simulations show that such a base-broadening, rate-reducing reform would have significant positive economic effects on the U.S. economy, including increases in investment, the capital stock, employment, and real wages. These gains are in addition to increases in GDP, investment, consumption, and employment that will occur as the U.S. economy continues to recover from the recent recession and as the population grows. Specifically, I find that the reform would, if passed immediately, increase GDP relative to baseline by 5.4 percentage points over the next decade, while creating 6.8 million jobs.

• R. Glenn Hubbard (Columbia University), N. Gregory Mankiw (Harvard University), John B. Taylor (Stanford University) & Kevin A. Hassett (AEI), The Romney Program for Economic Recovery, Growth, and Jobs
• Huffington Post, Mitt Romney Economic Advisers Draft White Paper To Back Up Job Creation Predictions
• Washington Post, Romney Has a New Economic White Paper. Here’s What He Left Out

Republican Senators Urge IRS to Resist Political Pressure From Democrats on 501(c)(4) Groups

Press Release:

After the IRS signaled its intent to consider proposed changes to the tax treatment of non-profit 501(c)(4) organizations, 10 Senators today asked IRS Commissioner Shulman to clarify the agency’s intentions for the 52-year-old regulation.  In a letter led by U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, the lawmakers questioned the IRS’s response to a public rulemaking petition from outside groups pressuring the agency to take action on 501(c)(4)s and said it was essential that politics not play any role in its decision-making process.

“We believe these petitions have less to do with concerns about the sanctity of the tax code and more about setting the tone for the upcoming presidential election, and we urge you to resist allowing the IRS rulemaking process to be subverted to achieve partisan political gains,” wrote the Senators.

On July 17th in a letter to petitioners, the IRS said it “was aware of the public interest” in 501(c)(4)s and that it “will consider proposed changes,” raising questions on whether the agency has already started a an internal process to amend its regulations.

The Senators continued, “Your acknowledgement of the political character of the public interest in 501(c)(4) organizations would caution against sudden changes to well-established law.  Yet, your letter seems to suggest that outside political pressure is actually what is triggering your agency’s considering of changes to the law.”

Joining Hatch on the letter are Senators Chuck Grassley (R-Iowa), Jon Kyl (R-Ariz.), Pat Roberts (R-Kan.), Mike Enzi (R-Wyo.), John Cornyn (Texas), John Thune (R-S.D.), Mitch McConnell (R-Ky.), Lamar Alexander (R-Tenn.), and Kay Bailey Hutchison (R-Texas).

• Chicago Tribune, IRS in Political Crossfire Over Tax-Exempt Pressure Groups
• The Hill, Senators Warn IRS to Ignore Political Pressure to Rewrite Super-PAC Rules

The Onion: Speculation About Romney's Taxes

The Onion:  Speculation About Romney's Taxes:

As Democrats continue to press Mitt Romney to release more of his tax records, the Republican candidate has become more assertive in his rejection of such calls, leading many to speculate about what the filings contain. Here are some of the details experts suggest he may not want the public to see:

• List of residences includes Caribbean property named “Skull Island
• Used Obama’s $6,500 homebuyer credit for six different houses in 2010
• From 2002 to 2006, official occupation was listed as “masseuse”
• Wrote off $10,000 in aftershave during 2004
• Really shitty handwriting for someone who expects to be elected president
• Years of filings in state of Delaware prove definitively that the candidate himself is a corporation
• In 2009, thanks to clever accounting, the IRS actually paid Romney $25 million in taxes
• Just doesn’t want people to see so many pages of official documents that list his first name as Willard

Graetz: Mitt Romney’s Financial Mysteries

New York Times op-ed:  Mitt Romney’s Financial Mysteries, by Michael J. Graetz (Columbia):

Pressure is mounting for Mitt Romney to release more of his financial records. Mr. Romney has made public only his 2010 tax returns and has said his 2011 documents will be released soon. “That’s all that’s necessary for people to understand something about my finances,” he said recently. He is “simply not enthusiastic,” he also said, about giving the Obama campaign “hundreds or thousands of more pages to pick through, distort and lie about.” ...

No one should begrudge Mr. Romney or his family the wealth they have earned. But if he has not paid the taxes that apply to transfers of such wealth, this should concern us all. After all, who do you think pays for the shortfall?

(Hat Tip: Dorothy Brown)

Update: 

• Forbes:  Romney Has a Duty to Exploit Every Tax Loophole? Horse Feathers!, by Janet Novack:

If none of Mitt Romney’s accounts were in offshore tax havens, would the presumptive Republican nominee be less competent to handle foreign affairs? If he didn’t have an IRA that could be worth as much as $102 million (perhaps, according to the Wall Street Journal, because of the unusual and aggressive way Bain Capital structured its employees’ personal investments in its deals) would he be less able to deal with retirement policy, Social Security and Medicare?If Romney had decided that his wife’s money losing partial ownership of Rafalka, a horse competing in the London Olympics, was really just part of a wonderful, healthful hobby, and one they could well afford to fund without trying to cut their tax bill, would that make him less qualified to be President? ...

[H]e is either ignorant of the practical functioning (and malfunctioning) of our tax system; hopes the American public is ignorant of it; or has bought into an aggressive approach to tax-compliance that contributes to the tax mess. ...

My take on this after decades of writing about tax planning, legitimate tax shelters, over-the-line tax shelters and out and out tax cheating, is this:  The attitude in some sophisticated circles that folks are chumps (or even negligent) if they don’t structure their affairs to exploit every possible provision of the tax code in ways Congress intended (and didn’t) creates a climate that allows abusive tax shelters to flourish and undermines the functioning of the tax code (which, granted, is plenty dysfunctional on its own.)

• Dan Shaviro (NYU), Others Weigh in on Romney's Tax Returns

Romneys Have Tax Deduction With Olympic Hopes Riding on Rafalca

Following up on my previous posts (links below):  Bloomberg, Romneys Have Tax Deduction With Olympic Hopes on Rafalca:

Rafalca, a 15-year-old mare competing in dressage at the Olympics opening today in London, will be trying to add to the U.S. medal count and Republican presidential candidate Mitt Romney’s bottom line. Romney’s wife, Ann, who calls horses her “passion in life,” has an investment in them, including Rafalca, valued at as much as $500,000.

The couple’s tax returns classify Ann Romney’s pastime as a business that lost $77,731 in 2010, rather than a hobby, and as a passive investment instead of one they actively manage. Each of those decisions has tax consequences.

• Tobin: The Tax Treatment of Ann Romney's Dressage Horse Activity (June 25, 2012)
• Forbes: Both Left and Right Got the Taxes on the Romneys' Olympic Horse Wrong (July 20, 2012)

Did Barack Obama Underreport His Income to IRS?

American Thinker:  Did Barack Obama Underreport His Income to IRS?:

President Barack Obama released his recent personal finance records in 2008, which included his 2004 U.S. Individual Income Tax Return and Senate Annual Finance Report. President Obama's records for 2004 do not reconcile with the State of Illinois Comptroller's Office. There are inconsistencies in the total compensation received as an Illinois State Senator. The largest error likely is President Obama's omission of a "Leadership Stipend" of over $8,000. This stipend should have been recorded as income.

More on Mitt Romney's Tax Returns

• Linda Beale (Wayne State), What's Romney Got to Hide? (Part I)
• Linda Beale (Wayne State), What's Romney Got to Hide? (Part II)
• Linda Beale (Wayne State), What's Romney Got to Hide? (Part III)
• Len Burman (Syracuse), Gov. Romney: Just Release the Tax Returns
• Dan Shaviro (NYU), 2010 Romney Tax Return Story 
• Bloomberg, Romney Should Release Taxes, Majority Surveyed by Gallup Say
• FactCheck.org, Romney and the Tax Return Precedent
• Financial Times, Speculation Mounts Over Romney’s Tax Records
• The Hill, Trump: 'Clamor for Mitt Romney's Tax Returns Has Died Down'
• Huffington Post, Mitt Romney Avoided Major Tax Hit By Shifting Stock Of Offshoring Firm
• New York Times, When Will Romney Reveal His Returns?
• NPR, Romney's 1040: Tax Terms An Accountant Would Love
• Reuters, What Might be Hiding in Romney's Tax Returns?
• USA Today, Two Years of Tax Returns Is Plenty
• Washington Post, If Romney Releases His Tax Returns, What Are the Worst Things We Could Find?
• Washington Post, The Secret in Mitt Romney's Tax Returns

Kleinbard & Canellos: Why Won't Romney Release More Tax Returns?

CNN op-ed:  Why Won't Romney Release More Tax Returns?, by Edward D. Kleinbard & Peter C. Canellos (Wachtell, Lipton, Rosen & Katz, New York):

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.)

Shaviro: Why Won't Romney Release His 2009 Tax Return?

Dan Shaviro (NYU), Why Won't Romney Release His 2009 Tax Return?:

Increasingly, everyone (including Republicans such as George Will, Matthew Dowd, and William Kristol) agrees that the reason for Romney's reluctance to release any pre-2010 tax return might be that what it would show is worse than all the heat he is taking for non-disclosure.

But what could that be?  Well, I certainly don't know either, but here are some salient points:

1) We know from the 2010 tax return, in which he had a net capital loss carryforward from 2009, that he zeroed out his net capital gains - including from carried interest Bain income - in 2009.

2) 2009 was the last year in which he received certain Bain payments as the playout of his "retroactive retirement."

3) It's been hard to understand what benefit he thought he was getting from the Swiss bank account, and there was an IRS amnesty program in 2009 for fraudulent nondisclosure of offshore income.  If he had to come clean in 2009, this might be embarrassing, especially given that there was an iron fist inside the IRS leniency offer (i.e., if you held out, they might get you without any amnesty).

From the first two items above, it may be a reasonable guess that Romney had a lot more gross income in 2009 than 2010 and 2011, yet paid less tax or even zero tax.

• The New Yorker, Why Won’t Romney Release More Tax Returns?
• Wall Street Journal, Romney Rejects Calls on Tax Returns
• Washington Post, New Obama Attack: Maybe Romney Didn't Pay Taxes

FactCheck.org: Is ObamaCare the Biggest Tax Increase in American History?

FactCheck.org:  Biggest Tax Increase in History?:

Will “Obamacare” be the largest tax hike in US history?

Several readers have asked us about this since Rush Limbaugh made a hugely exaggerated claim that the new health care law is “the biggest tax increase in the history of the world.” ...

is this increase the largest in American history? Perhaps -- as measured by the rather useless yardstick of raw dollars, with no adjustment for inflation. We rely here on recently updated tables from U.S. Treasury Department tax analyst Jerry Tempalski, whose 2006 paper on “Revenue Effects of Major Tax Bills” is the standard reference for making such comparisons. ...

By this measure, the Affordable Care Act’s $76.8 billion in revenue increases tops the $65.9 billion for the highest single year for Bill Clinton’s 1993 deficit reduction bill, which Republicans have for years attacked as the biggest in history. But as we’ve said before, that attack is misleading, and the raw-dollar measure is a poor way to measure the size of a tax increase.

For one thing, that measure doesn’t take account of inflation. Using “constant” dollars -- all adjusted to equal the value of a dollar in 2009 -- the ACA drops to fourth place, and the tax increase signed in 1982 by President Reagan becomes the largest since 1968.

But even this measure takes no account of a population that is steadily rising. Today’s population is 82 million higher than it was at the time of Reagan’s 1982 increase, and 56 million higher than it was when Clinton signed the 1993 increase. So the average tax increases in those years was accordingly higher on a per-person basis than the ACA.

Incomes are also up since those times -- even adjusting for inflation, and despite declines since the economic crisis of 2008. So the effect on the average person’s paycheck would be reduced even further, compared to earlier increases.

So what is the best yardstick for measuring changes in taxation?  “The single best measure for most purposes is probably the revenue effect as a percentage of GDP, because it eliminates the effects of inflation, real economic growth, and the size of total federal receipts,” Tempalski wrote in 2006. We concur, as do most tax experts we know of.

And by that measure, the revenue increases in the ACA are smaller than most of the increases enacted since 1968 -- and less than one-quarter the size of the largest.

Lindgren: Over 30% of President Obama’s 2009-11 Income Came From Foreign Sources

The Volokh Conspiracy:  Over 30% of President Obama’s 2009-2011 Gross Income Came From Foreign Sources, by James Lindgren (Northwestern):

I find it strange that the Obama campaign would be making so much of Romney’s income from foreign sources when Obama’s foreign source income appears to be a much bigger percentage of his income over the last few years. Of course, one can’t tell for sure because Mitt Romney has not released his 2009 tax return.

Yet in the three tax years in which Barack Obama has been President (2009, 2010, and 2011), fully 30.1% of the Obamas’ gross income has come from foreign sources: ($2,711,340 out of a 3-year total gross income of $8,993,449).  In 2009, 26.5% of the Obamas’ gross income came from foreign sources. In 2010 it was a whopping 41.4%, and in 2010 it was 30.2%.

The salary that we taxpayers pay him as President (just under $1.2 million over the 3 years) accounted for less than 13% of the Obamas’ income, a share dwarfed by their 30% from foreign sources over the same period.

From 2009 through 2011, the Obamas paid $87,429 in foreign taxes, which they applied toward a credit to reduce their U.S. tax bill.  The amounts I examined are reported on Form 1116, of which there are two filed along with their 1040 when they had both general and passive foreign income.

Their returns do not disclose which foreign countries are responsible for paying the Obamas the $2.7 million in foreign source income, but the overwhelming bulk of it must come from payments resulting directly or indirectly from book sales.

NY Times: Mr. Romney’s Financial Black Hole

New York Times editorial:  Mr. Romney’s Financial Black Hole:

Paying taxes forthrightly has long been a matter of civic pride for most American politicians, a demonstration of honesty and of a willingness to share in society’s burdens. Since the Watergate era, presidential candidates have released several years of tax returns, allowing voters to peer at their financial choices and discern their entanglements.

Mitt Romney has upended that tradition this year. He has released only one complete tax return, for 2010, along with an unfinished estimate of his 2011 taxes. What information he did release provides a fuzzy glimpse at a concerted effort to park much of his wealth in overseas tax shelters, suggesting a widespread pattern of tax avoidance unlike that of any previous candidate.

Mr. Romney has resisted all demands for more disclosure, leading to growing criticism from Democrats that he is trying to hide his fortune and his tax schemes from the public. Given the troubling suspicions about his finances, he needs to release many more returns and quickly open his books to full scrutiny.

• The Daily Beast, Mitt Romney’s Flat-Footed Tax Dodge
• Fox News, If Romney Vetted Himself, His Tax Returns Would KO Shot at White House
• International Business Times, Mitt Romney Insists There's Nothing Shady About Tax Returns He Won't Release
• Dan Shaviro (NYU), It's Not Actually About the Swiss Bank Account
• Washington Post, Romney Tax Returns: Candidate Turns Transparency Argument Back on Obama

Bartlett: Obama’s Health Care Win Could Lose Him the Election

The Fiscal Times:  Obama’s Health Care Win Could Lose Him the Election, by Bruce Bartlett:

Now that a divided Supreme Court has ruled that the Affordable Care Act is constitutional, it appears that it will be implemented on schedule. The cost, however, has been considerable—politically, constitutionally, and economically. ...

We now know two things about Barack Obama’s economic policy his first year in office. First, the economy was in far worse shape than the administration’s public economic forecast projected. ... By turning his attention away from the economy and pivoting toward health, Obama did two things. First, he gave the impression, valid or not, that he was not very focused on the economy. Second, he lost the opportunity to enact additional stimulus. ...

Having committed himself to health reform, I think Obama made another error. During the 2008 campaign he said repeatedly that the nation’s biggest health problem was cost. ... But rather than concentrate on cost control, where Obama might have found Republican support, he instead proposed a program that would expand health insurance for the uninsured. Cost control took a back seat. ...

If Obama needed some other issue to focus on in his first term, tax reform would have made much more sense. In the process, health could easily have been dealt with. Almost all economists believe that the tax exclusion for employer-provided health insurance is a key source of excessive health care costs. Unfortunately, the exclusion was completely ignored during the health reform debate....

Time will tell whether greatly expanding health coverage to the uninsured was worth it. But at the moment, I am very doubtful that is the case.

Vanity Fair: Where Mitt's Money Lives

Vanity Fair (Aug. 2012):  Where the Money Lives, by Nicholas Shaxson:

For all Mitt Romney’s touting of his business record, when it comes to his own money the Republican nominee is remarkably shy about disclosing numbers and investments. Nicholas Shaxson delves into the murky world of offshore finance, revealing loopholes that allow the very wealthy to skirt tax laws, and investigating just how much of Romney’s fortune (with $30 million in Bain Capital funds in the Cayman Islands alone?) looks pretty strange for a presidential candidate. ...

Come August, Romney, with an estimated net worth as high as $250 million (he won’t reveal the exact amount), will be one of the richest people ever to be nominated for president. Given his reticence to discuss his wealth, it’s only natural to wonder how he got it, how he invests it, and if he pays all his taxes on it. ...

Ed Kleinbard, a professor of tax law at the University of Southern California, says the Swiss account “has political but not tax-policy resonance,” since it—like many other Romney investments—constituted a bet against the U.S. dollar, an odd thing for a presidential candidate to do. The Obama campaign provided a helpful world map pointing to the tax havens Bermuda, Luxembourg, and the Cayman Islands, where Romney and his family have assets, each with the tagline “Value: not disclosed in tax returns.” ...

[R]omney’s personal tax rate is a particular point of interest. In 2010 and 2011, Mitt and Ann paid $6.2 million in federal tax on $42.5 million in income, for an average tax rate just shy of 15 percent, substantially less than what most middle-income Americans pay. Romney manages this low rate because he takes his payments from Bain Capital as investment income, which is taxed at a maximum 15 percent, instead of the 35 percent he would pay on “ordinary” income, such as salaries and wages. Many tax experts argue that the form of remuneration he receives, known as carried interest, is really just a fee charged by investment managers, so it should instead be taxed at the 35 percent rate. Lee Sheppard, a contributing editor at the trade publication Tax Notes, whose often controversial articles are read widely by tax professionals, is nonplussed that the Obama campaign has been so listless on the issue of carried interest. “Romney is the poster boy, the best argument, for taxing this profit share as ordinary income,” says Sheppard.

In the face of such arguments, Romney’s defense is that he never broke the rules: if there is a problem, it is in the laws, not in his behavior. “I pay all the taxes that are legally required, not a dollar more,” he said. Even so. “When you are running for president, you might want to err on the side of overpaying your taxes, and not chase every tax gimmick that comes down the pike,” says Sheppard. “It kind of looks tacky.”

The assertion that he broke no laws is widely accepted. But it is worth asking if it is actually true. The answer, in fact, isn’t straightforward. Romney, like the superhero who whirls and backflips unscathed through a web of laser beams while everyone else gets zapped, is certainly a remarkable financial acrobat. But careful analysis of his financial and business affairs also reveals a man who, like some other Wall Street titans, seems comfortable striding into some fuzzy gray zones.

David Cay Johnston: Five Tax Questions for Mitt Romney

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Tobin: The Tax Treatment of Ann Romney's Dressage Horse Activity

Donald Tobin (Ohio State), Ann Romney’s Tax Deductible Horse Activity -- The Tax Code Got This Right!:

Ann Romney’s love of horses and Steven Colbert’s infatuation with Rafalca, one of her dressage horses, have created a buzz about horses, money, and taxes. Romney owns a one-third interest in Rafalca, and Rafalca will be competing, with her rider, Jan Ebeling, in the Olympic dressage event.  In the most recent uproar, the Romneys are criticized for deducting $77,731 for the Romney’s share of Rafalca’s expenses. But here is the catch: Because of anti-abuse provisions contained in the Tax Code the Romney’s only actually deducted $49 on their return. Assuming the Romney’s are in the 35% tax bracket, the benefit to the Romneys was about $17. Not much worth working yourself into a lather about.

Although it is not clear what expenses make up the $77,731 figure on the Romney’s return, assuming the figure is correct, the Romney’s effectively received no tax benefit from the activity. They will only recoup these expenses if the Rafalca activity returns a profit. Here is how it works.

Under Section 469 of the Code, losses from passive activities, generally activities where you are a passive investor and do not materially participate in the activity, are only deductible against passive gains. The passive loss provisions were added as part of the Tax Reform Act of 1986 as part of a series of changes to clamp down on abusive tax shelters. The idea was to prohibit taxpayers from deducting losses when the taxpayer was not primarily involved in the activity.

If a person actively runs a business, the activity is not a passive activity and the profit and loss from the business can be deducted on a tax return. So for example, pretend your spouse is a teacher making $50,000 a year and you run a hot dog stand. If the hot dog stand loses money (say $10,000), you can deduct the $10,000 loss from the $50,000 your spouse earned. That is what some news reports were implying when they said the Romney’s deducted $77,731 from the horse activity.

There is a catch however. If there were a passive investor in the hot dog stand who did not participate in its management or operation, and she incurred the $10,000 loss, she could not deduct the loss unless she had other passive gains. The idea is that the Code allows the loss once someone can show that he has some gain in some passive activity. The Romneys are arguably in that situation. Since the $77,731 is a passive loss it can be deducted only against passive gains. Since the Romneys had a lot of passive losses, they had to allocate the passive gains among the various losses. The Romneys generated $2,170 in passive gains, and had over $2 million in losses. The passive gains were thus spread across the losses. Once this allocation was done, $49 of the horse activity was deductible against the $2,170 in income. In effect, the Romneys were not able to deduct over $2 million in passive losses.

Now some have noted that the Romneys may still get the deduction because they can carry over the loss to future years. The Code provides that if an asset is fully sold, the loss generated from the activity, if it is an activity engaged in for profit, would not be a passive loss. Thus the Romneys will only get a large tax deduction from Rafalca, if Rafalca is sold at a loss and they actually suffer a loss. This raises the specter that taxpayers may ultimately be subsidizing Romney’s horse activity.

The Romney story caught my eye because I am constantly telling my wife that we cannot deduct expenses for Patrick, the wonderful, but not Olympic caliber, dressage horse she rides. Why can Ann Romney deduct expenses for Rafalca while we cannot deduct expenses for Patrick? That raises one more question. Is the Romney activity actually an activity for profit, or is it a hobby? Does she actually intend for Rafalca to turn a profit? Would she actually sell Rafalca? I don’t doubt that Rafalca could be sold for a huge amount of money, but could she be sold for a profit? If the activity is a hobby, the Code limits the deduction by only allowing expenses to the extent of gains. Thus, if Romney’s activity is a hobby and not an ordinary and necessary business expense or an investment activity, she could not deduct losses in excess of gain.

The moral of this story, however, is that the Tax Code is working here to properly disallow the deductions. If Ann Romney is engaged in this activity as a hobby and not as a business, her deductions should be limited to her income from the activity. Ann Romney’s love of horses is admirable and her care of Rafalca commendable. Taxpayers should not foot the bill when wealthy individuals, or not so wealthy individuals, engage in these types of activities for love, and not profit. Ann Romney clearly loves horses, and she is sharing that love with others. From my perspective, it is her money, and her love, so go for it. I and glad that at the moment the Tax Code is working and that I, and other taxpayers, are not subsidizing Ann Romney’s horse activity. I already do enough of that at home.

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Mitt Romney's Champion Horse & Stephen's Dressage Contribution
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Winners of 'Dinner With Barack' Will Face a $560 Tax Bill

William Jacobson (Cornell) blogs the tax consequences of the Obama campaign's Dinner With Barack fundraising raffle. Three winners and their guests will receive:

• Roundtrip airfare (valued at $1,200)
• One night in a hotel ($200)
• Dinner with President Obama ($200)

The rules state that "all federal, state and local taxes associated with the receipt or use of any prize are the sole responsibility of the winner."  The $1,600 is includible in each winner's income under § 74 -- at the 35% rate, that results in $560 of federal income tax. (Hat Tip: Greg McNeal.)

IRS Denies 501(c)(4) Status to Emerge America -- Is Crossroads GPS Next?

Bloomberg, IRS Denial of Tax Exemption to U.S. Political Group Spurs Alarms:

An IRS decision revoking the tax-exempt status of a small political nonprofit organization may foreshadow an investigation into groups such as Crossroads GPS and Priorities USA that spend millions on the 2012 U.S. presidential election. At risk would be the groups’ nonprofit status, which lets them collect millions of dollars from individuals and corporations while keeping donors anonymous.

President Barack Obama and Republican challenger Mitt Romney are benefitting from such nonprofits. Crossroads GPS was started with help from former President George W. Bush’s chief political strategist, Karl Rove. Priorities USA was co-founded by Bill Burton, a former Obama aide.

The recent IRS decision sends a signal that it may turn its attention after November’s election to major nonprofits involved in this year’s election, said Marcus Owens, a lawyer and former IRS director who oversaw nonprofits. ...

The IRS decision released last month involved a so-called campaign school in which a partisan group trained candidates.  [The nonprofit is Emerge America, which works in ten states to train Democratic women candidates.]

“You are not operated primarily to promote social welfare because your activities are conducted primarily for the benefit of a political party and a private group of individuals, rather than the community as a whole,” said the IRS letter telling the group it was losing its exempt status.  [The ruling is Priv. Ltr. Rul. 2012-21-028 (Mar. 2, 2012).]

Sen. Hatch Demands Investigation of IRS's Leak of Mitt Romney's Contribution to Pro-Marriage Group

Following up on my prior post, Senator Orrin Hatch (R-UT), Ranking Member of the Senate Finance Committee, has sent this letter to the IRS, demanding an investigation into whether the IRS leaked an official tax form listing a $10,000 contribution by Mitt Romney's PAC to the National Organization for Marriage during NOM's campaign to repeal California's gay marriage law. From Sen. Hatch's press release:

While federal law prohibits the unauthorized release of certain tax return information, unredacted privileged donor information from the non-profit NOM, filed with the IRS, was published earlier this year by the Human Rights Campaign and the Huffington Post. Recent evidence raises serious questions about the source of the improperly disclosed information. In the letter to Shulman, Hatch demanded a comprehensive IRS review of this matter, and referred it to the Attorney General for review as well.

• Fox News, Hatch Calls on IRS to Probe Whether Staffer Leaked Anti-Gay Marriage Group's Files

Is Mitt Romney's Plan to Release Only Two Years of Tax Returns Consistent With John Kerry's Approach?

New York Times, Was Romney Right About John Kerry?:

George Romney released 12 years of income tax returns when he ran for president in 1968. George Romney’s son, Mitt, plans to release just two, so his campaign’s looking outside the family for precedent.

Eric Fehrnstrom, a Romney spokesman, told The Huffington Post: “John Kerry released two years.” In a CNBC interview with Larry Kudlow on Tuesday night, Mr. Romney said: “John Kerry released two years of taxes…I’ve released one already, put the estimate out for the next year. We’ll have two years of taxes.”

There’s a slight problem with this claim: It’s not accurate.

As the Huffington Post notes, Mr. Kerry made a habit of releasing tax returns to the Massachusetts press during his senate campaigns

Daily Caller, ThinkProgress Misleads on Romney vs. Kerry Tax Comparison:

During a recent CNBC interview with Larry Kudlow, presumptive Republican nominee Mitt Romney asserted that John Kerry had only “released two years of taxes” when he ran for president.

ThinkProgress quickly accused Romney of lying, noting that Kerry actually released twenty year’s worth of tax returns. The HuffPost dialed it back a little, calling Romney’s assertion “misleading,” and explaining the confusion (Kerry had also released tax returns during his previous Senate races.)

When he ran for president in 2004, Kerry released his ’03 tax return, showing an income of $395,338. However, the Kerry-Heinz net worth was estimated between “at least $900 million and possibly as much as $3.2 billion” in 2004.

Theresa Heinz Kerry never really released her tax returns – at first refusing, and then in October 2004 just weeks before election day, releasing (as the HuffPost notes) just two pages of only her 2003 tax return.

So, for all of the John Kerry tax returns that he may have released over the years when he was a senator, there was never a full release of their household income — because Theresa’s were never released.

Eric Zolt Launches Repledge to Divert Political Contributions to Charity

Washington Post, New Group Hopes to Divert Campaign Contributions to Charities:

Eric M. Zolt [a tax professor at UCLA] has come up with a unique approach to getting money out of politics: Instead of contributing to their favorite candidates, donors would send their money to charities instead. Zolt is co-founder of a company called Repledge, which is seeking approval from the Federal Election Commission to run an ambitious experiment aimed at reducing the amount of cash sloshing around in the U.S. political system.

Here’s how it would work: Donors from each party would pledge a certain amount during fund drives at the firm’s Web site. Once the time expired, Repledge would divvy up equal amounts from each side to be given to charities chosen by the donors. Any remainder would be given to political candidates. Thus, if supporters of President Obama pledged $60,000 and backers of Mitt Romney promised $50,000, $100,000 would be distributed to charity and the remaining $10,000 would go to the Obama campaign.

The idea is to provide a way for donors disgusted with money in politics to keep their cash out of the system, while ensuring that they aren’t hurting their favored candidates in the process. “It’s Match.com for political opposites who would still like to support their candidate but are disappointed with the tremendous amount of funds going into campaign finances,” said Zolt. ...

But before it can give its idea a whirl, Repledge must gain approval from the FEC. Commission lawyers have drafted two opinions for the panel’s consideration: One would allow Reepledge to go forward, but another would block the effort on the grounds that, because Repledge is a private corporation, the approach would “violate the prohibition on a corporation facilitating contributions to candidates or political committees.”

National Organization of Marriage Demands Investigation of IRS's Leak of Mitt Romney's Contribution

The National Organization of Marriage has sent this letter to the Treasury Inspector General of Tax Administration demanding an investigation of the IRS's leak of an official tax form listing a $10,000 contribution by Mitt Romney's PAC to NOM during NOM's campaign to repeal California's gay marriage law:

Last week, NOM became aware that its 2008 Form 990 Schedule B has been unlawfully obtained from the IRS by the Human Rights Campaign and the Huffington Post and published by both of these entities, as well as subsequent publication by other organizations and individuals

It is apparent from the copy of the NOM's 2008 Schedule B that appears on the HRC and Huffington Post websites that the purloined 2008 Schedule B is the official version filed with the IRS, such that the source of the illegal public release can only be the IRS. The unauthorized public release of NOM's 2008 Schedule B is a violation of federal law. See 26 U.S.C. § 6103.

Please consider this as NOM's formal request for an immediate investigation of the circumstances surrounding this matter, to identify the person(s) responsible for these illegal actions and the referral of those IRS employee(s) and others for prosecution by the appropriate authorities for violation of federal criminal statutes.

• NOM Press Release, National Organization for Marriage Demands a Federal Investigation of the Human Rights Campaign and the Internal Revenue Service
• NOM Press Release, HRC President & Obama Co-Chair Implicated in IRS Leak Scandal, NOM Marriage News
• NOM, Letter to the Huffington Post
• NOM, Letter to the Human Rights Campaign
• Daily Caller, Pro-Marriage Group Thinks IRS Employee Leaked Mitt Romney’s Donor Info to Human Rights Campaign

President Obama's Brand of Cigarettes

(Hat Tip: Andy Morriss.)

Mitt Romney's New Tax Plan

Restore America’s Promise: More Jobs, Less Debt, Smaller Government:

Mitt Romney’s Bold, Pro-Growth Tax Cut Proposal

Reducing and stabilizing federal spending is essential, but breathing life into the present anemic recovery will also require fixing the nation’s tax code to focus on jobs and growth. To repair the nation’s tax code, marginal rates must be brought down to stimulate entrepreneurship, job creation, and investment, while still raising the revenue needed to fund a smaller, smarter, simpler government. The principle of fairness must be preserved in federal tax and spending policy.

Part One: Jumpstart Pro-Growth Changes In Individual Taxation

America’s individual tax code applies relatively high marginal tax rates on a narrow tax base. Those high rates discourage work and entrepreneurship, as well as savings and investment. With 54 percent of private sector workers employed outside of corporations, individual rates also define the incentives for job-creating businesses. Lower marginal tax rates secure for all Americans the economic gains from tax reform.

• Make Permanent, Across-The-Board 20 Percent Cut In Marginal Rates. This bold stroke reduces the tax on the next dollar of income earned for all taxpayers. The new top rate of 28 percent returns to the top rate signed by President Reagan in 1986.

• Pro-Growth. These tax cuts – relative to President Obama’s proposal to raise the tax rates on the most successful business owners – will increase wages in non-corporate businesses by 6 percent, increase investment by 10 percent, and increase business receipts by 16 percent. (Robert Carroll et al., “Income Taxes and Entrepreneurs’ Use of Labor,” Journal Of Labor Economics, 4/2000; Robert Carroll et al., “Entrepreneurs, Income Taxes, and Investment,” in Does Atlas Shrug? The Economic Consequences Of Taxing The Rich, 2002; Robert Carroll et al., “Personal Income Taxes and the Growth of Small Firms,” Tax Policy And The Economy, 2001)

• Fiscally Responsible.  Government cannot continue to increase irresponsibly the size of annual deficits. Stronger economic growth and reductions in spending will help to ensure that these tax cuts do not expand deficits.  In addition, higher-income Americans in particular will see limits placed on deductions, exemptions, and credits that are currently available.  The result will be a pro-growth tax code that still raises the necessary revenue, retains the existing progressivity, and ensures that middle-income Americans see real tax relief.

• Environment For Job Creation.  President Obama has presided over endless debates about temporary tax provisions that have consumed Washington and left businesses and workers uncertain of what they will owe the government.  The tax system must not only be flatter, fairer, and simpler, but also stable.  Returning policy certainty to pre-Obama levels could create 2.5 million additional jobs in less than two years.  (Scott R. Baker et al., “Policy Uncertainty Is Choking Recovery,” Bloomberg News, 10/5/11)

• Promote Savings And Investment For The American People.  Mitt Romney will maintain the current 15 percent rate on income from qualified dividends and capital gains.  He will cut taxes further on lower- and middle-income Americans by ensuring that families with an annual income below $200,000 will pay no taxes on income from capital gains, interest, and qualified dividends.  These low tax rates will create powerful incentives for Americans to save and invest, while spurring business investment and economic growth.

• Compare President Obama. The President’s proposal raises dividend tax rates from 15 percent to more than 43 percent and capital gains tax rates from 15 percent to almost 24 percent with adverse effects on Americans’ equity investments and on business investment.

• Abolish The Death Tax. Eliminating the death tax will allow families to pass assets between generations without complicated tax avoidance schemes and without breaking up family businesses.

• Compare President Obama.  Under Obama, the death tax is slated to rise from 35 percent to 55 percent in 2013. 

• Repeal The Alternative Minimum Tax (AMT). The AMT was originally implemented in the 1970s with the purpose of ensuring that the wealthiest of Americans could not artificially reduce their tax burden. But if Congress fails to pass the annual AMT patch, many middle-income Americans will become ensnared in the AMT trap. It should be repealed immediately to eliminate harmful distortions in the tax code, and replaced with a simpler tax system that reduces tax avoidance schemes.

Part Two: Make The Corporate Tax System Globally Competitive

The U.S. economy’s 35 percent corporate tax rate is among the highest in the industrial world, reducing the ability of our nation’s businesses to compete in the global economy and to invest and create jobs at home. By limiting investment and growth, the high rate of corporate tax also hurts U.S. wages.

• Cut The Corporate Rate To 25 Percent. It is vital that the U.S. move to quickly reduce the corporate tax rate and put American companies on a level playing field. The high U.S. corporate tax rate handicaps the nation’s overall economy in competition with the rest of the world.

• Pro-Growth. High corporate income taxes have been shown to have a particularly high negative effect on GDP and economic growth rates.  Reducing the corporate tax rate will not only create jobs, but also boost wages.  A 10 percent rate cut raises wages by an estimated 9 percent. (Scott A. Hodge, “Ten Benefits of Cutting the Corporate Tax Rate,” Tax Foundation, 5/2011)

• Fiscally Responsible. Broadening the corporate tax base, accompanied by greater revenue from increased economic activity and greater corporate investment in the U.S., will cover the cost of the reduction in the corporate tax rate.

• Strengthen And Make Permanent The R&D Tax Credit. This credit promotes innovation in both manufacturing and non-manufacturing industries, and helps businesses plan their innovation spending.  With a strong, permanent credit, companies will now be able to invest for the future with confidence.

• Switch To A Territorial Tax System. The United States taxes income on a worldwide basis, regardless of where it is earned. This worldwide system of taxation sets the U.S. apart from most other OECD countries, which have converted to territorial systems of taxation. Japan and the United Kingdom are two countries that recently traded their worldwide tax systems for territorial systems.  This switch will promote U.S. interests in two key ways:

• Encourages Domestic Investment Of Foreign Profits. The U.S. system of worldwide taxation (particularly when coupled with the U.S.'s high corporate rate) has the perverse effect of making reinvestments of foreign profits in the U.S. more costly than reinvestments made abroad.  A territorial system will avoid the threat of further taxation from precluding a decision to reinvest profits at home.

• Makes U.S. Companies More Competitive In The World Market. The worldwide system burdens the foreign operations of U.S. companies with an added layer of tax not borne by their foreign competitors that are headquartered in the local markets or in other countries with territorial tax systems. This second layer of tax makes U.S. companies less competitive in foreign markets. A territorial system that helps U.S. companies compete in foreign markets will create jobs in the U.S. as well.

• Repeal The Corporate Alternative Minimum Tax (AMT). One major drawback of the Corporate AMT is its effect of penalizing companies that invest in capital equipment. A growing economy depends on robust capital investment. Unfortunately, corporations that are subject to the Corporate AMT are unfairly hit by strict depreciation rules. Due to this chilling effect on capital investment, the corporate AMT must be fully repealed. Investment will no longer be penalized, spurring labor productivity, an increase in American incomes, and greater economic prosperity.

Press and blogosphere coverage:

• Enterprise Blog
• New York Times
• Dan Shaviro (NYU) (here and here)
• Wall Street Journal
• Wall Street Journal editorial
• Washington Post (Ezra Klein)
• Washington Post (Jennifer Rubin)

More on Presidential Charity

Following up on yesterday's post, Which of the Presidential Candidates Is Most Charitable?: Len Burman (Syracuse), Stingy Rich People, Santorum-Gingrich Edition: