Tuesday, July 10, 2012
Mr. Romney’s Financial Black Hole
Paying taxes forthrightly has long been a matter of civic pride for most American politicians, a demonstration of honesty and of a willingness to share in society’s burdens. Since the Watergate era, presidential candidates have released several years of tax returns, allowing voters to peer at their financial choices and discern their entanglements.
Mitt Romney has upended that tradition this year. He has released only one complete tax return, for 2010, along with an unfinished estimate of his 2011 taxes. What information he did release provides a fuzzy glimpse at a concerted effort to park much of his wealth in overseas tax shelters, suggesting a widespread pattern of tax avoidance unlike that of any previous candidate.
Mr. Romney has resisted all demands for more disclosure, leading to growing criticism from Democrats that he is trying to hide his fortune and his tax schemes from the public. Given the troubling suspicions about his finances, he needs to release many more returns and quickly open his books to full scrutiny.
The 2010 tax return showed that the blind trust held by his wife, Ann, included a $3 million Swiss bank account that had not been properly reported on previous financial disclosure statements. (The account was closed by the trust manager in 2010 who feared it might become embarrassing for the campaign. He was right.) It also showed that Mr. Romney had used a complex offshore tax shelter, known as a blocker corporation, to shield the investments in his I.R.A. from paying an obscure business tax.
The use of that technique by wealthy taxpayers and institutions, long been blasted by Congressional tax experts as abusive, costs the treasury $1 billion a decade.
The return showed at least 20 investments not previously listed on disclosure reports, but it did not provide enough information to evaluate their size or holdings. Neither the tax return nor other disclosures have revealed the full amounts of the Romneys’ other offshore holdings over the years, including investments in Germany, Luxembourg, the Cayman Islands, Australia and Ireland.
Recent articles by The Associated Press and Vanity Fair focused on a Bermuda account that Mr. Romney transferred to his wife’s blind trust the day before he was inaugurated as governor of Massachusetts in 2003. The account, created in 1997, had not been properly disclosed to voters until January. Even though it had few assets in 2010, according to the return, it could have sheltered a significant amount of income last year or in previous years.
Mr. Romney also has not fully explained the nature of his separation agreement with Bain Capital, the private-equity firm he founded, which he left in 1999. Last month, his trust reported receiving a $2 million payment from Bain as part of unpaid earnings from his work there. Of the 138 Bain funds organized in the Cayman Islands, Mr. Romney has interests in 12, worth up to $30 million, according to Vanity Fair.
Though the Romney campaign has often distanced itself from Bain’s recent corporate takeover work, voters have no way of knowing how much the candidate has received from Bain since he left, or how much is coming.
Firms like Bain park money in the Caymans because the islands have no taxes on capital gains, profits or income for foreigners. But just because it’s legal doesn’t mean it’s the right thing to do.
The campaign says Mr. Romney has received no tax benefits from his offshore shelters, a dubious assertion but one impossible to check without more disclosure. Mr. Romney said this week that he had no idea where the blind trust had put his money, and he dismissed the issue of the offshore investments, saying they were no more consequential than investing in a foreign car company.
A foreign investment, however, is not the same as an offshore tax shelter. A more conscientious politician would have urged his blind trusts to have nothing to do with shelters not available to the general public. And Mr. Romney is tarnishing an important political tradition — one set by his father, George Romney, who released 12 years of tax returns in 1967 — by continuing to keep the sources of his income in the shadows.