When you have as much money as Mitt Romney does, it becomes increasingly difficult to stuff it all away where tax collectors can't see it. But there are ways -- lots and lots of ways, we're learning.
Thursday's Gawker dump of Romney investment documents highlighted several ways that Romney has managed to get his income taxed at a 13 percent rate -- far lower than the rate you non-wealthy saps probably pay. Hurry up and graduate from the middle class, will you? Two aspects of Romney's tax stylings may not have been entirely on the up-and-up, the Huffington Post's Ryan Grim suggests today.
Meanwhile, the Wall Street Journal's Mark Maremont has found, in some documents not in the Gawker pile, yet another possibly sketchy tax-dodging scheme, this one involving "how the former private-equity executive managed to get $100 million into a family trust for his children without incurring federal gift taxes."
Here's how it works: Start with the fact that Romney and his fellow private-equity kingpins have much of their income taxed at unusually low rates because this income is called "carried interest." These are the fees they skim off the top for watching other rich people's money and managing to not let it get chewed up in the garbage disposal. This is very specialized work, you see, and very important for the economy for some reason, so it is taxed at 15 percent, far lower than normal "income" is taxed.
And, just as you can pass on your large, shiny teeth and thick mane of jet-black hair to your male offspring through your powerful semen, alpha-male private equity executives can also magically pass on their ability to have their income taxed at carried-interest rates to their children and other loved ones. Far less messy than the semen, and more profitable.
The only little problem with passing on this carried-interest tax-rate magic is that some people, let's call them "accountants," think that the ability to have future income taxed at a ridiculously low rate is actually worth some money. So this transfer should, according to these "accountants," be taxed like any other gift when you pass it on to your kids.
But! Maremont has dug up a 2008 presentation by a partner at the Ropes & Gray law firm -- which represents Romney and his old firm, Bain Capital -- in which he tells a bunch of other lawyers that, for several years starting in the 1990s, many estate-planning lawyers tried to pretend this magical carried-interest tax rate wasn't worth anything, to help clients avoid paying gift taxes when they passed it on. Was it illegal to do this? Maybe so! But the lawyers tried to do it anyway, up until 2005, when the practice apparently died of shame.
The Romney campaign would neither confirm nor deny to the WSJ that such a scheme had been used to shield the $100 million Romney put into a trust for his kids in 1995, when the tax-dodging practice was in full swing. We "should not assume" that Romney's carried-interest tax rate transfer was valued at nothing, according to the Romney campaign. We'll just have to keep guessing, apparently. Romney's campaign earlier told the WSJ it paid no gift taxes on transfers into the trust. Romney does include some trust income in his tax returns and pays taxes on it, according to Maremont.
Here's the kicker: Even if Romney released all the years' worth of tax returns he has so far refused to release, that wouldn't clear up what happened with his transfers into this trust -- gift-tax returns are filed separately, Maremont writes.
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