There are many theories about why Willard “Mitt” Romney refuses to follow the precedent of all recent presidential candidates and release multiple years of back tax returns. Some people are focusing on two areas: the gifts to trust funds for each son that total $500 million and an IRA parked in the tax haven of the Cayman Islands worth between $20 million and $100 million.
Today, Democratic leaders in the House sent a letter to top officials at the Treasury and Labor Departments seeking information on just how a program designed to help middle-class Americans save for retirement could have been used to amass a multi-million-dollar IRA kept in a tax haven overseas. The annual per-year contribution limit for an IRA, depending on when the contribution was made and the age at which it was made, is between $3,000 and $6,000. Since Romney isn’t over 300 years old, that IRA is quite a mystery.
One theory, by Michael J. Graetz, an assistant Treasury secretary under the first President Bush, is that the Cayman Islands IRA allowed Mr. Romney to “diversify his large holdings tax-free, avoiding the 15 percent tax on capital gains that would otherwise apply.” He also could avoid paying the 35 percent income tax on hundreds of thousands of dollars of interest income each year. (I pay that tax on some of the earnings of my IRA each year, but, of course, I don’t have an army of advisers telling me how to game the tax code, nor a Cayman Islands account.)
Graetz also raises questions about the method Romney used to gift $100 million to each son. “Until this year, the federal gift tax had a lifetime exemption of $1 million, and it taxed gifts in excess of that amount at rates between 29 and 44 percent. A gift of $100 million to one’s children could, therefore, require paying a tax of as much as $29 million to $44 million.” Graetz then explains how easy it is to avoid paying gift taxes.
“Every good tax professional knows that gift tax returns are rarely audited, except after the transferor’s death. And normally the IRS cannot challenge such a return after three years from its filing.” So, since Romney has already given the money to his boys, and given how easy it is to avoid any questions being asked about whether Romney paid the gift taxes, he can rest easy if all that money escaped gift taxes. (By the way, gift taxes were first imposed because the wealthy were sheltering huge amount of money from taxes by “giving” it to relatives.)
The House Democrats also question exactly what arrangement Bain Capital had with employees and partners regarding contributions to IRA’s. The contributions could have been valued far, far below their true market value, thus skating around the limits on annual IRA contributions.
Whether Romney and his advisers used such tricks to avoid taxes that the rest of us pay can only be settled one way. He should release his gift returns, showing exactly how each of his sons ended up with $100 million trust funds, and he should release past tax returns and let the rest of us know how he has amassed an IRA in an overseas account in a tax haven that has grown to many, many millions.
By not doing that, Romney feeds the notion that he is trying to slip into the White House without following the disclosure patterns used by previous holders of that office. After his disastrous overseas trip, he needs to clear the air. Unless, that is, the damage of disclosure is worse than the damage of remaining secretive with the appearance of more than a bit of sleaziness. The choice is up to him.
As a final aside, all this mess shows how much we need an impartial, non-partisan tax reform council to rewrite a tax code that has become impossibly complex and contains vast numbers of loopholes for a favored few Americans and businesses. Good luck on that one!
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