Dan Shaviro offers a new theory about Romney’s tax returns.
Assuming, as I do, that Mitt Romney’s decision to hide all but a year and change of his tax returns reflects rational strategy on his part, and given the flak he has taken and will continue to take, we’re stuck with the question “What could possibly be in those returns whose disclosure would be worse than the continued drip-drip-drip?”
I’ve been a fan of Stuart Levine’s “foreign bank account amnesty” theory, but it has competitors. Dan Shaviro offers a new one: Romney might have been playing games – close to the line or even over the line – with foreign tax credits.
Author: Mark Kleiman
Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out.
Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken)
When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist
Against Excess: Drug Policy for Results (Basic, 1993)
Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989)
View all posts by Mark Kleiman
17 thoughts on “What’s he hiding? (Cont’d): Foreign tax credits?”
There was a foreign-income-tax holiday on repatriated corporate profits in 2005. Could Romney have repatriated foreign profits at the low temporary rate (something like 4% instead of 35%, I think) through some sort of corporate vehicle and then deducted the taxes he paid? No clue if this is possible, but it seems like a law that temporarily cut corporate repatriated income taxes by almost 90% would correspond with an increase in the amount of income that Romney chose to realize in that way.
Unlike some other debates about Romney’s tax history, this is actually very relevant to his candidacy since he’s proposing a similar holiday immediately (0% instead of ~4% I think) and an eventual transition to a territorial tax regime. The latter would, I think, make it possible to headquarter investment funds on Grand Cayman and never subject earnings to US income tax as long as they’re part of some corporate partnership.
Looking into this a little bit; the 2004/5 holiday was mostly taken advantage of by large US firms (it was 5.25%, not ~4%), which were criticized for using it to pay out dividends rather than hire people. Perhaps Romney held large interests in companies such as Pfizer, which repatriated so much foreign income under the holiday that it faced an additional $1.7 billion in tax liability in 2005… perhaps Romney received dividends with large foreign tax credits because of things of this nature.
When you control a swiss bank account and multiple foreign-bases firms as sole shareholder and CEO, you don’t need to hold interests in big companies to generate savings from repatriation amnesty. Especially if, say, your US-based companies have been paying substantial fees to the foreign-based ones for unspecified services, or intellectual property licensing or whatever.
Which raises yet another possibility: it’s not the returns proper but the worksheets. Because Romney’s reported income from his investments is whatever it is, but the details of the transactions among various pockets may be damaging not only to him but to the whole tax-avoidance industry.
The sham transactions to create FTCâ€™s is clearly a possibility. I donâ€™t think itâ€™s an â€˜either-orâ€™ sort of thing. Itâ€™s entirely possible that he used more than one of the techniques weâ€™ve been discussing over the past week. He could easily have used all of them plus a bunch weâ€™ve never even heard of.
I would, however, again note the significance of the $120 million IRA account. As Iâ€™ve said previously, the only method that anybody (including really top experts of all different political persuasions) has been able to come up with is that Romney grossly undervalued the assets he deposited. There is some debate over whether this technique is illegal or merely highly questionable; nevertheless, everybody agrees that this is borderline, at best. Nobody claims this is completely acceptable and many (including me) say it is outright illegal. Still, the traditionally illegal technique of creating sham transactions seems to be a very common thread running through all of the informed discussions of Romneyâ€™s tax planning.
Whether any or all of these techniques are felonious is a question weâ€™ll probably never have answered but it does raise questions about Mitt Romneyâ€™s character. Itâ€™s starting to like Romney has engaged in sham transactions, hidden his possibly illegal foreign bank accounts behind shady front men and has probably defrauded the government he wants to head. Is this really someone who should be president?
We all share a laugh over the suggestion that he’s hiding his forms because of voter fraud, but, given his history in Belmont, MA, I would not be surprised at all if he claimed different residences for different federal purposes.
Add that to questionable IRA windfall, questionable foreign investments, possible shady FTC transactions–there is really a whole stack of possible nefarious activities that Romney might have engaged in and that does not even include the Harry Reid Special. But how many people actually care? Most Dem voters will not go for Romney because of a multitude of other reasons. Most hard-core Republicans already believe that Obama is a hybrid between Hitler, Mao and Osama bin Laden. Tax issues are not likely to change their minds. So we have the roughly 5% of genuine undecided voters plus maybe another 2% of conservatives who might end up being so disgusted with Romney that they will vote for Johnson (not counting the 2% or so who already plan to vote for Johnson, but most of whom don’t vote regularly anyway).
You know, I’ve been lurking here, enjoying watching the vortex of madness consume everybody as the election approaches. But I’m going to break my self imposed exile for one comment, weak human that I am:
Were not the birthers assuming that Obama’s refusal to release the birth certificate was proof he was hiding something?
The birthers said that the birth certificate Obama did release was not enough, that he needed to release the “original long form” document, even though no candidate had done so in the past, indeed no other candidate had ever been asked to do so, and claimed that his refusal to release that was proof he was hiding something
The tax-demanders say that the return Romney did release is not enough, that he needs to release the last five to ten years of his returns, because candidates have been doing so regularly since his father did so in 1968, and since Romney himself had demanded that his opponent do so in a previous election, and his refusal to release that was prima facie evidence he was hiding something.
The birthers were theorizing that the failure to release the birth certificate was an attempt to hide the fact that a pregnant American took a long, exhausting, and pointless trip to Kenya so that her child could have the opportunity not to become a natural American citizen, a series of events which seems so senseless one may doubt it was ever performed by anybody.
The tax-demanders are theorizing that the failure to release the returns is an attempt to hide bad-smelling acts of tax avoidance, acts which have happened many, many, many, many, many times.
The birthers were ignoring the clear testimony of the relevant government officials (in Hawaii) that Obama’s short form accurately described his place of birth.
The tax-demanders are asking for these forms in the absence of any way of confirming that Romney was accurately summarizing his tax history, besides the forms themselves.
Is that enough to relieve of us the spectre of birtherism? Or do you want the long form?:-)
The birthers said that the birth certificate Obama did release was not enough, that he needed to release the â€œoriginal long formâ€ document…
Which is what made this brilliant image Zasloff shared so brilliant:
Brett, sometimes stupid crap comes back to haunt even Republicans…
So I am not sure if you want to keep waving that soiled underwear in the air.
To clarify, before returning to exile: Obama for a very long time rebuffed every demand that he release that birth certificate. The obvious question was, “Why?” What could possibly be on it that there’d be any reason to refuse? To make all sorts of specious arguments about why it couldn’t be released? (Proven to be specious when it finally was.) There, as with your reasoning, had to be something. Or else releasing it was trivial, and there was no reason to refuse. Never mind that nobody had before, that was no reason to refuse, once it was asked for.
In the end, the answer was, nothing.
Consider for a moment the possiblity that there isn’t any smoking gun in Romney’s tax returns. Perhaps, like Obama, he just enjoys the impotent fury of his enemies. Perhaps, like Obama, he enjoys having people concentrating their efforts where he knows nothing is to be found. Perhaps it’s even a trap; Perhaps some time in October he plans to, in a show of exasperated resignation, release the records, and all they’ll reveal is that he gave a fortune to charity, and he will get free publicity for how much more charitable he is than Obama. (As he most assuredly is, his brother George can tell you that.)
The point is, no. There doesn’t have to be something there. Keep that in mind. Try clinging to that last scrap of sanity.
At a minimum, what the retruns will almost certainly show is that Romney consistently paid a tax rate in the neighborhood of 15%, and probably less. That ought to be enough to demonstrate that complaints about how our oppressed job-creating masters are badly overtaxed are complete BS.
They will also show some sort of shenanigans, possibly even legal, around foreign holdings and taxes. Romney would rather pay large sums of money to foreign governments than to the US. Why? This is not conjecture. The foreign tax numbers numbers for earlier years are right there on his 2010 returns.
So even if Reid is wrong, even if all is legal, even if he didn’t commit a felony by hiding his Swiss accounts, his returns are going to be embarrassing. So cling to your scrap, not of sanity but of hope, that there’s absolutely nothing there, if that sustains you. But take my advice and don’t make any bets on the matter.
With the so-called “long form” birth certificate, President Obama played rope-a-dope until the wingnuts punched themselves silly, and then he delivered a haymaker. Somehow I doubt that Governor Romney is following that strategem in regard to his tax returns. The calls for disclosure, which is the norm among candidates for president, do not make those requesting disclosure look silly.
Brett, are you saying that Romney shouldn’t have to release his tax returns even though that has been the norm for decades now? Do you think it was incumbent upon Obama to release his birth certificate (over and over again) even though he was the first president to be asked for it?
Are you aware that birtherism is based on a racist conspiracy theory while asking for tax returns is a legitimate request for full disclosure?
Aspiring lawyers, be sure to save this note so that if you get Brett Bellmore as a client you will be in a position to remind him that paying you to travel to Hawaii is “trivial.” 🙂
I agree with Brett that there is a possibility that Romney’s tax returns don’t contain anything as damning as Mark Kleiman is suggesting, but I think Mark is right about what constitutes rational political strategy. If Romney spends the next two months continuing to insist he won’t release any more tax returns, and then publicly folds, he will look weak.
If Romney tries to argue that the returns are innocuous, he will be going against the established media narrative that he has something to hide. Reporters, like everybody else, are subject to confirmation bias. Their instinct will be to write stories which try to explain why Romney was embarassed to release his tax returns.
Obama released his birth certificate as soon as it became clear that people were taking the “birther” accusations seriously. He could delay releasing the long form certificate only because he had already disproved the birther allegations.
Obama for a very long time rebuffed every demand that he release that birth certificate. The obvious question was, â€œWhy?â€
And the obvious answer — to me, at least — was “Because he didn’t feel like jumping through a hoop which had been set up just for him and him alone by idiots, racists, and conmen playing to idiots and racists.”
What’s the obvious answer for Romney?
(And the answer to the followup question, “Then why did he end up releasing it after all?” would be, “Because he couldn’t resist the opportunity to inflict some butthurt on Donald Trump’s toupee.”
I realy don’t think it has anything to do with tax shelters, which I’m sure he had and I’m sure are too complicated to turn into a campaign issue. Perhaps his returns contain the name an ss number of a minor dependent whose mother is not Anne Romney.
Hmmm … a guy who makes millions of dollars would put a secret dependent on his tax return to save the tax on a fixed exemption of a few thousand dollars?
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