Romney: “I pay all the taxes that are legally required, not a dollar more.”

by on September 12, 2012 · 4 comments

in Government, Politics

What Mitt fails to say is that most of the money he makes is funneled through offshore shell corporations in no tax jurisdictions so that no taxes are legally required at all. We have written before about how easy it is to set up an offshore shell corporaration linked to a bank account in the Cayman Islands, the Seychelles, Bermuda or a whole slew of other no tax jurisdictions. When money is made by a shell corporation in these places no taxes are legally required.

So Mitt Romney is in the position of deciding where he wants to make his money. Hmmm, should I make it in a no tax jurisdiction or should I make it in the US where I will have to pay taxes on it albeit at the minimal 15% “carried interest” loophole rate?

Mitt Romney has probably chosen to divert some of his profit making to the US for the tax year 2010 anyway, the tax year for which he has released his tax returns. That way he can say, well, look, I paid my taxes; here’s my return for all to see. But even in his 2010 return some items are redacted – those items having to do with foreign investments.

Private equity, which is the business Romney was in with Bain Capital, specializes in avoiding US taxes. But since Romney was planning on running for President, he had to show that he had paid some taxes at least in the one year that he was planning to release his tax returns.

Although Romney left Bain Capital in 1999, he has continued to make large amounts of money from it. In June 2012 he revealed more than $2 million in new Bain income. The firm today has at least 138 funds organized in the Cayman Islands, and Romney himself has personal interests in at least 12, worth as much as $30 million.

And as I pointed out in the previous article, there is absolute confidentiality about these dealings. Not even the US government can find out the workings of firms in these no tax jurisdictions. In fact there is a law in the Cayman Islands that a person can be jailed for up to four years just for inquiring about such accounts!

Another technique Romney used to avoid taxes was to invest in so-called “blocker corporations” in theCayman Islands. These are used by pension funds and foundations to avoid the Unrelated Business Income Tax. By investing in the blocker they are investing in a shell corporation in a no tax jurisdiction. The blocker can then go ahead and invest in a US corporation and the profits from that corporation are not taxable whereas, if they had invested directly in the US business, the profits would be taxable.

Romney has used this device for his and Ann Romney’s IRAs and trust funds as well. Again Romney the successful businessman has done everything that was “legally required” in paying his taxes which turns out to be nothing.

But let’s not forget how Romney and Bain Capital made their money in the first place. Bain was a leveraged buyout firm which had been renamed “private equity” in order to make it sound more palatable. Bain bought companies with borrowed money (the leverage). The subsequent debt was not a debt of Bain Capital’s; it was a debt of the company they just bought.

It’s as if you borrowed money to buy a house, but then obligated your uncle to pay off that debt or had a co-signer who was solely responsible for the debt. Yet you, not he, owned the house. Than as soon as Bain owned the company, they had the company borrow even more money so they could pay Romney a multi-million dollar dividend.

That’s like, if you borrowed more money based on the house you just bought, you walked away with the money and your uncle was responsible for even more debt! With the companies Bain bought bogged down by debt, many of them had trouble making the monthly payments and went bankrupt.

Romney makes a big deal about Staples, a company Bain invested in but never fully owned, being a successful company. It was successful primarily because Bain wasn’t in the position of loading it up with debt. They invested as a venture capitalist not as a leveraged buyout firm which means they put money in and later sold their shares when Staples became successful. They never were in a position to do a leveraged buyout because they never owned the company, and that’s probably why Staples was successful.

Typical of Romney’s and Bain’s exploits was the American Pad and Paper (Ampad) fiasco. Bain bought Ampad in 1992 from Mead Corp. for $56 million. In 1994 Ampad acquired Smith Corona’s Marion, Indiana operation. They then dissolved the union that represented the Marion employees and laid off 320 workers. They hired some back at lower wages and reduced benefits.

In 1995 Bain closed the Marion plant. However, Ampad continued to lose money, but it did take out a $75 million loan to pay Bain a dividend. Bain had put down $5 million in cash to buy Ampad, and made roughly twenty times that in return. Ampad went bankrupt in 2000.

Why would a bank loan all this money to a company that was a sinking ship in order for that company to pay Bain huge dividends? For the same reason that banks loaned money to sub-prime mortgage borrowers. They made huge transaction fees, and then they sold off the loans to other investors. That means they took very little risk. The questionable loan was sloughed off to somebody else. There was not a lot of downside. Everything went well until the game of musical chairs stopped and someone else was left holding the bag.

After Bain bankrupted numerous companies including Stage Stores (2000), GS Technologies (2001), Dade Behring (2002), Details (2003) and KB Toys (2004), they were in a position to play with their profits, funnel them through offshore corporations in no tax jurisdictions, use blocker corporations and play games to avoid taxes, which is what Romney is still doing today. He is no longer in the business of bankrupting companies and causing workers to lose their jobs. He is still in the business of profiting from Bain deals and avoiding tax consequences.

The “absolute confidentiality” of the Cayman Islands along with transfering money to Ann Romney’s trust and using “blind trusts – all these techniques represent subterfuges with which they can play the game of making even more money. Is it any wonder that the Romneys don’t want to release any more of their tax returns?

Sure, Mitt Romney has paid all the taxes that were “legally required.” The problem is that in the Cayman Islands where most of his money is, no taxes are or ever were legally required.

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John Lawrence

John Lawrence graduated from Georgia Tech, Stanford and University of California at San Diego. While at UCSD, he was one of the original writer/workers on the San Diego Free Press in the late 1960s. He founded the San Diego Jazz Society in 1984 which had grants from the San Diego Commission for Arts and Culture and presented both local and nationally known jazz artists. His website is Social Choice and Beyond which exemplifies his interest in Economic Democracy. His book is East West Synthesis. He also blogs at Will Blog For Food. He can be reached at j.c.lawrence@cox.net.
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{ 3 comments… read them below or add one }

avatar Earl Richards September 12, 2012 at 12:15 pm

Big Oil, Wall Street and the GOP are a bunch of morally, bankrupt jerks. Romney is already oil-bought. Romney/Ryan will be worse than Bush/Cheney. Romney is an offshore, tax cheat.

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avatar Anna Daniels September 12, 2012 at 11:05 pm

I don’t necessarily doubt that Mitt Romney is paying what is “legally” due in taxes. The man is richer than Croesus and no doubt invests in the best accounting counsel on the planet. The question is whether the tax loopholes that he takes advantage of are fair and just and defensible in an environment in which we are fed the BS of shared sacrifice. He knows that if he releases his taxes the American people will want to have a discussion about fairness and justice. Mitt Romney does not want that discussion. So I say “Mitt- Show us your taxes! “

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avatar John Lawrence September 13, 2012 at 7:02 am

Anna,
Of course the loophole that lets people like Romney park their profits and capital gains in offshore, no tax jurisdictions is not fair or ethical. As you suggest, a larger discussion should be taking place about closing this loophole. As a starter, I suggest that there should be a law that states that a citizen of the US or a corporation based in the US must pay taxes in the US on all profits and capital gains no matter where in the world they are made. That might mean that a lot of rich people would renounce their US citizenship as the cofounder of Facebook did recently in favor of Singapore, but then they wouldn’t be able to run for President either. Hopefully, we could get other countries to adopt the same law which means the wealthy would have no place to run to escape taxes.

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