Monday, August 20, 2012

Not So Many Happy Returns - What is Mitt Romney hiding?

by Blueberry T

The saga regarding Mitt and Ann Romney’s tax returns continues, as it should and will until they disclose their tax returns, in keeping with the wishes of the American people and the precedent set by Romney’s father and followed by all major party candidates for the past 3 decades.  As Joe Biden and others have pointed out, George Romney also warned against accepting only one year of returns, because “One year could be a fluke, perhaps done for show.”  

Ironically, Mitt Romney himself demanded that Ted Kennedy and Shannon O'Brien release more tax returns, when he ran against them in the Senate (1994) and Governor (2002) races in Massachusetts.  

Many people have weighed in with speculation about what the missing returns show.  Do they show that the Romneys paid no taxes for up to 10 years, as Harry Reid has claimed he was told by a Republican Bain investor?  Do they show that he shorted the Mormon Church on the 10% tithe?  Do they show that the Romneys took an amnesty in 2009 for having illegally sheltered money in an offshore bank account?  Do they show that the Romneys committed voter fraud when they claimed they were living in their son’s basement so they could vote in Massachusetts?   Perhaps it is “all of the above,” or more?  These questions could easily be answered, of course, if the Romneys weren’t so obstinate, secretive and “small-minded” about their tax returns. 

I know there is a lot of meat (or in Ann’s words, “ammunition”) in the 2010 return alone, especially in regard to offshore accounts and investments, and tax experts of all stripes have weighed in on some of these.  However, as an ordinary citizen, I want to point out something rather elementary that may have been covered by other reports on the Romneys’ taxes, but if it was, I missed it – but I think it may be quite important.  I am referring here to the Romneys’ 2010 tax return, which can be found here(Note that even the 2010 return is incomplete because it does not have the FBAR forms for his foreign bank accounts.)  

Now, I will preface the following with the disclosure that although I do my own taxes, I am by no means an expert on tax law or tax preparation; far from it.  Also, I don’t have a lot of investment income, so I don’t have too much experience with the many tax issues associated with the Romneys’ income taxes and the propriety of their tax avoidance measures.  I am not alleging any impropriety, but simply looking at these returns at a very basic level, to try to understand where the truth may lie.  (Pun intended.)  

With my admittedly limited knowledge, what jumps out at me is that in 2010, the majority of the Romney’s income was from capital gains.  Of the $21.6M income that the Romneys reported, $12.6M or 58% was from net capital gains.   Of course, we know that the preferentially low rate on capital gains is largely the reason for the Romney’s federal tax rate of 13.9%, which is much lower than the tax rate on income from earnings like wages, salaries and tips, for example.  (And of course it is not subject to payroll taxes like FICA.)  As Paul Krugman points out here, the rate on capital gains used to be much higher (during the Reagan, Bush 1 and Clinton Administrations, for example), but was slashed to the current low rate during Bush II’s Administration. 

The return also shows that the Romneys claimed a long-term capital loss carryover of $4.84 million in 2010 (2010 return, Schedule D, Part 2, Line 14).  Thus their long-term capital losses in 2009 (and likely 2008, maybe before) exceeded their capital gains, meaning they would have entered a loss on their tax forms (Form 1040, line 13) in those years, as compared to the $12.57M gain that they showed in 2010.  The loss that can be entered is capped at $3000 a year, so they carried over the rest. 

This must mean that line 13 was -$3000 in 2009, right?  Assuming their other income was roughly comparable, their total income for 2009 would have been much lower -  a measly $9M, perhaps.  Maybe less if interest, dividends and/or other business income was hit hard by the recession.  I wonder how much they tithed and otherwise donated to “charity” that year – was the tithe/charitable a meager $800,000, or closer to the $2.98M in charitable deductions claimed in 2010?   (The tithe is paid during the calendar year, before their taxes are done, so would they necessarily know what the 10% figure is before they made their donations?)  If so, charitable deductions would be a larger percentage of their total income, and would also make better sense of Romney’s odd comments suggesting that his charitable contributions should be added to his tax payment, and in doing so his total was always more than 20%.  (Huh? Mitt, that's not how tax rates are figured.)  

If their total “charitable” deductions were on a par with the $2.98M charitable deductions they claimed in 2010, but their income was lower due to the capital loss, then it is very conceivable that they would have paid much lower federal income taxes in 2009.  Perhaps there are scenarios where it could be zero, for example. 

(I put “charitable” in quotes because I have a hard time accepting that a mandatory tithe paid to a major money-making enterprise, which profits from businesses such as gun sales, is truly charitable.  But that’s another topic.  Here is another comment on the subject of claiming the Mormon tithe as charitable deduction.  And as an aside, about half their charitable donations were via cash and the other half via stocks, meaning that the IRS also lost out on any capital gains taxes associated with the donation of those stocks.  This is perfectly legal, of course.) 

So I guess my question is whether the Romneys’ income in 2009 (and probably 2008) was more on the order of $8-10M or less, and if so, did their charitable and other deductions make up a much larger percentage of the income than in 2010, thus resulting in much lower federal tax liabililty?  Is it conceivable that there could have been other deductions, offsets or income losses that would have brought the liability down close to zero for 2008-9, as Harry Reid’s source alleged?  It seems plausible. 

Finally, a short note on Ann Romney’s comment, while saying (using almost Palinesque syntax), “there’s going to be no more tax releases given,” that “…Mitt is honest. His integrity is, is just golden.”  (So was King Midas’.)  Unfortunately for Ann, there is enough evidence to the contrary in the public domain that documenting Mitt’s lies has become a cottage industry (Googling “Mitt’s lies” brings up 144 million results, including this, thisthis and this).
So, Ann is either wrong, or she buys into “lying for the Lord” as being acceptable.  Or she is a liar, too.  Or all of the above.  And of course this reminds me that Ann has said, “I truly want Mitt to fulfill his destiny, and for that to happen, he’s got to do politics.”  That suggests she is alluding to the White Horse Prophecywhich frankly gives me the heebie-jeebies and certainly defies the principle of separation of Church and State, as well as basic sanity.    

Taxation is not my field of expertise and I am not alleging impropriety;  I wrote this post because, like 63% of the American people, I want to know the answers to all the questions that Mitt Romney refuses to answer about who he is, what his values are, how he has amassed his wealth, and whether he is as dishonest with his taxes as he is with his campaign.  As so many people have said, the mystery would go away if they would simply #releasethereturns, so not doing so suggests that they have something to hide.  Ann says it is “ammunition.”  Okay then, our assumptions that they are hiding something must be at least somewhat legitimate.  Personally, I would not vote for someone who would not release their returns, because I believe it shows disrespect (read: utter contempt) for the American voter to say “just trust me” instead of providing us with the information we need to vet a candidate for President of the United States.  It is not “small-minded” to want to know the answers to the many questions surrounding Mitt Romney’s use of tax dodges and shelters, offshore accounts, and where his money comes from.  This information is not only relevant to the core principles about taxation that are integral to this campaign, but goes to his integrity and what he would do if he had Presidential authority to influence our budget and tax code.  

So, right back at ya, Mitt: release the returns; put up or shut up. 

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