Romney’s returns open a window on the wealthy
The long-awaited release of Mitt Romneys tax returns yesterday showed how he continues to make tens of millions from investments more than a decade after he left his private equity business.
Romney, whose presidential candidacy has fanned a national debate over how much the wealthiest Americans should pay in taxes, released more than 500 pages of tax documents detailing the roughly $42 million he and his wife made in 2010 and 2011. They paid more than $6 million in taxes and gave $7 million to charity, mostly to the Church of Jesus Christ of Latter-day Saints, also known as Mormons.
The returns also offered a window into the finances of the rich, complete with a Swiss bank account, investments in the Cayman Islands, and Social Security taxes for domestic help - all well within the law, Romneys spokesman said yesterday. Romney declined to field questions from reporters about his returns.
Nearly all Romneys income came from interest, dividends, capital gains, and other investment income, which is taxed at lower rates than wages and salaries for top earners. As a result, he paid about 15 percent of his income in taxes, a lower rate than some middle-class workers pay.
Many hedge fund and private equity managers - Romneys former occupation - structure their compensation as investment income, so it is taxed at a 15 percent rate, rather than ordinary income rates of up to 35 percent on salaries. Romney disclosed yesterday that over the past two years he earned $13 million from Bain Capital, the Boston private equity firm he cofounded, and similar partnerships.
Democrats said they would redouble efforts to ensure that such income is taxed the same rate as regular wages and salaries.
"The fact that one of the leading Republican presidential candidates benefited to such a significant extent from this egregious loophole only further illustrates the need to address this issue once and for all," said US Representative Sander Levin, a Michigan Democrat who has pledged to reintroduce legislation to change the tax treatment.
But Eric Fehrnstrom, a senior adviser to Romney, said Romney has met all his tax obligations. "He made a lot of money, he paid a lot of money to taxes, made a lot of charitable contributions, and paid 100 percent of the tax that was owed to the US government," Fehrnstrom said.
Romney released his 2010 tax returns and preliminary 2011 returns under pressure from his rivals for the Republican presidential nomination. In recent weeks, Romneys earnings and record at Bain Capital have been attacked furiously by his opponents, undermining what had seemed a clear path to the nomination.
Former House speaker Newt Gingrich, who earlier released returns showing he paid about 31 percent of his income in taxes, led those attacks. Yesterday, however, he focused not on Romneys income or tax rate, but rather on a separate financial disclosure that showed Romney owned investments in government-backed mortgage companies Freddie Mac and Fannie Mae.
Romney has criticized Gingrich for earning large consulting fees from Freddie Mac, blamed for contributing to the housing bust. Gingrich called Romney "outrageously dishonest" and told Fox News: "I dont own any Fannie Mae and Freddie Mac stock. He does, so presumably he was getting richer."
Brad Malt, the Boston trustee who manages Romneys investments, confirmed the couples charitable foundation had investments in money market mutual funds that included Fannie and Freddie holdings, but said those investments have been sold.
The disclosure of Romneys tax returns was aimed at quelling questions about his earnings, investments, and tax rate. As far as were concerned, we put [the controversy] to bed, said Fehrnstrom.
But the returns raised other questions, particularly about investments in Cayman Islands and a Swiss bank account. Malt said he opened the Swiss account on Romneys behalf several years ago to diversify Romneys holdings, not to hide any assets. Malt described it as an ordinary bank account, but said he closed it in early 2010, when Romney was gearing up to run for president. It just wasnt worth it, said Malt, a partner at the Boston law firm Ropes & Gray.
And since Romney disclosed the account on his 2010 tax return, tax attorneys said they doubt he used the Swiss account to hide his money.
Some tax lawyers suggested that the Romneys may have avoided an obscure tax by investing portions of his Individual Retirement Account assets in Bain Capital funds registered in the Caymans, rather than similar US funds. Nonprofits and tax-advantaged accounts, like IRAs, normally have to pay a tax of up to 35 percent when they invest in certain types of US investments that use debt, such as Bain private equity funds. Romneys aides said yesterday they didnt know whether Romney avoided the tax by investing in the Cayman funds and would have to research the issue.
Far from putting this issue to bed, it raises more questions than it answers, said Matt Thornton, a spokesman for the American Bridge 21st Century, a liberal group in Washington.
While Romney was helped by tax laws, he does not appear to have aggressively pursued shelters and other strategies to cut his tax bill. For example, said Kenneth P. Brier, a tax lawyer with Brier & Geurden LLP in Needham, Romney claimed only scant deductions for travel and other expenses to offset his income from speaking fees. The returns have every appearance of being squeaky clean, Brier said. He was not taking aggressive positions with his tax return and there is an incredible absence of deductions.
Romneys campaign estimated he gave more than $4 million to the Mormon church, about 10 percent of his income. The forms also show that Romney gave to Boston charities, including City Year, Dana-Farber Cancer Institute, and the Boys and Girls Clubs of Boston.
The returns also show that Romney, who owns homes in multiple states, filed taxes using his address in Belmont, suggesting he also paid Massachusetts income taxes.