…and I imagine that this will be one in a very long series.
Romney said today that he never paid less than a 13 percent tax rate over the last decade, implying that Harry Reid’s assertion that he paid nothing is false.
But of course that is meaningless unless we know against what the 13 percent is charged, otherwise known as a denominator problem.
If Romney’s income (mostly from capital gains) was, say, $10 million a year, but $9 million of it is in a tax shelter in the Cayman Islands,Â Romney could pay $130,000 on the $1 million and call it $13%.Â But in fact, he would be paying on his real income only 1.3%.Â That’s much closer to what Paul Ryan’s tax plan wants him to pay, i.e. 0.82%.
Now, there are a lot of measures about what the denominator for someone’s tax rate actually is — gross income, adjusted gross income, taxable income, etc.Â But there is an easy way to solve this and have an honest debate about it: release his actual tax returns.Â
And if he won’t do that, there is no reason — as in, none — to trust him on anything else he says.
UPDATE: My former colleague Victor Fleischer — no liberal he — makes essentially the same point, although a lot better than I do, namely: “Romneyâ€™s claim could be literally true but misleading â€” which means that Romney is full of bulls**t, but not a dirty liar.”Â As they say, read the whole thing.Â Â So I stand corrected: Romney is teaching us how to bulls**t with statistics.Â Not sure that helps out the Galtian Defenders of Plutocracy, but there you are.
Author: Jonathan Zasloff
Jonathan Zasloff teaches Torts, Land Use, Environmental Law, Comparative Urban Planning Law, Legal History, and Public Policy Clinic - Land Use, the Environment and Local Government. He grew up and still lives in the San Fernando Valley, about which he remains immensely proud (to the mystification of his friends and colleagues). After graduating from Yale Law School, and while clerking for a federal appeals court judge in Boston, he decided to return to Los Angeles shortly after the January 1994 Northridge earthquake, reasoning that he would gladly risk tremors in order to avoid the average New England wind chill temperature of negative 55 degrees.
Professor Zasloff has a keen interest in world politics; he holds a PhD in the history of American foreign policy from Harvard and an M.Phil. in International Relations from Cambridge University. Much of his recent work concerns the influence of lawyers and legalism in US external relations, and has published articles on these subjects in the New York University Law Review and the Yale Law Journal. More generally, his recent interests focus on the response of public institutions to social problems, and the role of ideology in framing policy responses.
Professor Zasloff has long been active in state and local politics and policy. He recently co-authored an article discussing the relationship of Proposition 13 (California's landmark tax limitation initiative) and school finance reform, and served for several years as a senior policy advisor to the Speaker of California Assembly. His practice background reflects these interests: for two years, he represented welfare recipients attempting to obtain child care benefits and microbusinesses in low income areas. He then practiced for two more years at one of Los Angeles' leading public interest environmental and land use firms, challenging poorly planned development and working to expand the network of the city's urban park system. He currently serves as a member of the boards of the Santa Monica Mountains Conservancy (a state agency charged with purchasing and protecting open space), the Los Angeles Center for Law and Justice (the leading legal service firm for low-income clients in east Los Angeles), and Friends of Israel's Environment. Professor Zasloff's other major activity consists in explaining the Triangle Offense to his very patient wife, Kathy.
View all posts by Jonathan Zasloff
53 thoughts on “How to Lie With Statistics: Mitt Romney’s Taxes Edition”
This is almost certainly his problem. He’ll release his returns and we’ll see tens of millions of dollars in AGI instead of hundreds of millions over that decade and he’ll have trouble explain how the way he makes money is so much different from the way almost everyone else makes money.
Also, I wonder whether we’ll find that Mitt Romney chose to say he lived in income-tax-free New Hampshire (where he owns a home; or, actually, where his wife owns a home for tax purposes) during the years he wasn’t running for Senate or Governor or living in the Governor’s mansion. Again, not a gimmick available to those of us without multiple homes.
On a similar front (albeit at a lower order of magnitude), Paul Ryan, who claims to be a lifelong midwesterner, has a limited family partnership in income-tax-free Florida worth several hundred thousand dollars. I wonder if it’d hurt his home-state cred if folks in Wisconsin found out he was stashing money in Florida to avoid taxes? This and his other limited partnership (in Wisconsin) also may hold his inherited family fortune–the existence of which rarely gets mentioned in discussions as the media (and Mitt Romney) like to talk about Ryan as some self-made nerd-genius. The only way to look at Paul Ryan and not see someone born into privilege is if he’s standing next to Mitt Romney.
You do realize “living” in New Hampshire has no effect on Federal income tax, right?
Well it would actually raise Mitt Romney’s Federal tax liability because he deducts state income tax. But yes, I do understand this. My point is that this is one of many possible reasons Romney may prefer to keep his returns secret. It’s pretty hard to come off as a regular guy when you can pick and choose where you want to “live” every year depending upon whether you want to minimize taxes or run for office.
Got it. I think there are lots of little factoids like this we could glean from his return that would hurt him. I just don’t think there’s necessarily the smoking cannon that some seem to be pinning their hopes on.
So, a couple of things:
1) There are no legal tax shelters in the Caymans that allow you to shelter your capital gains in the way that you are positing, so that they show up on your tax returns, but do not incur a tax liability. If we are going to posit this sort of shelter, we should probably just ask the flying unicorns to fetch Romney’s tax returns from the Treasury and show them to us.
2) More broadly, things that fall out of the denominator, for the purposes of calculating your taxes, also fall out of the tax return. My husband and I have probably booked a substantial capital gain on our house, but it won’t show up until we sell the house. Looking at our tax return would not alert you to this capital gain, and similarly, looking at Mitt Romney’s return will not alert you to “income” which did not trigger a taxable event. With the exception of tax-free municipal bond income, you cannot find out this “real” rate that you are positing by looking at the tax returns. The tax returns will show the income that is taxable, i.e., the denominator that Romney is using to make this calculation.
3) There are, of course, deductions. But at Romney’s income level, the main deduction is the charitable deduction. That’s probably most of how he gets his income tax below the statutory 15% cap/dividends rate. But it’s limited to 50% of your tax liability, and you have to actually surrender control of the money, so it will not fulfill your purpose of making Mitt Romney look like a terrible, selfish person.
Maybe it won’t. On the other hand, arguing that his rate, even as he cites it, represents a sensible policy in the face of the deficit problem he’s so worried about does sort of make him look like a terrible, selfish person. Or maybe he’s just really bad at arithmetic, which I sort of doubt.
And the fact that at least some of his “capital gains” appear to be carried interest – a type of pay that’s called “sales commisssions” for less wealthy folks – and he doesn’t want to close that particular loophole, doesn’t do much to change that.
Nor does the factthat it seems he would be happy to sign off on Ryan’s innumerate roadmap, which would reduce his taxes effectively to zero.
This a million times. They will say he earned it. They will say “he built that”. They will say it is his. They will say taking it is theft.
They will be wrong on all counts: He did not earn it or build it. He inherited his privilege and leveraged it. Therefore it is not his, not really. Society is the fulcrum on which he manifests. Taking back some of what he has been given is not theft, it is the price he pays to enjoy leveraging what he can in our society. Ultimately, he should be on his knees, thanking the stars he has been given so bloody much.
we should probably just ask the flying unicorns to fetch Romneyâ€™s tax returns from the Treasury and show them to us.
Change this to “we should probably just ask Romney to release his returns” and you’ve got it right. Romney is more-or-less demanding that we speculate about the contents of his returns, just as Obama does with the various important secrets that he keeps. (Though, to be clear, his religious faith or birth country were never among those secrets.)
One thing you can bet on: the “at least 13%” doesn’t represent an accurate and complete description of his tax situation in those ten years. Figuring out how he’s bullshitting is an exercise that Romney has chosen to leave to U.S. citizens. If you don’t like how Prof. Zasloff is doing it, tell us what you think is so toxic in Romney’s returns.
Your item 2) seems to me to argue for fuller disclosure on the part of candidates. Perhaps we should be asking for more than just tax returns. Thanks for pointing that out.
As for this idea that the mere point of this debate is to make Romney look like a “terrible, selfish person,” you are way off. In fact, knowing the background of someone running for Prez is a *great deal* more important than getting in cheap shots. A presidential campaign is *nothing less* than an exploration of CHARACTER. You seem not to understand this. As long as the questions being asked are legitimate — as these unquestionably are — there is no such thing as “too much” information. If we asked for ALL of his returns, that wouldn’t be too much, imho. Being president is kind of an important job.
I understand you’re a conservative, but this idea that people are beating up on poor Mitt is quite, quite bizarre. If in fact you are sincere, though you don’t grant this to others.
so it will not fulfill your purpose of making Mitt Romney look like a terrible, selfish person….
There you go again…
Piping up like a popinjay and telling us that Romney has absolutely nothing to hide.
Without bothering to explains why he hides.
But Megan’s right in her comfort zone, using her considerable gifts to defend the comfortable, and it’s her choice as to whether that makes her life, and the use of her gifts, worth while.
I don’t see Ms. McArdle defending Romney at all, or arguing that “people are beating up on poor Mitt”. Perhaps I missed that, please point it out, with quotes.
What I do see is her pointing out that Mr. Zasloff’s argument is flawed. He quite clearly indicates above that if Romney releases his tax returns, we’d be able to find a denominator that leads to an effective tax rate well below 13%:
“… an easy way to solve this … release his actual tax returns.”
And this is simply unlikely to be the case, as Ms. McArdle points out. If she is mistaken, then tell us exactly what line of Romney’s tax return would be used as this imaginary large denominator.
Whatever, Jane Galt.
Try this: Trust, but verify.
Or this: Why isn’t George Romney’s stance on this issue the correct one?
George Romney never released 12 years of Tax Returns…… he had his good friend and account review them, and that friend issued a 2 page summary of them whihc was accepted by all at that time. While such acceptance may not be the case today, it is what happened at the time.
“There are no legal tax shelters in the Caymans that allow you to shelter your capital gains in the way that you are positing…”
The post, as I read it, says that by seeing Romney’s return we’ll find out what the denominator is that he’s using to calculate his 13-percent-or-more rate. Where does it say that Romney’s returns will reveal all about his unrealized capital gains (or those realized within a tax-protected account or not repatriated to the USA)?
If Romney releases his returns and we see that they sum to tens rather than hundreds of millions of dollars, it’ll raise questions about why the denominator is so low, but it obviously won’t tell us how his untaxed assets are doing.
I’d personally be most interested in how Romney’s taxes changed for the 2004/5 repatriation tax holiday. His foreign-income-tax deductions spiked that year, but there could obviously be other reasons for this. It’s relevant to the campaign since he’s proposing another holiday (this time tax-free instead of a few percent) and an eventual transition to territorial taxation. Absent reforms to stop investment funds run by people in the US from headquartering in a PO Box on Grand Cayman, this seems (to a naive person such as myself) like a policy that would help people like Romney avoid taxes.
Zach, you’re absolutely right: releasing the records will begin to reveal things about what Romney is still hiding. He might not have declared any income — either ordinary or capital gains — from Bain severance payments, meaning that perhaps those payments went to other entities than the natural person “Willard Mitt Romney.” And that would send journalists digging deeper as to where they went.
Megan has an unwavering instinct for the capillary. The way she framed her argument, viz. “there are no legal tax shelters in Caymans that allow you to shelter your capital gains in the way you are positing”, has the unmistakable mark of, “The British Government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa.” This statement was, as Rumsfeld said, literally true: the British government HAD learned it, even though it was untrue and the US knew it by the time Bush said it. The idea that somehow there is no way to have significantly higher real income than AGI is absurd, and every tax professional knows it.
In any event, I bet Romney is glad he didn’t have her serving as his tax attorney.
Mr. Zasloff, every single expert who has been consulted by (quite liberal) journalists has said the same thing: the imaginary tax shelter with a 0% rate doesn’t exist. You persist in employing it without offering any personal expertise in corporate tax shelters to indicate that you have some different information than these tax experts. Have you found a tax expert who has told you that an offshore Cayman account exist that will allow you to pay 0% on the money invested there forever? Because I’ve heard from a few tax experts since this whole thing started, and their general reaction is “Where do they get this stuff? hahahahahahahahaha. I wish.” However, if you’ve got a different set of experts, one that I and other journalists have missed, who say that there are such legal offshore shelters in the Caymans, please put me in touch with them. I am always eager to learn.
It is definitionally true that what you call “real income” is higher than gross; that’s the “adjusted” part. But you seem to be implying that it’s 3-4x higher, which would not match up with anything that I have ever heard from tax professionals. However, again, if you know tax professionals who say that this is so, I am happy to have them explain why I am wrong.
In a financial accounting sense, which would account for capital gains as incurred, rather than realized, you might be right. But no one thinks that this is how tax accounting should be done, for quite good reasons. And at any rate, as I say, it wouldn’t show up anywhere on the tax returns.
Way to miss the point, Megan: once again hitting the capillary. The example used was simply to show that saying you paid “13%” is meaningless and highly misleading unless you know the denominator. And you can’t know the denominator unless you release the returns. In terms of not showing up on the returns, Zach’s point is right: if the returns don’t show large income from Bain in the years for which other reports suggested he was receiving severance/retirement income, then that would indicate to reporters that there were other sources of income — trusts, other corporations, etc. — that should be investigated.
I’m not a tax attorney, and even I can show you a shelter like that. Wealthy person acquires an investment. It appreciates and appreciates. He wills it to his children. Once they inherit it, they get a step-up basis from the date of their Dad’s death. They sell it and pay 0% tax on the appreciation. That’s how families acquire large amounts of wealth without paying any tax on it.
But thanks for playing.
I am not missing the point, Mr. Zasloff. Deferred income doesn’t show up on the returns anywhere. Getting his returns wouldn’t tell you anything. You may think that it would point you to some areas for executive sleuthing, but since you have no idea what the terms of the contract were for his Bain separation–separation payments are quite often deferred or taken over multiple periods–not as much as you think. But I suggest you consult your colleagues on the tax faculty as to how easy it would have been for Mitt Romney to get his Bain share paid out without incurring a taxable event. I refer you to the aforementioned “hahahahahahahaha” that I and others have received from various tax experts.
And unless you can manage to die in 2010, if the asset is really large, it isn’t passing to the children tax free. It’s passing to the children minus the estate tax, currently 35% on everything above $5 million. Now, $5 million is a lot of money. It’s certainly more money than I will ever have. But it’s not “structural inequality” money or even “1%” money, especially split 3 or 4 ways. It’s Harry Reid money, not Mitt Romney money.
This is not to say that I think Mitt Romney is not structuring his income. I have no doubt that he is, and even more, his estate. But that is not what you are arguing. You are arguing that he has somehow structured his income as to reduce his taxable income to a small fraction of his realized income, and done so in a way that would show up on his tax return. As far as I can tell, you are the only person who thinks that this is possible, so of course, I’d like to know which tax experts have assured you that it is.
I would find what you say slightly more persuasive were it not for the Marriott situation and, most especially, because of what we suspect about the method used for amassing as much as $120 million in Romneyâ€™s IRA account. You should research these and the probably illegal use of offshore trusts and shells in his Italian deals. The illegal methods you say would be necessary but never used by Romney are shown quite clearly to have been his modus operandi for years.
In particular, the idea that he would hold interests in such trusts and shells through nominees hardly seems a far reach considering the sort of probably fraudulent (but undoubtedly shady) transactions involving offshore trusts, shell corporations and gross misappraisals widely assumed (even by conservative tax experts like Michael Graetz) to have been used to build Romneyâ€™s IRA.
Again, you speak of illegalities but I hardly think such things matter to Mitt Romney. I have never seen anything in the pattern of Mitt Romneyâ€™s business dealings going back many years to suggest that he would hesitate to commit a crime if he was sure he could get away with it. So in the case of whether he would disclose ownership of certain offshore accounts, I think what matters to him is only whether those accounts would be impervious to the scrutiny of government authorities. He could save millions in taxes and this lawyers and accountants would be perfect buffers if something went wrong. And Romney, like the Corleone family, has a lot of buffers.
Slight correction: if he managed to stuff all his Bain shares into 401(k), something I’m told is unlikely but vaguely possible, he might have sold without incurring a taxable event. But huge 401(k) is an old story, and also, sets him up to pay 35% on it when he starts taking millions in distributions in a few years.
Actually given Meagan’s defense of Romney, and the fact no one knows the numbers the title of the post should be:
How to lie about Romney’s taxes without any statistics.
And this question continues to dangle: If Romney has nothing to hide why does he continue to hide it?
That question is seriously difficult for Meagan to answer. That’s why she proffers BS about tax shelters instead. It is a sort of “safe haven” for the fact that she’s got absolutely no real defense for Romney’s cravenness.
Mitch Guthman: corporate tax avoidance a whole different deal. For starters, they get a lot more special tax breaks (partly lobbying, partly that they do a bunch of stuff, from green energy to R&D to employing the disabled, that we think should be encouraged). Most of the action in tax avoidance lies in arguing about what constitutes income. For corporations, which can have wildly different expense bases and very complicated calculations, that provides more room for sheltering. This is to some extent simply unavoidable unless you either eliminate the corporate income tax or move to a gross receipts tax or a VAT.
THe IRS doesn’t allow (most) expenses for people. They don’t care how much your car cost, or how much you spend on food; they tax you on gross income minus scheduled deductions, of which the biggest are charity and home mortgage interest. And they don’t care where the money is located. So there’s just not that much room to have millions in financial income while you have zero in taxable income. There’s some room for people to take income in more tax advantaged forms (muni bonds, capital gains, dividends), unless you pile it all into low-yielding munis, you pretty much have to pay capital gains rate minus home mortgage interest and whatever you donate to charity. You can defer it (as long as you don’t touch the money–there are complicated loan deals which let you kinda-sorta touch the money, but they are quite expensive, and also, the IRS is quite capable of designating it a sham transaction and making you pay taxes anyway). But you can’t just make the income vanish from the taxman’s eyes. The IRS is very powerful, they have their own courts from which they get a lot of leeway, and they are not stupid.
This is what all the tax experts the media has consulted have basically been saying. It’s also what Mitt Romney is saying. If the income shows up on your tax return, it shows up in the denominator Zasloff is looking for. IF the income is not a taxable event, it’s not on the tax return.
The most powerful indication that these tax shelters don’t exist is that if they did, no very rich people would pay any taxes at all. Indeed some don’t, but that’s mostly either tax losses, or keeping the whole whack in tax-free munis, which only lets you avoid taxes at the cost of making very low-interest loans to the government. If it were possibly to legally avoid all your taxes by moving the money to the Caymans, they’d all have done it.
I do think it would be informative to see his Form 8606, which tracks nondeductible contributions to IRAs.
(Explanation: People who have taxable earned income above the threshold that permits deducting contributions to IRAs can make nondeductible contributions to IRAs of up to $5000 a year. Those contributions are tracked on Form 8606 from year to year so that you don’t pay tax on distributions from your IRA to the extent of those nondeductible contributions: For example, if you contribute $5000 to an IRA on a nondeductible basis, and by the time you retire that amount has grown to $6,000, you should only pay taxes on the $1,000 in growth.)
@ Megan McArdle,
The “slight correction” you suggest is not consistent with the facts as we’ve speculated about them (which, of course, is all anybody can do since Romney won’t release his tax returns—possibly to avoid embarrassment but perhaps also to avoid a stretch in federal prison for tax fraud). Which is the point you’ve been missing. In the first place, stuffing a good chunk of his Bain winnings into his IRA is easy if one is willing to commit tax fraud by depositing interests in shell corporations or trust to the IRA; valuing them nominally for purposes of the $3,500 – $60,000 annual cap on the ground that the deals havenâ€™t closed or the trusts haven’t been funded yet is the only way anybody has ever figured out for Romney to be able to amass such an amount is an IRA. If he had discretion over whether the trusts, etc would be funded or wouldnâ€™t have sold those interests to a disinterested outsider for the value he assigned without such control, then Romney committed tax fraud. He has been successful in deferring taxes on hundreds of millions of dollars of income and capital gains and there is still the possibility that IRA withdrawals will become tax-free in the future. So you’re wrong to suggest that the IRA trick isn’t a big deal. By the way, if you really do know of another way to have legally amassed such a sum in an IRA account, your talents are wasted as a writer. Countless millions of dollars await you as a tax-planner.
Interestingly enough, there is another reason why I think you may be wrong about his eventually having to pay taxes on the money in the IRA. The same trick would allow him to empty out his IRA without paying any thing like 35% taxes. He could simply â€œreappraiseâ€ the interests held in the IRA to very low values based on whatever and then sell them to different straw-men purchasers in exchange for shares in shell companies which could then declare bankruptcy because of whatever, which would mean that heâ€™d having nothing to pay taxes on because theyâ€™d not very much of value left to withdraw from the IRA when the time comes that he is forced to begin withdrawing to comply with the IRA law. Even better if what’s in the IRA is cash—he could simply pay outrageous amounts for the shells, then have the shell declare bankruptcy. VoilÃ , all that lovely cash is now sitting in a Swiss bank account and no taxes to pay ever. To anticipate your objections that this would be illegal: Yes, it probably would be illegal but not appreciable more so than the method most people believe Romney used to stuff those assets into his IRA in the first place. If he was willing to once, why not again? What seems to have mattered most to Mitt Romney in evaluating proposed tax shelters wasn’t so much their legality as whether he had plenty of â€œrespectableâ€ lawyers and accountants as buffers. And we know who else like to have all those â€œbuffersâ€, donâ€™t we? Tell me why that’s not a fair reading of the various Marriott, Italian and IRA affairs? If you’ve got innocent explanations I’d be happy to hear them.
As I say, you’ve never addressed what the Marriott and Italian deals suggest about his willingness to stuff assets and income streams into offshore accounts to evade taxes. In both cases, Romney used offshore accounts in tax havens, including Luxembourg and the Cayman Islands to at least go to the very edge of what was legal and, indeed, if this had been done by people who werenâ€™t â€œMasters of the Universeâ€ but ordinary criminals Romney and his gang would probably still be in an Italian jail today. Since I doubt whether all of these offshore shenanigans were disclosed on Romneyâ€™s tax returns (see especially, Marriott scandal), his highly aggressive use of offshore accounts and straw-men is a point that would seem very relevant here and would, at least inferentially, support the charge or argument that Jonathan Zasloff is making.
What is more important, youâ€™re missing what the pattern of Romneyâ€™s dealings suggests about his character and the likelihood of his having stuffed assets and income streams into offshore trusts and corporate shells (or other sorts of nominees, perhaps using bearer stocks). Romneyâ€™s willingness to skirt, if not break, the law tells us that he is not a man who feels the need to adhere to social norms. The picture Iâ€™m seeing is of a man who wants to be president for the power, yes, but also because he think that once he holds the office he will be forever immunized for the shady, perhaps criminal, business practices he used to build his fortune. Heâ€™s Silvio Berlusconi but without the â€œbunga bunga.â€
“Way to miss the point, Megan: once again hitting the capillary.” Yes Megan, please kindly return to the capillary of pretending Mitt’s tax returns are the most important issue in the election.
@Dustin I do actually think that one aspect of Mitt Romney’s taxes is very important and illustrative in choosing between Romney and Obama. I’d be very interested to see Romney and Obama both release tax proposals detailed enough to calculate, specifically, what Mitt Romney’s 2011 tax liability would have been under current law and under the candidates’ respective tax proposals. Give voters those three numbers and let them decide on their own what’s the most appropriate level of taxation for the megawealthy.
At the very least, if Mitt Romney is going to say he’s running on revenue-neutral tax reform that simultaneously lowers marginal rates and holds the share of taxes paid by the wealthy constant, he should be asked to describe his policies in enough detail to determine that his own taxes will stay the same.
When you are a leading member of a church that pretty much insists that adherents tithe, it’s not quite so clear that giving your money means entirely surrendering control over it. That’s one of the great things about being rich: you get a tax deduction for telling other people how to spend your money (as long as it fits some fairly broad restrictions).
Mitt’s tax returns — if he’s doing a lot with capital gains — could also disclose the ostensible basis and sales prices of the things he turned into cash, or the extent to which he relied on debt to finance consumption while sheltering income. All of these would do little to endear him to the folks who aren’t rich enough to play the same tricks.
Right, Ms. McArdle. Romney is paying a spectacularly low tax rate because he gives so much to charity. And he’s refusing to disclose his tax returns because… well, we can only imagine how embarrassing evidence of his selfless magnanimity must be. Who’s invoking unicorns now exactly?
As a purely political matter, it is amazing that Romney chose to enter this debate by making a concrete claim that will only increase the focus on why he doesn’t just prove it.
Let’s go back to the source material.
Saying he had “no problem with somebody being really, really wealthy,” Reid sat up in his chair a bit before stirring the pot further. A month or so ago, he said, a person who had invested with Bain Capital called his office.
“Harry, he didn’t pay any taxes for 10 years,” Reid recounted the person as saying.
“He didn’t pay taxes for 10 years! Now, do I know that that’s true? Well, I’m not certain,” said Reid. “But obviously he can’t release those tax returns. How would it look?
Now, the investor only had a reason to look at Romney’s returns when investing at Bain. To me that means the person invested no later than than 2003. Even with his slow motion retirement, Romney had truly left Bain by the end of 2003. Which means they saw returns up to 2002 and estimated taxes for 2003 at the latest.
Romney says he has paid taxes the last 10 years, 2011 back to 2002. Unless he counts estimated taxes for 2012.
To be clear: Romney is talking about 2002-2011 and Reid’s source is talking about prior to 2004. There is hardly any overlap in the time periods. The source never said the years were consecutive either and Romney was with Bain from 1984, a total of 19 years.
Romney is using claims he paid a low but non-zero tax rate as a screen to hide the offshore accounts and/or the dicey IRA in the last ten years.
“‘You people’ have my tax rate! Now get out of the Royal Presence! You are distressing the delicate Antoinette!” Sadly, some in the press are licking up this line like whipped curs.
To be sure this means Reid is being a politician and disingenuous.
Reid knows there is little overlap but he also knows that Romney has no compunction over avoiding every penny of taxes and stealing a few more on the way. It was a sound gambler’s bet that some of the more recent ten years’ taxes were close to zero if not zero and certain they were embarrassingly low if not bordering on felonious.
here’s my latest letter to very right-wing paper in right-wing area ( North County Times, N san Diego County) :
TITLE : Romney incites tax speculation
It’s expected that Presidential candidates release many years of tax records. Romney’s father stated that many years are required; a few years could be hiding something. Rmoney’s released one.
Senate Majority Leader Harry Reid has stated that a Bain insider told him Romney paid ZERO taxes for 10 years. The heat is growing, over 20 senior Republican leaders have urged Romney to be transparent. Come clean. Mitt’s decided that whatever he’s hiding is worse than the heat. This guy wants to run the country, claims he’s qualified because of his business genius, then hides it all.
Peggy Noonan, respected conservative columnist, once wrote, â€œ â€¦ Is it irresponsible to speculate? It would be irresponsible not to.â€
No taxes for 10 years? He showed McCain 23 years taxes, and McCain picked Palin. McCain isn’t saying Reid is lying. Maybe Mitt made backroom investments on our wars, or the SLC Olympics. Maybe he aggressively shorted Bear Stearns, creating and profiting from our recession.
In 2009, the IRS made a deal with Switzerland, ending the secret accounts. There was a one-time amnesty for the scofflaws evading taxes. Maybe Romney was caught in that. Speculations!
Mitt could end it all by releasing his taxes.
Let it not be forgotten that even if every word of Romney’s claims were to be the gospel truth, irrespective of any spinning or shading, 13% is still a scandal. Schoolteachers and sanitation workers are paying twice that much in federal taxes, including the payroll tax. Heck, even the undocumented workers Romney pays to mow his many lawns probably pay as high a rate as Romney does.
And the tax plan Romney has endorsed would take his tax rate from where it is – from a rate that is unpatriotically, unconscionably low for someone who has so greatly benefited from the things those taxes pay for – and make it effectively zero.
Exactly, thank you. It’s stunning to me that we aren’t outraged by what he’s saying on its face.
It’s worth wondering about the numerator as well as the denominator. Romney really shouldn’t be allowed to say he pays X% income tax by including tax paid on dividends and capital gains in the numerator. Republicans routinely say that payroll taxes do not count as Federal income taxes when they complain that ~50% of people pay no income tax. If you’re going to start to say what does and does not count as an income tax, payroll taxes can more accurately be called income taxes than taxes on dividends and capital gains.
If he’s going to start counting all taxes as income taxes, he ought to be asked to repudiate his ticket-mate first, who cited this figure when he said, “Weâ€™re coming close to a tipping point in America where we might have a net majority of takers versus makers in society and that could become very dangerous if it sets in as a permanent condition.”
No Megan, you’re missing it again: I’m suggesting that he is paying a small fraction of his real income, which is different from his realized income. That’s the whole point: there are all kinds of ways to gain wealth and income that have nothing to do with what you actually pay, a point that you seem to insist is wrong without any evidence. Instead, you insist that no one thinks this. As for not knowing which tax experts think this, you can look at Vic Fleischer’s piece.
“You may think that it would point you to some areas for executive sleuthing, but since you have no idea what the terms of the contract were for his Bain separationâ€“separation payments are quite often deferred or taken over multiple periodsâ€“not as much as you think.” I see: it’s MY job to figure out what was in the contract before I can start saying that Romney should release his returns. What did you say about that? Hahahahahahaha.
You might also want to check out dynasty trusts. But there are some nice consolation prizes for you on the way out.
Yes, there are certainly ways to gain wealth without reporting income. Please God, I hope I’m doing it in my 401(k) right now. But there are not ways to gain wealth in a way that shows up on the tax return, but isn’t taxed, the point you keep trying to elide.
I thought we were discussing Romney’s income tax forms. Dynasty trusts are, as I’m sure you know, a way to avoid the estate tax, not the income tax. Since estate taxes never show up on an income tax return, I’m not sure why you brought them up. The heirs do, of course, pay income taxes on any amount of money received through one of these generation-skipping trusts.
You are still missing the point of why people want to see Romneyâ€™s tax returns. It isnâ€™t that they believe he has â€œgained wealth in a way that shows up on the tax return, but isnâ€™t taxedâ€¦â€ Quite the contrary: What I and others are saying is that a close examination of Romneyâ€™s tax returns is likely to suggest that he does indeed have significant hidden wealth and income which he has not disclosed on his tax returns as he was legally required to do.
I also say that Romney does not want to release his tax returns because they may provide significant clues to some questionable or illegal transactions and perhaps even provide some indications of where the IRS and the DOJ could look for the evidence necessary to bring civil and criminal charges. To be clear: I am suggesting that the information in the public domain about his use of highly aggressive tax shelters, coupled with the techniques I have concluded must have been used to put as much as $120 million into his IRA account, gives rise to the very reasonable suspicion that Mitt Romney has illegally parked money in nominee accounts and disclosed neither the existence of those account nor declared the income from them as he was required to do by law. There is a very clear factual predicate for these charges to be found in the IRA materials, his conduct and approaches to Marriottâ€™s very aggressive use of questionable methods and the way Bain conducted itself during the Italian affair.
I have said what questionable or illegal things I think Romney has done and Iâ€™ve said quite clearly why I think what I think. I believe it would be a disaster for the country to have a president who has done such things and therefore I believe it is absolutely necessary to determine the truth of the matter. Thereâ€™s obviously something there in his returns that Romney fears having made public. The question is whatâ€™s there. Now, Iâ€™m not someone who thinks very highly of George Will but I do agree that he framed the matter perfectly when he said: â€œThe cost of not releasing the returns are clear. Therefore, he must have calculated that there are higher costs in releasing them.â€ The only thing I can think of thatâ€™s worth the hammering heâ€™s getting now is that he has secret offshore accounts and has committed tax fraud, bank fraud, money laundering/reporting crimes that can be discovered by careful examination of his tax returns.
Let me ask you something: Do you acknowledge that the matters regarding Bainâ€™s deals, the use of aggressive tax shelters and offshore accounts and the IRA account with $120 million create a reasonable suspicion of sharp practice, if not outright criminality? If so, shouldn’t we know whether the Republican Party has nominated a tax cheat as it candidate for the presidency before the November election?
I’ve heard the Romney clip many times, but never heard him refer to his having paid his “income taxes,” but only that he paid his “taxes”–a significant omission, or did he refer to having paid his “income taxes” in a part that wasn’t included in the clip that’s being played?
Some believe that lying by omission isn’t really lying, even though it is, and this is especially true of those who “prefer not to” provide documentation for their claims.
The campaign, at least, says that Romney was only referring to federal income taxes:
You can choose to believe it or not…
Kathleen, good point, but then again, when has Mitt ever objected to *outright* lying?
Getting into the weeds with Ms. McArdle about the nature of the American tax system remains a category error. She continues to insist that it is very likely a sustained perusal of Mr. Romney’s tax returns would fail to find anything interesting that he’s been hiding, when the simple truth is this: he’s been hiding his tax returns. That truth is evident, and is sufficiently damning.
Every other recent major-party nominee has made this revelation. Romney’s own father specifically stated it would be dishonest not to reveal a dozen years’ returns, that one or two years’ returns could be a fluke or engineered to appear acceptible. When Romney wanted to be Vice President, he revealed to the people making the decision, i.e. the McCain campaign, twenty years of his returns. And when Romney wanted to examine peoples’ suitability to be his own Vice President, he demanded and received tax returns from “several years”.
The standard is clear: it’s one set by his predecessors, by his opponent, by his own late father, and even by Romney himself. And he refuses to meet that standard. Fighting with Ms. McArdle about why that might be so is a fool’s game.
Slightly off topic but the first thing that came into my mind when I heard Romneyâ€™s statement about his taxes was the famous video clip of Frank Costello testifying before the Kefauver committee. When he was asked to name something he done to his credit as an American, Costello replied in a raspy voice: â€œI paid my tax.â€ Think about it: Mitt Romney wants to be president of the United States but is barely capable of rising to the same level of patriotism as Frank Costello. How ironic that the significance of paying oneâ€™s taxes as a sign of love for oneâ€™s country was better understood by Frank Costello than by Mitt Romney.
When he was asked to name something he could claim to his credit as an American, Frank Costello named with pride and without qualification having paid his taxes. Itâ€™s interesting that while Frank Costello pointed with pride at his having paid his taxes, Mitt Romney makes no such civic claims for himself. To the contrary, Romney seems to think itâ€™s enough not to have ended up in the pokey for tax fraud or perjury. Wouldnâ€™t it be nice if the nominee of the Republican Party could live up to Frank Costelloâ€™s standard of civic responsibility and love of country? Just a thought.
@ Megan McArdle,
I’m running out of places to “reply” and out of energy, too. A couple of points in reply to your reply:
1. I do not understand the point you are making here about Zasloffâ€™s claim regarding what the tax returns would show. Worse, I donâ€™t see how youâ€™ve addressed the analysis made by Prof. Fleischer (a genuine expert in this area) specifically regarding the 13% tax rate Romney claims to have been paying every year. He says itâ€™s impossible and he gives some reasons, none of which youâ€™ve addressed. Itâ€™s quite clear that itâ€™s impossible to know whether Fleischerâ€™s suspicions are well founded without seeing the tax returns and I consider this an important reason why Romney should release his returns.
I find Prof. Fleischerâ€™s analysis very persuasive and I challenge you to refute it honestly and directly.
2. Speaking for myself, however, it must be clear to you by now that I am making a claim which is quite different from the one being advanced by those worthy academics. I am neither an academic nor an expert in tax law. I am a semiretired criminal lawyer and the points which I have made obviously are related to the thing I know something about, namely, crime. In my experience, most rich people donâ€™t take advantage of these techniques because they arenâ€™t â€œtax sheltersâ€ designed to avoid paying taxes but are simply criminal schemes used by cheaters to evade paying their federal and state taxes. (Criminal schemes carefully designed to be hard to unravel and designed to allow rich tax cheats to avoid jail by having lots of â€œbuffers” but crimes nonetheless) . Most people, even very rich people, arenâ€™t criminals. They try to minimize their taxes, of course. I know I do and I guess everyone else does, too. Thatâ€™s why they donâ€™t do this stuff and thatâ€™s why they pay their taxes as the law requires. Most people are decent human beings, not cheaters. That’s why they pay taxes and that’s why even very, very rich people probably don’t have up to $120 million in their IRA’s.
As George Will pointed out, Romneyâ€™s taking a hell of a beating on his refusal to release his tax returns and the only reason heâ€™d have for doing so is if there was something in those returns that would make it much worse for Romney if it because known. Letâ€™s speculate about what those things could be: I say that Romney is probably hiding the returns because they contain items which would allow experts (such as IRS revenue agents) to deduce the existence of undeclared interests in certain shell companies (probably through various front-men); perhaps undeclared foreign bank and securities accounts and also probably there is information in the returns to suggest that Romney may have committed numerous banking crimes by not followed the reporting and anti-structuring requirement required by federal laws. That is why I think Romney is refusing to disclose his returns. To summarize: I think that there are likely items in those returns which will tip off investigators (governmental or from the Obama campaign) to the existence of possible crimes which will lead to calls for additional disclosures which will, in turn, lead to more questions and yet again more questions. There may be pressure on the people who set up the deals or who participated in directing the money into the secret accounts to flip. Not a problem if Romney become president because he gets (informally) total immunity for past crimes but quite a gamble for a man who always has hedged his bets.
There will be questions upon questions and then there will be more questions. Each disclosure will likely prompt demands for still more disclosures. Romneyâ€™s businesses and activities over the years will be laid bare. That canâ€™t be something a man who is charitably described as very aggressive in his use of tax shelters and offshore accounts would find enjoyable.
I have explained the basis for my suspicions here in this thread at considerable length and with more than enough details for you to have a clear understanding of why I believe he has probably committed federal crimes (such as tax fraud and banking crimes); why I think the tax returns are likely to provide important clues which would enable experts to unearth those crimes and what I believe Mitt Romneyâ€™s willingness to use what are, at best, highly questionable tax shelters says about him as a person.
I donâ€™t see how your response about tax deductions and deferred income or whatever has any possible bearing on the points I have raised. I don’t disagree that some of the tax-advantaged situations reflected on his returns were accomplished by the ways you hint at. What I do say is that some of those tax-advantaged situations might also have been created illegality. Do you think my suspicions are merited given Romneyâ€™s previous form? Have the disclosures about his IRA (and what must have been done to stuff $120 million into it) or about his activities at Marriott or the Italian deal in any way aroused any sort of unease in you about how Romney made his money? (If not, would you still have a favorable opinion of this way of doing business if we were talking about John Gotti and the Gambino family instead of Mitt Romney and Bain Capital instead?
Here’s an honest question: why would Romney refuse to release his tax returns to protect them from IRS investigators? Wouldn’t they already be able to look at the returns? Is it just that they need a public outcry to get the budget from management to face down the legal team that Romney would field to defend himself? Opposition research from the Obama campaign I get, but doesn’t the IRS already have everything they need to investigate?
No, the IRS doesn’t have remotely enough resources to investigate. Mainly they don’t have the resources to probe deeply into the underlying transactions. For example, let’s say that a piece of Mitt’s Bain stock ended up being sold to a Nevada corporation, owned by a Cayman corporation, which is in turn owned by a Liechtenstein trust. And let’s say the sale to the Nevada corporation generated a short-term capital loss for Mitt. No matter how much the IRS investigators might disbelieve the transaction, all of those places have very strict secrecy laws. They all generate a lot of local prosperity by taking care of this kind of thing for people like Mitt Romney. The US government won’t touch any individuals in those places involved in this hypothetical deal and the local governments will resist a grand jury SDT to the max. You can be sure that Mitt’s high-priced “buffers” will have chosen places that are impervious to the scrutiny of law-enforcement. It’s horrendously difficult, expensive and time-consuming to peel back the many layers of deceit with which such transactions are protected under the best of circumstances. A thousand times more difficult against a powerful politician like Mitt Romney.
I think Romney also is concerned about releasing the tax returns because there are probably politically inconvenient things along the lines suggested by Zasloff and Fleischer that he would like to keep private even if they aren’t ilegal. Possibly some of these would be related to Romneyâ€™s known use of offshore trust and shell companies. I donâ€™t suppose that Mitt is really looking forward to seeing news footage of reporters chasing after his frontmen, shouting questions at them as they run away, which would then be followed by stand-ups in front of buildings in that Caymans or Liechtenstein explaining that the headquarters of the â€œcompanyâ€ that helped create a dodgy tax loss or ended up with some of Mittâ€™s Bain stock is nothing more than a plaque on a door and the guy who ran away without answering any questions is the only guy who really knows whether Mittâ€™s the real owner. No matter how you slice it, thatâ€™s kind of thing is never going to play well in the heartland.
Then, too, I suspect heâ€™s perhaps a bit worried about what might happen if the pressure from Democrats and the media forces the IRS and DOJ into a confrontation theyâ€™d rather have ducked. So, as I say, itâ€™s not a question of keeping his returns from the IRS. I donâ€™t think Mitt and his army of high-priced lawyers, accountants and fixers gave any thought to the IRS at all when they were cooking up things like they IRA trick. They probably couldnâ€™t conceive that a bunch of nobodies who buy their suits off the rack at Macyâ€™s could touch them. The IRS really doesnâ€™t have the resources or the stomach for that kind of a fight. I think they figured that as long as there a some kind of documentation by suitable impressive “buffers” then everything would be fine. In fact, I’d be willing to bet that Mitt’s taxes would stand up pretty well against a basic, superficial audit. Nobody’s bringing Mitt Romney down without the kind of full court press that broke the back of the New York families.
No, what they’re probably worried about is that outsiders (politicians, Democrats, the media) will do more than just ask questions. Theyâ€™ll track down the people that Mitt uses are his frontmen and bring a lot of heat down on them, too. A lot of these guys are professional frontmen and I doubt if Mittâ€™s their only client. If Obama or the media or Democrats really wanted to, they could probably make life very unpleasant for some of these guys—a lot of these tax havens are already under severe pressure from France, Germany and England and the tax authorities in those countries would be only too happy to help the US by turn up the heat. Maybe enough heat that Romneyâ€™s frontmen get thrown under the bus for the sake of showing how law-abiding Liechtenstein or the Cayman Islands really are and if the frontmen start to flip, then watch out! That’s just the kind of thing that might get the ball rolling—you show some big-shot Ivy League tax partner that you got the goods on him and heâ€™s going to become a cooperating witness real fast. These guys arenâ€™t going to jail for anybody.
So I think that’s kind of what Mitt Romneyâ€™s thinking about: Itâ€™s a small chance but if thereâ€™s a steady drumbeat of questions about questionable transactions disclosed in his tax returns and media picks the thing up and runs with it, that’s a lot of heat. Itâ€™s possible that the government could be forced into going after him for real and my guess is that if they pushed hard enough and dug deep enough it might be possible that they could work their way through enough of his â€œbuffersâ€ to get him. Maybe not before November but either way it would be hard to stop the investigation once it really got moving, especially if there was a steady media buzz. If heâ€™s been doing what I surmise heâ€™s been doing, that means paying out really big money to make the thing go away or maybe even the pokey if too many of his â€œbuffersâ€ end up squealing on him. One in a million but it’s still something to think about.
And don’t forget that the Republicans in Congress are always pushing for more cuts in the IRS.
Well played @Megan McArdle. On topic, the article says that there is a ‘denominator’ problem, that somehow Mitt Romney has reduced his denominator in a material way. If Romneyâ€™s income (mostly from capital gains) was, say, $10 million a year, but $9 million of it is in a tax shelter in the Cayman Islands, Romney could pay $130,000 on the $1 million and call it $13%” Megan has shown pretty clearly this is not possible within law. Lots of noise, abuse and speculation in response, but nobody has demonstrated how it is possible for this denominator problem to exist.
Why no fuss about Obama’s tax returns? He’s got nothing to hide because he’s got nothing to hide….
Well played @Megan McArdle. On topic, the article says that there is a ‘denominator’ problem, that somehow Mitt Romney has reduced his denominator in a material way. I quote: “If Romneyâ€™s income (mostly from capital gains) was, say, $10 million a year, but $9 million of it is in a tax shelter in the Cayman Islands, Romney could pay $130,000 on the $1 million and call it $13%” Megan has shown pretty clearly this is not possible within law. Lots of noise, abuse and speculation in response, but nobody has demonstrated how it is possible for this denominator problem to exist.
Why no fuss about Obama’s tax returns? He’s got nothing to hide because he’s got nothing to hide….
Nobody sensible is arguing that Romney hasn’t sheltered large amounts of income from the IRS. Please note that Romney isn’t making that argument. Prof. Zasloff and Romney are merely disagreeing about the extent to which he’s done so – except that Romney isn’t even disagreeing there, he’s just silent.
The top marginal tax rate is 35%. For someone with Romney’s income, it’s simply impossible to pay 13% without taking advantage of aspects of tax law. I’d like to know which aspects of tax law Romney is leveraging here. Is it all carried interest? That’s still 15%. What is he up to?
There are important public policy issues in play here. Are Romney’s methods really a good idea? It’s hard to know, without knowing what those methods are.
Uh I think it could be a lot simpler than that. “Romneyâ€™s income (mostly from capital gains)” is a contradiction in terms. Income is income, capital gains are capital gains. Both are nice, but they aren’t legally the same thing. Romney might be saying that his taxes (including capital gains taxes and real estate taxes and what not) were at least 13% of his income not 13% of his income plus capital gains.
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