Thursday, August 2, 2012

The Romney Tax Rate

I want the Romney Tax Rate. I want it for myself, and I want it for my firm’s clients. But we cannot have it because we have too much “earned income”. Romney did not, and does not. I will discuss this further in another post.

An excellent piece written by Michael Graetz, Mitt Romney’s Financial Mysteries, published last week by the New York Times, highlights the areas where Romney has perhaps advantaged himself at the cost of other US citizens. The author, a former Bush Administration tax official and current tax law professor, knows what he is talking about: that by investing probable severely undervalued assets into his IRA account, these assets later “bloomed” within the Romney IRA. There is no other way to have an IRA account of over $100 million, because the Internal Revenue Code annual contribution limits are simply too small. 

The annual limit on IRA contributions in general, set by statute, has never been more than at the most, $50,000 per year. Assuming Mr. Romney contributed for 20 years; at up to $50K per year, this would $1 million in total contributions.  For a fund to grow to $101 million over 20 years, assuming the funds came in over time, (meaning not all at once as most IRA funds do), would be a financial performance beyond compare. A more likely explanation is the one given in the article; that of undervalued assets being contributed to a self-directed IRA, which then, magically become worth much more than they were worth when contributed. A private equity fund carried interest is one of the few asset types capable of this level of performance. While this is not per se illegal, it is a tax avoidance device. If so, we would think it could be discussed openly, for someone seeking to be President. Being accountable for one’s actions, goes with this territory.

Romney is being asked to release his tax returns by a growing chorus within his own party. They feel his refusal is becoming a liability to him being elected. Romney’s refusal to release his income tax returns, not to mention the off-shore holding of his family assets says he doesn’t think he has to. It may also say that he can’t… it would be too explosive. People would be outraged to know what this “common man” has done. The methodology is politically suspect and may even be legally suspect; another (very) good reason for not releasing. Romney was recently quoted as also saying he “had been audited, too”. One wonders what the result of that was.

Read the piece. It renders clarity in an area confusing to most.

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