JULY 31, 2012
Mitt Romney arrives back stateside and just like that, his refusal to release more than a year or two of tax returns is back in the news. Harry Reid is telling people that a big Bain Capital investor told him that Romney told him that he didn’t pay any taxes for 10 years. OK, that sounds like something out of a junior-high cafeteria, but then again there’s also an easy way for Romney to knock it down. Which again raises the question: What can possibly be in the returns to make them so dicey to release? Lurking behind that question, though, is a related one that has gotten less attention: Why in the world did someone who has been running for president since late 2006 not years ago rid his personal finances of anything that could cause problems in a campaign—Swiss bank accounts, Cayman Island shelters, questionable IRAs, and whichever even more troublesome features lurk in the unreleased returns? After all, Romney is nothing if not a cautious, details-oriented fellow—this is someone who held a videotaped family summit before deciding whether to run for president. Why would he not have fixed his finances as carefully as his coiffure before venturing out onto the stage?
Well, one plausible theory was offered me recently by someone who served alongside Romney in Massachusetts government: Romney may be cautious, but he is also, famously, a penny-pincher. Consider the story that got him in some hot water when he returned from running the Salt Lake City Olympics to run for governor in Massachusetts in 2002. To do so, he first needed to prove his Massachusetts residency, which is why his lawyer played up Romney's attendance at Boston-area business meetings between 1999-2002, claims somewhat at odds with his disavowal of any role at Bain Capital post-1999. But his assertion of having kept Massachusetts as his primary home even while running the Olympics was undermined by the revelation that Romney had claimed a property tax break for his Utah home that was reserved for people who make Utah their primary residence. From the 2002 Boston Globe report (no link):
Though he has described himself as a resident of Massachusetts for the past 28 years, gubernatorial candidate Mitt Romney paid property taxes on his Park City, Utah, home as his “primary residence” for the years 1999, 2000, and 2001, and received a deep discount on hisproperty taxes as a result.
Yesterday, a Romney spokesman said the GOP candidate had not sought the discount, and both the campaign and the county assessor blamed the designation and tax break on a “clerical mistake,” although the assessor also said such an error had never before occurred during her 12 years in office.
The tax records, obtained by the Globe, could intensify the debate over whether Romney meets the residency requirements to be governor of Massachusetts. The Massachusetts Constitution requires that a governor live in this state for seven years prior to election. Because he was taxed on his Utah home as a primary residence for the three years, Romney received a 45 percent discount on his property taxes for each of the three years. He saved a total of $54,000 in taxes on the home, now valued at about $3.8 million. In Utah, nonresidents pay taxes on 100 percent of the assessed value of a home, while residents pay on 55 percent.
Romney oversaw the Winter Olympics during the three years. A Romney campaign aide initially said yesterday that the Republican candidate legitimately received the tax break, but still considered his Belmont home his permanent residence during the three-year period because he intended to return here.
However, late yesterday, the aide, Eric Fehrnstrom, said further investigation by the campaign revealed that a clerical error by the Summit County assessor resulted in Romney’s property being designated his primary residence without his request.
“Mitt was underbilled for his property tax,” Fehrnstrom said. “If, as a result of the county’s error, Mitt has to pay additional taxes, he will do so.”
Fehrnstrom said Romney never noticed the tax break when he received it. He, like most taxpayers, just cursed out loud and wrote the check,” Fehrnstrom said.
In 1999, Romney saw his tax bill dip, although the value of his home increased dramatically after he and his wife had it remodeled and expanded. In 1998, the taxable value for the house was $2,396,500. The assessed value jumped to $3,795,882 the next year, but because it was classified as his primary residence for the first time, Romney only owed taxes on 55 percent of that value—or $2,087,735. His tax bill dropped from $23,068 to $22,599—despite the $1.4 million hike in value.
The issue could be problematic for Romney: It raises questions about why he did not notice, or do anything to correct the error, such as seek to repay the windfall.
It sure does. Why would someone as ambitious as Romney was—who had made clear his intention to follow his father into politics—risk trouble over basic residency questions just for the sake of a tax break on a second home? But consider what else was going on around the same time‚ as the Globe reported in a fine bit of recent digging that was somewhat overlooked on the day of the Aurora, Colo. shootings: Romney was also risking some goodwill and some future political troubles in his handling of his departure from Bain, all for the sake of collecting as big an exit payout as possible. In trying to get to the bottom of what Romney’s role at Bain was between 1999 and 2002—a major question thanks to Romney’s total disavowal of any role in unpalatable dicey deals Bain did in those years—the Globe found that a defining theme of that period was Romney’s aggressive push for a mammoth cut of profits:
Interviews with a half-dozen of Romney’s former partners and associates, as well as public records, show that he was not merely an absentee owner during this period. He signed dozens of company documents, including filings with regulators on a vast array of Bain’s investment entities. And he drove the complex negotiations over his own large severance package, a deal that was critical to the firm’s future without him, according to his former associates.
Indeed, by remaining CEO and sole shareholder, Romney held on to his leverage in the talks that resulted in his generous 10-year retirement package, according to former associates.
“The elephant in the room was not whether Mitt was involved in investment decisions but Mitt’s retention of control of the firm and therefore his ability to extract a huge economic benefit by delaying his giving up of that control,” said one former associate, who, like some other Romney associates, spoke only on condition of anonymity because they were not authorized to speak for the company.
Romney had a lot at stake because Bain had become hugely valuable under his leadership. Romney established Bain Capital in 1984, and in the 15 years that followed, the company had invested $260 million in its 10 largest deals (out of more than 100 during that period) and had reaped a nearly $3 billion return.
So again: Romney stayed on as Bain’s CEO and sole shareholder in the years he was running the Olympics in order to retain the leverage for his big payout—even though it would mean potentially problematic association with Bain deals from those years, down the line. And now the taxes. In today’s New York Times, Michael Graetz, a veteran of George H. W. Bush's administration, helpfully lays out some of the gray-area tax-avoidance that someone in Romney’s position may well have engaged in over the past decade or two, such as skirting gift taxes on the $100 million trust Romney has set up for his sons. Graetz does not address the question of why someone thinking about running for president, with plenty of money to keep his family in fine fettle for decades to come, would engage in this sort of corner-cutting. Well, the answer could be pretty simple: if you're a successful private-equity guy, the bottom-line mentality may hold even when it comes to planning a political ascent. As much as Romney clearly wants to be president, it may not have been his ultimate priority, after all.
Addendum: There is a related way of looking at this question, through the lens of a provocative New York cover story from a few weeks ago which described a new body of research into why it is that people with a lot of money might be more likely to cut corners when it comes to, say, their taxes. The piece's conclusion is pretty blunt:
Earlier this year, Piff, who is 30, published a paper in the Proceedings of the National Academy of Sciences that made him semi-famous. Titled “Higher Social Class Predicts Increased Unethical Behavior,” it showed through quizzes, online games, questionnaires, in-lab manipulations, and field studies that living high on the socioeconomic ladder can, colloquially speaking, dehumanize people. It can make them less ethical, more selfish, more insular, and less compassionate than other people. It can make them more likely, as Piff demonstrated in one of his experiments, to take candy from a bowl of sweets designated for children. “While having money doesn’t necessarily make anybody anything,” Piff says, “the rich are way more likely to prioritize their own self-interests above the interests of other people. It makes them more likely to exhibit characteristics that we would stereotypically associate with, say, assholes.”
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