Mitt Romney says he pays "a lot of taxes," but he never says he pays a lot of income tax.
Why is that?
Simple: According to credible sources, which Mitt Romney has not impeached by producing his own tax records for the last 10 years, Mitt Romney paid no federal income tax at all for a decade.
Zero. None. Empty set.
How is that possible? Here's a likely scenario:
- Romney paid some taxes, but only sales tax, property tax, and state and
local taxes. The words
FEDERAL INCOME are left out of the phrase, "I paid a lot of taxes" for a very specific reason.
- The key to understanding Mitt Romney's taxes is that Bain is a private equity company structured so that there are limited partnerships which hold the actual funds invested by the Bain partners. Above this collection of limited partnerships is a management company (Bain Capital) which is the "paymaster" which collects the capital and fees from the partnerships, and which distributes the profits back. This management company not only owns the name of the entire umbrella enterprise (Bain Capital), but also the complete list of all the capital
- The actual income of the Bain management company which cuts the
checks, owns the Bain name, and also owns the list of all the Bain Capital partners (which may not be known to all the players) is very low -- so low that over the course of 10 years, all the "shares" of the
management company could be transferred into a tax-free Individual Retirement Account (IRA) as a (theoretically) low-value asset. Under such a scenario, Bain Capital would make very little money and own very little as well. Bain Capital, it would be claimed, is just a desk, a computer or two, and a person who writes letters and checks.
- What happens next is important. In 1999 or so, Romney
decides to extricate himself from Bain Capital, but this process is not swift. It's a process, not an event. Part of that process is that over the course of the next few years the limited partners that make up Bain buy out the shares of the management company (Bain Capital) that are held in Mitt Romney's IRA. What happens here is that paper stock once deemed to be of low-value, is now traded for hundreds of millions of dollars in cash. What is actually (or putatively) being bought from Mitt Romney by the Bain partners? Two things: the Bain Capital name, and the complete list of limited partners and a full understanding of their financial, social, and tax relationships.
- The end result is that Romney ends up with $100 million in his Individual Retirement Account which, like all IRA money, is held tax-free until he is age 65 or until he withdraws it, at which point he will have to pay taxes on it.
- Romney may now be paying taxes on income from selling some portion of Bain Capital stock which he did not seed into his IRA, but these very recent tax returns (2010 and 2011) may obscure the fact that up to $100 million was transferred to Mitt Romney between 2000 and 2009 and remains tax free. In other words, there is a very good chance that for a decade zero federal income tax was paid on an income of $10 million or more per year.
Is this the "Big Secret: that Mitt Romney is hiding?
Almost certainly some version of this scenario is what happened.
It explains not only how Mitt Romney ended up with over $100 million in a tax-free IRA which otherwise should have no more than $450,000 in it, but it also explains why his extraction from Bain Capital was a lengthy process negotiated over years, how he could have paid no federal income taxes for a decade, and why he will not share anything but his most recent two years of tax records.
Is there anything illegal with any of this?
Hard to say.
If all or a large portion of Bain Capital stock was moved into Mitt Romney's IRA, then when that transfer occurred, and under what theory of valuation, is pretty critical.
In fact, making sure no one asks that question may be exactly why Mitt Romney has decided he would rather lose the election than have his taxes looked at by a sea of tax experts who would call those transactions into question and perhaps have them disallowed.
It's not like Mitt Romney's tax schemes have not been called into question before.
From 1993 to 1998, Romney was the head of the audit committee of the board of Marriott International. During that time, Marriott engaged in a series of complex and notoriously abusive prepackaged tax shelter schemes called "Son of Boss" which were designed to shelter corporate tax, but which were ultimately disallowed by the IRS.
To be clear, Romney was not smart enough to think up those schemes -- he was simply the guy on the audit committee at Marriott who gave the green light to an illegal tax avoidance scheme designed to steal scores of millions of dollars of tax revenue from the American people.
In the end, Marriott lost that gamble in court, and had to cough up over $70 million in taxes.
The point here is that Mitt Romney is more than OK to gamble and to play close to the edge with the IRS in order to avoid paying taxes.
In fact, Mitt Romney claims this is actually why he should be elected; if he was not willing to try extreme measures to avoid paying taxes, then he does not deserve to be President of the United States.
No, I am not making that up.
That is how Mitt Romney thinks, and it is what he has said. And it is exactly why Mitt Romney does not want the American people to see his taxes.
You see, once upon a time someone did see Mitt Romney's taxes -- that someone was John McCain, who looked at over 20 years of Romney's taxes when he was vetting him to be a possible Vice Presidential choice back in 2008. And guess what? John McCain picked Sarah Palin.
Have you noticed that in all the brouhaha over Romney's taxes, the one voice that has not stood up to defend Mitt Romney is John McCain? Silence here may speak volumes!