Secret Swiss Bank accounts, Cayman Island Bank accounts, Bermuda Tax Haven Bank accounts… what does Mitt Romney have to hide?
Posted by Warm Southern Breeze on Sunday, July 15, 2012
What does Mitt Romney have to hide?
Why won’t he live up to his late father’s example, and voluntarily and openly reveal all his tax records?
Where the Money Lives
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.
A person who worked for Mitt Romney at the consulting firm Bain and Co. in 1977 remembers him with mixed feelings. “Mitt was … a really wonderful boss,” the former employee says. “He was nice, he was fair, he was logical, he said what he wanted … he was really encouraging.” But Bain and Co., the person recalls, pushed employees to find out secret revenue and sales data on its clients’ competitors. Romney, the person says, suggested “falsifying” who they were to get such information, by pretending to be a graduate student working on a project at Harvard. (The person, in fact, was a Harvard student, at Bain for the summer, but not working on any such projects.) “Mitt said to me something like ‘We won’t ask you to lie. I am not going to tell you to do this, but [it is] a really good way to get the information.’ … I would not have had anything in my analysis if I had not pretended.
“It was a strange atmosphere. It did leave a bad taste in your mouth,” the former employee recalls.
This unsettling account suggests the young Romney—at that point only two years out of Harvard Business School—was willing to push into gray areas when it came to business. More than three decades later, as he tried to nail down the Republican nomination for president of the United States, Romney’s gray areas were again an issue when he repeatedly resisted calls to release more details of his net worth, his tax returns, and the large investments and assets held by him and his wife, Ann. Finally the other Republican candidates forced him to do so, but only highly selective disclosures were forthcoming.
Even so, these provided a lavish smorgasbord for Romney’s critics. Particularly jarring were the Romneys’ many offshore accounts. As Newt Gingrich put it during the primary season, “I don’t know of any American president who has had a Swiss bank account.” But Romney has, as well as other interests in such tax havens as Bermuda and the Cayman Islands.
To give but one example, there is a Bermuda-based entity called Sankaty High Yield Asset Investors Ltd., which has been described in securities filings as “a Bermuda corporation wholly owned by W. Mitt Romney.” It could be that Sankaty is an old vehicle with little importance, but Romney appears to have treated it rather carefully. He set it up in 1997, then transferred it to his wife’s newly created blind trust on January 1, 2003, the day before he was inaugurated as Massachusetts’s governor. The director and president of this entity is R. Bradford Malt, the trustee of the blind trust and Romney’s personal lawyer. Romney failed to list this entity on several financial disclosures, even though such a closely held entity would not qualify as an “excepted investment fund” that would not need to be on his disclosure forms. He finally included it on his 2010 tax return. Even after examining that return, we have no idea what is in this company, but it could be valuable, meaning that it is possible Romney’s wealth is even greater than previous estimates. While the Romneys’ spokespeople insist that the couple has paid all the taxes required by law, investments in tax havens such as Bermuda raise many questions, because they are in “jurisdictions where there is virtually no tax and virtually no compliance,” as one Miami-based offshore lawyer put it.
That’s not the only money Romney has in tax havens. Because of his retirement deal with Bain Capital, his finances are still deeply entangled with the private-equity firm that he founded and spun off from Bain and Co. in 1984. Though he left the firm in 1999, Romney has continued to receive large payments from it—in early June he revealed more than $2 million in new Bain income. The firm today has at least 138 funds organized in the Cayman Islands, and Romney himself has personal interests in at least 12, worth as much as $30 million, hidden behind controversial confidentiality disclaimers. Again, the Romney campaign insists he saves no tax by using them, but there is no way to check this.
Bain Capital is the heart of Romney’s fortune: it was the financial engine that created it. The mantra of his campaign is that he was a businessman who created tens of thousands of jobs, and Bain certainly did bring useful operational skills to many companies it bought. But his critics point to several cases where Bain bought companies, loaded them with debt, and paid itself extravagant fees, thereby bankrupting the companies and destroying tens of thousands of jobs.
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.
Ironically, it was Mitt’s father, George Romney, who released 12 years of tax returns, in November 1967, just ahead of his presidential campaign, thereby setting a precedent that nearly every presidential candidate since has either willingly or unwillingly been subject to. George, then the governor of Michigan, explained why he was releasing so many years’ worth, saying, “One year could be a fluke, perhaps done for show.”
But his son declined to release any returns through one unsuccessful race for the U.S. Senate, in 1994, one successful run for Massachusetts governor, in 2002, and an aborted bid for the Republican Party presidential nomination, in 2008. Just before the Iowa caucus last December, Mitt told MSNBC, “I don’t intend to release the tax returns. I don’t,” but finally, on January 24, 2012—after intense goading by fellow Republican candidates Newt Gingrich and Rick Perry—he released his 2010 tax return and an estimate for 2011.
These, plus the mandatory financial disclosures filed with the Office of Government Ethics and released last August, raise many questions. A full 55 pages in his 2010 return are devoted to reporting his transactions with foreign entities. “What Romney does not get,” says Jack Blum, a veteran Washington lawyer and offshore expert, “is that this stuff is weird.”
The media soon noticed Romney’s familiarity with foreign tax havens. A $3 million Swiss bank account appeared in the 2010 returns, then winked out of existence in 2011 after the trustee closed it, as if to remind us of George Romney’s warning that one or two tax returns can provide a misleading picture. 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.”
Romney’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.”