The mainstream media has been full of news reporting on Republican Presidential candidate Mitt Romney’s finances. First, let’s thank the Occupy Wall Street movement, because without them, this would never have become a campaign issue. And even as Mitt Romney tries desperately to keep his finances a secret, bits of information keep leaking to the press.
First, there’s Romney’s own, casual admission that he paid “about 15%” in income taxes last year, but of course he won’t know for sure until his accountant finishes his tax return (sometime in April, after most of the early primaries are over). He could release his 2010 tax return, however, as other candidates have, but he won’t, which says lot about the amount of government secrecy we can expect from a Romney administration.
About that 15%: it’s less than half of what his wealthy father paid in taxes during his time as an American millionaire, which was 37%. Ah, those good old days. And I’m not even talking about a time that was in the distant past. Ten years ago, Mitt Romney would have paid about 25% in taxes, and 15 years ago, in the mid-1990’s, he would have paid 29%. That was during the booming years of Bill Clinton’s first term, when the economy gained around 11.5 million jobs (which puts the entire Bush Jr. presidency to shame) and the federal government ran a surplus, not a deficit.
So whenever you hear right-wing pundits complain that raising taxes on the rich will hurt the economy, you should know better. The rich have paid much higher tax rates during some of the best years of the U.S. economy.
Let’s remember that the federal deficit wasn’t a side effect of the George W. Bush years; it was the whole point. Bush was heavily supported by Wall Street, the oil industry, and defense contractors because he was willing to spend taxpayer money (and borrow even more) on two wasteful wars in the Middle East, which turned out to be very profitable for them. And of course Bush pushed through two major tax cuts for the wealthy that were very dear to the hearts of his wealthy constituents.
Now comes Romney, who is the very embodiment of everything that is Wall Street. His fortune, estimated to be around $250 million, puts him in the upper ranks of the 1%. His tax rate of 15% means that he earns no wages or salary; he makes all of his money through his investments. His work history, as former CEO of Bain Capital, means he has yet to learn what an honest day’s work in the real economy—the one that manufactures real goods and provides services to average Americans—really means.
Bain Capital is a private equity firm. Private equity firms engage in leveraged buyouts. They collect a big pool of cash from wealthy investors and use that pool of cash to buy a distressed company. They “turn that company around” by cutting what they determine to be excess: they sell off some of the assets and lay off a lot of people. Once they’ve turned the company into a money making enterprise, they use that company as collateral for big loans, which are then used to buy more distressed companies, and so on. And the amount of profit that private equity firms demand from the companies they buy is very high, because they have a whole bunch of wealthy investors who want a big, exciting rate of return.
Romney is no longer CEO of Bain Capital, but a large portion of his fortune is invested in Bain Capital’s various investment funds. And at least $25 million of his fortune is invested in offshore funds that Bain set up in the Cayman Islands.
Romney and his financial advisors have all denied that he invested in those funds to avoid paying U.S. taxes. They all say something like: “he chose those funds because of the assets they invested in, not for tax reasons.” That’s disingenuous, to say the least. Every investor looks at the total rate of return of the investment he’s considering. The “total rate of return” is what the fund pays the investor less any costs to the investor, including fees paid to the fund managers and income taxes. There would be no other reason for Bain to set up a fund in the Cayman Islands except to help the investors avoid paying U.S. income taxes. Bain has a total of 138 offshore investment funds in the Cayman Islands.
Now, many politicians—both Republicans and Democrats—have railed against companies and individuals who use offshore banks and other foreign institutions to avoid paying U.S. taxes. The U.S. Treasury has been cracking down on taxpayers who don’t declare their foreign earnings, because the Treasury has a vested interest in knowing the extent of the problem, and for good reason. Offshore investments suck an estimated $100 billion dollars in tax revenue out of the U.S. Treasury.
But the problem could be worse than that. Funds that are organized in a foreign country but purchase and trade mostly U.S. assets allow foreigners to invest in the U.S. without having to pay U.S. taxes on that income, as they would otherwise be required to do if they bought and sold those assets directly. And U.S. assets, particularly real estate, are looking like a very good deal to foreign investors these days. The U.S. Treasury needs that tax revenue now more than ever, but can’t collect it from funds organized as offshore tax havens. Don’t expect Mitt Romney to change that law.
Nor can we expect Mitt Romney to advocate for a repeal of the Bush-era tax cuts for the wealthy, as Barack Obama has done. Those tax cuts have rewarded Romney, and his Wall Street cohorts, beyond their wildest dreams.