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Thursday, July 5, 2012

What is Mitt Romney Hiding? UPDATED

Mitt Romney has so far released only one year of tax returns (2010), plus an estimate for 2011. This stands in stark contrast to his father, Michigan Governor George Romney, who released 12 years of tax returns when he began running for President in 1967. As his father said at the time, "One year could be a fluke." So the questions remain about what is in Romney's older returns.

Two stories this week and last have ratcheted up the pressure. One is a recent web exclusive for "The Last Word with Laurence O'Donnell" where David Cay Johnston has five questions for Romney that can only be answered with his tax returns. The other is a blockbuster story by Nicholas Shaxson (h/t TPM) in the new Vanity Fair on the shadowy world of Romney's tax havens. Together, they put a laser-like focus on the finances of the man who could become our 45th President.

Johnston is a well-known former New York Times reporter, Pulitzer Prize winner, and the author of the major books Perfectly Legal and Free Lunch. If you don't have time to watch his 3:45 video, here are the five questions:

"1. Did you buy any illegal or gray area tax shelters?
"2. Did an IRS audit ever uncover serious problems with any of your tax returns?
"3. Did you make use of offshore vehicles to defer, or avoid paying, federal income taxes?
"4. Did you take advantage of any tax strategies that the IRS did not uncover in audits?
"5. Did you fully tithe to the Church of Jesus Christ of Latter Day Saints every year and take a deduction on your tax return that shows that?"

These are important questions. We know that Governor Romney has had a Swiss bank account, as well as money in other tax havens like the Cayman Islands, Luxembourg, Bermuda, and Ireland. Romney's answer to any question about his taxes has basically been, "Trust me." But the guy's running for President, for Pete's sake. He owes us more than that.

Shaxson, a researcher for the Tax Justice Network and author of the book Treasure Islands, asks us to consider the possibility that maybe not everything Romney has done tax-wise has been  legal. He opens with a story told by a former Bain employee about how Romney encouraged him to lie to get secret information on competitors. There is, of course, the fact that Romney has funds parked in numerous tax havens and the fact that his supposedly "blind" trust invested in a business started by Romney's son Tagg, and the fact that he has $102 million in his IRA despite a contribution limit of $2000 per year for the entire 15 years Romney ran Bain. Obviously nothing to see here...

The standard answer of the Romney campaign to all this is that he always followed the law. As Jon Stewart had to point out since the major media did not, Romney did plenty to affect the law he was supposedly "just following," including his defense of the "covered carried interest" tax loophole that let him treat his fees at Bain as if they were capital gains (15% tax) rather than wages (35% tax). All perfectly legal and as Johnston points out in his book by that name, that is the real scandal.

Further, Shaxson reveals that an early filing of the original Bain Capital fund in 1984 showed that many of its foreign investors were routed through tax havens and that at least one was a notorious financial criminal, Robert Maxwell. Thus, Bain helped foreigners take advantage of the fact that the United States has set itself up as a tax haven for non-citizens (see also Jason Sharman's paper on setting up anonymous companies in the U.S. and elsewhere; h/t Robert Kudrle). Shaxson quotes Rebecca Wilkins of Citizens for Tax Justice, “It is shocking that a presidential candidate should think that is O.K.” for Bain to service the likes of Robert Maxwell.

The bottom line is that there is a lot of unsettling information in what investigators have so far been able to piece together about Romney's finances. The easiest way for Governor Romney to put to rest what his campaign described to Shaxson as "unfounded allegations and insinuations" would be to release his tax returns. Yet he has not done so and shows no sign of changing his mind. Josh Marshall calls the questions "kryptonite" and thinks Romney will come under a lot of pressure to release more tax returns. Let's hope so. The guy's running for President, for Pete's sake.

Updated to correct "covered interest" to "carried interest." Thanks to m.jed at Angry Bear.

Update 2: Via Gotta Laff at The Political Carnival, here is a Wall Street Journal video covering the low-valued special class of shares that Romney and other Bain executives put into their IRAs, which tends to bolster Shaxson's contention that this is the source of the huge gains in Romney's IRA. (As opposed to the suggestion of some commenters that he rolled over other types of income into his IRA when he left Bain.) The key question from a tax law perspective is whether these shares were properly valued.


  1. Actually, he could contribute another $30,000 to another retirement vehicle and I believe it was $32,000 that grew into $102 million.

    But that hardly makes a difference. Romney achieved a 21,250% return on investments of 32,000 a year, and shields $102 million from taxes.

    that implicates a lot of both legal and policy issues.

    1. Pete:
      You need to do some homework dude. Mr Romney call roller all tax deffered investments after he leaves Bain. That includes his 401k, deferred comp, effered bonuses. Even the cash value of the life insurance policy Bain most likely had on him as leader.
      So you can not figure $2k a year. he most likely was putting a whole bunch more, all legal, just like you can.
      Staples has averaged 12% since 1991. Just that in vestments alone, if he would have placed 10k a month into, would have grown to 12 million. so it is not out of the realm that when he started and the amount he was deferring, he could be in that ballpark.
      Now I have a question for you. How many questions did you ask about our president 4 years ago, and why not?????????

  2. You would think the Obama campaign would exploit this huge vulnerability in the Romney campaign; however, I think a lot of blue dog democrats and Wall Street funded candidates will run from it, similar to them running from the Bain attacks. Unfortunately, I'm afraid tax avoidance will get chalked up as one of the perks of success, which by default makes it no longer "Fair Game".

  3. "that at least one was a notorious financial criminal, Robert Maxwell."

    Honestly, this is about as ignorant a comment as I have ever seen. Robert Maxwell was discovered to be a financial criminal after his suicide. He was a well respected, flamboyant media tycoon and supporter of left wing causes and unions while he was alive. The smear above seems to imply thet Romney should have known he was dealing with a criminal, when NO ONE in the wrold knew it until he was dead. This very weak and practically libel.

    1. Actually, according to Tim Worstall of the Adam Smith Institute, there were already some inklings of Maxwell's crimes before his death but, as you say, much more was discovered afterwards.

      Still, Bain was taking money from some of the dirtiest tax havens in the world, including Panama, as Shaxson reports.

  4. Mr. Thomas;
    For a person who makes himself out to be a economist, he sure do make quite a new mistakes. For instance, Rodney has $102 million in his Ira, Although only $2k a year.
    First of, Rodney is no longer at Bain. So we can assume he has rolled over all of his tax deferred accounts from Bain. So lets start with his 401k plan. Then lets start out with his deferred comp plan. His tax deferred bonus plan, stock options. All of these are legal to use. As for the growth, well since 1992, staples alone has averaged 11.9%, I am sure that he purchase many of the companies he had a stake in.
    Lets not forget that while he was at Bain from the mid 70's through the mid to late 90's, was a great time in stock market history. For an economist, you should know this. Which raises two questions?
    1) If you know this then, are you raising this innuendo even though you know to ruin a reputation?
    2) If you do not know, then why not and why did you not do some homework? Cause if you did not know, then I now have to question your degree.........

    1. I am a political economist; my home department is political science.

      As Shaxson relates, it is unclear what Romney's current relationship with Bain is, as he continues to receive income from Bain ($2 million just last month). So it's unclear if he could have rolled all this over or not.

      In any event, if he released his tax returns, it would answer the question of how he got $102 million in his IRA.

    2. Mr Thomas:
      I respect your answer. Can I fill in a few holes for you about Bain Capital. I do not work there, however work for a firm that is also a private firm, with a managing partner. At our firm, when you become a general partner, you may retire, and still draw a income based upon what the firm does after you leave. You may roll over all your assets at that time. However it is possible to still receive income each year based upon your holding of general partnership once you leave. This income is based upon what the firm does during the year. So even though he is retired, he could still draw an income based upon his company holdings. At our firm, with each payment your general holdings are liquidated, do not know about at Bain. These are considered Capital Gains. They would be taxed at the highest cap gains rate. If he released his new tax return, it may not answer that question. Since it would depend upon when he did roll over the amount. I also know that if he tried to place more into the pre tax arena, than would be allowed, the IRS would be all over him. Just like you and I.
      Now let's say he maxed out his 401k each and every year since 1980, and just averaged 15% a year during that time, which would be low for him, however, he would be looking at the ballpark of 11.5 million, he would also have deferred comp that he could do, let's say 150k a year, that would be about 86 million. add together would give you 102 million. what is $175,000 a year in deferred comp? For a managing partner????
      not much.....
      God bless and have a great eve.....

  5. If ROmney had any balls he'd say you get to see his returns when everybody gets to see obama's academic record

  6. Rick H.
    Yes! Why has no one in the MEDIA said this?!!! Why are the Republicans unwilling to scrutinize Obama's past? What are they afraid of?
    Lets see Obama's records!

    I am certain both men are hiding dark secrets from the public...