Tuesday, July 31, 2012

Others weigh in on Romney's tax returns

Two articles today add important elements to the discussion of Romney's tax returns and his resistance to disclosure.

In the New York Times, Michael Graetz notes that "it is a good bet that Mr. Romney’s vetters have picked through more than two years of returns of his vice-presidential contenders. And the Senate typically requires more for confirmation to a cabinet or even a subcabinet post."

In addition, Graetz notes suggestive evidence creating a possible inference that Romney should have faced penalties (though one doubts they were actually levied) in connection with transferring to his sons financial assets that are now worth $100 million:

"Based on his aggressive tax planning, revealed in the 2010 returns he has released and his approval of a notably dicey tax avoidance strategy in 1994 when he headed the audit committee of the board of Marriott International, my bet is that — if Mr. Romney filed a gift tax return for these transfers at all — he put a low or even zero value on the gifts, certainly a small fraction of the price at which he would have sold the transferred assets to an unrelated party. Otherwise, he should be happy to release his gift tax returns. According to a partner at Mr. Romney’s trustee’s law firm, valuing carried interests, such as Mr. Romney’s interests in the private equity company Bain Capital, at zero for gift tax purposes was common advice given to clients like Mr. Romney in the 1990s and early 2000s.

"If detected, undervaluing large gifts to one’s children could provoke large penalties from the I.R.S. These are the kinds of tax penalties that even multinational corporations try to avoid because they fear how the public would react to the adverse publicity that would inevitably follow.

"To settle these questions, Mr. Romney should release his gift tax returns, or other documents showing how he valued his transfers to his family’s trust and to his I.R.A., and at least three additional years of income tax returns."

Meanwhile, in Forbes, Janet Novack focuses on an aspect of Romney's public rationalizations for his aggressive tax planning that has rankled both me and others with whom I've discussed the issues, but that had not as yet (to my knowledge) been addressed fully by anyone.

First she quotes a recent Romney TV interview in which he said: "I don’t pay more [taxes] than are legally due and frankly if I had paid more than are legally due I don’t think I’d be qualified to become president. I’d think people would want me to follow the law and pay only what the tax code requires."

The false implication here is that Romney simply mechanically or passively paid what was due under the law.  Why should he, say, pay $10 million if the tax tables show that he only owes $5 million?  But, as Novack notes, this amounts in actual practice to Romney's claiming that he has a "duty to exploit every tax loophole."  She further adds:

"Unless Romney was joking ... it suggests he is either ignorant of the practical functioning (and malfunctioning) of our tax system; hopes the American public is ignorant of it; or has bought into an aggressive approach to tax-compliance that contributes to the tax mess.

"If you’re a simple wage-earner, as most of us are, there’s generally one correct answer about how much you owe in federal income tax. You might take advantage of more tax breaks than your neighbor–for example, electing to make bigger contributions to a pre-tax 401(k). But there’s not a lot of wiggle room in calculating what you owe. Unless you’ve entered the numbers incorrectly (or are confused about some issue the way Treasury Secretary Timothy Geithner said he was), Intuit’s TurboTax should give you the same answer as H&R Block’s AtHome and it should be pretty much the same as what the IRS would calculate.

"But when you are as wealthy as Romney, with as many business interests as he has, there are lots of judgment calls that get made involving how your investments are structured and reported—judgments that can increase or decrease a tax bill. What 'the tax code requires' and what’s allowed can be debatable. It is up to a taxpayer (in consultation with his tax pro) to decide how aggressive he wants to be and how many of the grey issues he decides in his own favor ….

"The attitude in some sophisticated circles that folks are chumps (or even negligent) if they don’t structure their affairs to exploit every possible provision of the tax code in ways Congress intended (and didn’t) creates a climate that allows abusive tax shelters to flourish and undermines the functioning of the tax code (which, granted, is plenty dysfunctional on its own.)"

Even without releasing more returns, Romney had made it clear as day where he stands on all this.


chrismealy said...

What do you think about this?


chrismealy said...

What do you think about this?


Daniel Shaviro said...

Interesting, but hard to know if there's anything to it.

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