In Romney’s defense, he is not required to disclose his taxes in order to run for President. To some degree, however, he has created this problem himself by making his business success at Bain a campaign issue. He claims that he has experience that President Obama lacks and as a result will do a better job managing our economic recovery. That gives the Democrats and the American voters every right to request more information about both his business success and how that affected his admitted personal wealth.
Some conservatives have tried to make this a tit for tat sort of exchange. Some examples I’ve read include Obama releasing his college transcripts or the Obama administration releasing more information about the Justice Department’s failed “Fast and Furious” operation.
This isn’t, however, an “I’ll show you mine if you show me yours” exchange of information. Neither Obama nor Romney has made their college experiences an issue in this campaign. If they did, it would be appropriate to expect both of them to produce documents to support their claims.
Similarly, Romney hasn’t made the wrangle between Congressional Republicans and the Justice Department a campaign issue either. Mainly because you don’t have to get very deep into this particular issue before it starts to come apart. Where it starts to come apart is when you ask Congress what it is that they are expecting to find that they don’t already know in the additional documents that they have requested from the Justice Department. The range of answers goes from, “I don’t know” to “A covert government plan to restrict gun rights”. The reason why the Justice Department has refused to provide more documents is because the documents Congress already has provide more than sufficient support on how this operation went bad and who the people were in the Justice Department that initially attempted to cover it up. There is no suggestion that the cover up went any further in the agency of any other motivation or any deeper plot that reaches higher in the administration.
There ARE valid reasons, however, to request more information from Romney based on the small amount of information that he has already released.
Here are a few.
The Swiss Banks Account
The person managing Romney’s assets in a blind trust said that he put some of Romney’s money in a Swiss Bank account and used it to buy Swiss Francs in order to hedge against the possibility that the US dollar would lose value. Tax experts say this is a weak justification for a Swiss Bank account. Why would someone making a run for the Presidency admit to betting against the US dollar and if they did, why use a Swiss Bank account to do it? There are many easier ways to speculate in foreign currencies that don’t require the secrecy and expense associated with a Swiss Bank account.
The account was closed in 2010. Earlier returns should reflect income earned from that account. Those using foreign bank accounts are also required to file a form with the government. As part of an effort to curtail money laundering, the Justice Department offered an anonymous amnesty program in 2009 for those who had not properly reported on foreign bank accounts. So there is also the possibility that Romney participated in that program. Earlier tax returns would reveal more detail about this account and how it was used.
The $100M IRA
During the time that Romney worked at Bain, he started an IRA which is now worth $100M. The problem is that the maximum tax free contribution that Romney could make to that IRA on an annual basis is $30K. At that rate, it would take 3,000 years to get to $100M. Since the only value of an IRA is to shelter current income from tax, that leaves a very reasonable question regarding the remarkable rate of growth seen in this IRA, particularly given the damage many other IRA’s suffered during the financial meltdown.
One possible explanation is that he just made some remarkable investment choices.
Another possible explanation is that he sheltered much more than the allowed $30K/year in his IRA by using Bain stock that was valued from a contribution perspective at far less than it was actually worth. He could have done that using an obscure “safe harbor” rule which covers taxation of service partner income in the sorts of deals Bain did, but the “safe harbor” taxation rules specifically exclude contributions to retirement plans. Retirement plan contributions must be measured at fair market value. More tax returns covering periods of time when these retirement plan contributions were made would answer that question.
There are also huge amounts of money in Romney family trusts. There are gift taxes associated with funding these trusts. That raises the question of how much tax he paid to setup these trusts. If he used similar sorts of “safe harbor” valuations for contributing Bain stock to these trusts in an effort to reduce his tax exposure, he could be liable for serious penalties.
Complex Tax Returns
The one complete tax return that Romney has released for 2010 raises more questions than it answers about Romney’s finances. If the purpose here is to be transparent and provide the American public a clear understanding of the candidate’s finances so they can assess whether this candidate would have any conflicts of interest if they were elected, Romney has not provided enough information. His assertion that he has paid all of the taxes due does not address the issues of conflict of interest.
Low Tax Rate
The bulk of Romney’s income these days comes from fees that Bain earns for managing other people’s money (carried interest). He and his family enjoy a remarkably low tax rate because of a loophole inserted to benefit this one particular form of income. The vast majority of tax scholars and policy experts agree that there is no policy justification to single out one particular form of income for this special treatment. Romney hasn’t addressed this issue, but he has said that he plans to close tax loopholes are part of his plan to lower tax rates across the board. Since he happens to benefit directly from one of these tax loopholes that costs taxpayers billions of dollars every year, he has to state whether this one in on his list. Otherwise voters have a right to question how he plans to deal with this conflict of interest. Obama, in comparison, has said that he WANTS to raise his own taxes because he falls into the group that makes more than $250K a year.
The American people need to know if a presidential candidate has financial interests that create a conflict of interest. Romney clearly DOES have a conflict of interest regarding the special tax rate that “carried interest” has. The American people also need to know that the success that Romney has enjoyed is the result of his business savvy rather than his ability to hire smart tax attorneys and “game” the tax code. Romney also claims that he has paid all of the taxes that he owed. There is some evidence, particularly with his $100M IRA, that he may have some tax liabilities.
The only way to resolve these issues is for Romney to release more tax returns dating back to his days at Bain AND to declare whether or not he plans to close the tax loophole on “carried interest”.
There is nothing wrong with wealthy people hiring experts to minimize their tax burden. There is also nothing wrong with wealthy people taking advantage of tax loopholes that they themselves didn’t lobby to get inserted into the system.
When you run for President, however, you represent everyone – not just your economic and social peers. Since he is using his wealth as a qualification for the office, I think he also owes more detail to the rest of the country that isn’t wealthy. If the detail shows that he has aggressively “gamed” the tax system, he should be prepared to defend those actions. If it raises issues of potential conflicts of interest, he should explain how he is going to resolve them. If he has in fact cut some corners that put him at some personal risk regarding the legality of his past tax activities, the American people should know that before they cast their vote.
That’s why he has to release more information and declare what specific tax loopholes he plans to close.