This is the second installment in a three-part series examining GOP presidential candidate Mitt Romney's claim that his experience at his private equity firm, Bain Capital, makes him better qualified than incumbent president Barack Obama to become the United States' "Job Creator-in-Chief." The first installment, "In the 2012 Presidential Election, How Important - for Better or for Worse - Is Mitt Romney's Track Record at Bain Capital?," reintroduced Romney's main qualifications for president, with a focus on why his Bain Capital track record is revealing of his thinking about job and wealth creation. This installment takes a look at Romney's investment, through Bain Capital's majority interest, in Sensata Technologies, and Sensata's plans to close its Freeport, Illinois, manufacturing plant in early November, moving the entire manufacturing operation to China.
In the first installment in this three-part series, I wrote:
Romney's principal argument about the value of his experience at Bain Capital is basically: I've been successful as a private-sector businessman, and I will apply those lessons of success to how I run the federal government. Perhaps owing to its sheer simplicity, that argument clearly resonates for some, particularly at a time when the economic recovery is still sputtering along almost three and a half years after President Obama was sworn into office. The private-sector guy will succeed where the public-sector guy has failed (or, more accurately, not succeeded as much as we all would have liked) goes the Romney argument.
Romney's recent uptick in some polls, improving on his numbers in categories such as who is better able to handle the economy, suggests that, through the first two presidential debates (excluding the third, focused on foreign policy), he's successfully making this case.
In that same installment, I also wrote:
However, in evaluating that argument, it's important to understand that as a private equity firm, Bain Capital's number one priority was making a return on its clients' investments, regardless of whether the best way to do so resulted in a stronger or weaker enterprise after Bain took its investment, and a healthy return thereon, out of the target company's balance sheet. Romney, for his part, has endeavored through various means to draw a direct connection -- without getting into the weeds, of course, or providing much in the way of details -- between his success as a private-sector businessman and how he would improve the U.S. economy. However, whenever Romney's claims in this regard are scrutinized in greater detail, they don't hold up for the propositions for which they're put forth. [Emphasis added.]
I concluded that first installment with:
... as a more accurate and fulsome account of Bain Capital's modus operandi as a private equity firm unfolds during the general election campaign, it is more likely that Romney will be proved to be an extremely shrewd -- and cold-blooded -- financial maven when it comes to making winning private equity investments, but not in a way that recommends him as any kind of savior for our flagging economy.
This suggestion that Governor Romney, through his Bain Capital experience, may be uniquely ill-suited to the office of the president of the United States is perhaps no better exemplified than in Bain Capital's plans to close the Freeport, Illinois, manufacturing facility of Sensata Technologies, and ship its 170 jobs -- many of them the kind of high-tech, highly skilled worker positions Romney claims he will bring back to America if elected president -- and the company's domestic manufacturing operations to China. Why has Bain Capital made this relocation decision? Because, as Sensata Technology's majority owner, Bain and its investors, such as Governor Romney, will reap greater profits by having Sensata taking advantage of China's substantially lower labor costs, while saving significantly on its operating expenses by virtue of the fact that the Chinese government has built, at its own cost, a brand new factory for Sensata. Detailed information on Bain Capital's investments in Chinese companies was reported by the New York Times in "As Romney Repeats Trade Message, Bain Maintains China Ties."
... a confidential prospectus for one of the Bain funds, obtained by the New York Times, promotes China as a good investment for some of the same reasons that Mr. Romney has said concern him: 'Strong fundamentals' like manufacturing wages 85 percent lower than what Americans earn, vast foreign exchange reserves and the likelihood that China will surpass the United States as the world's largest economy.
'Accordingly, Bain Capital expects to see an increasing array of high-growth companies available for investment,' the prospectus says, noting the relative dearth of private equity in China.
Among the companies in which the Bain funds have invested is [Sensata Technologies,] a global auto parts maker that is in the process of closing a factory in Illinois and moving most of the equipment and jobs to Jiangsu Province, where the Chinese government has built it a new plant; a Chinese electronics retailer accused by Microsoft of selling computers with pirated software; and a Hong Kong-based Chinese appliance maker that was sued for copying another company's design for a deep-fat fryer.
In addition to the fact that this seems a poor model indeed for how to grow the domestic economy and create more U.S. jobs, the facts underpinning the saga of Sensata Technologies and the unfortunate fate of those 170 workers, seem to undercut completely the central premise of the Romney Tax Plan: Lower taxes on the wealthy, by reducing their overall tax rates while keeping the capital gains rate at a low 15 percent, and they will reward the domestic economy by investing in businesses that will create new U.S. jobs. So, in other words, Sensata Technologies both underscores that Governor Romney is not qualified to be president by virtue of his business experience, while also exposing the complete fallacy of Romney's tax proposal as the linchpin of his economic recovery and job creation plan.
According to those portions of Governor Romney's 2010 tax return the candidate released publicly earlier this year, the Romney's earned $21,646,507.00 (adjusted gross income, Line 38), on which they paid $3,009,766.00 in federal taxes (total tax, Line 60), reflecting an effective federal tax rate of 13.90 percent. Governor Romney paid less than the 15 percent federal capital gains rate on his overall income, and substantially less than the average American taxpayer pays in federal taxes as a percentage of their gross income.
So, if Governor Romney's premise is correct, that lower tax rates will create incentives for the uber-wealthy to invest in companies in the United States and that will, in turn, create jobs in the U.S. and grow our economy, it would be reasonable to conclude that Governor Romney must be making those kinds of job-creating investments now. But that's not the case.
The unfortunate fact, for the Romney campaign at least, is that Governor Romney is not making the kind of investments with his after-tax earnings, benefiting from extremely favorable rates of taxation as they do currently, that will create U.S. jobs and accelerate economic recovery: Quite the opposite is true. Governor Romney has millions invested in Chinese companies, including Sensata Technologies, through his investments in several Bain Capital funds.
Mr. Romney also has millions invested in a series of Bain funds that have a controlling stake in Sensata Technologies, a manufacturer of sensors and controls for vehicles, aircraft and electric motors that employs 4,000 workers in China. Since Bain took over the operation in 2006, its investment has quadrupled in value. Bain continues to own $2.6 billion worth of Sensata's shares.
Two years ago, Sensata bought an operation that made automobile sensors in Freeport, Ill. At the first meeting with the plant's 170 workers, Sensata managers announced that by the end of 2012 all the equipment and jobs would be relocated, mostly to Jiangsu Province. Workers have staged demonstrations, pleading for Mr. Romney to intervene on their behalf.
So, instead of keeping Sensata Technologies' Freeport, Illinois, manufacturing facility, and growing the company and its labor force in the U.S., as the governor's tax policies suggest he should be doing in exchange for his very favorable rate of federal taxation, Governor Romney is focused solely on maximizing the return on his investment by continuing to invest in Bain Capital, with its substantial holding in Chinese-based companies, which will soon include the relocated Sensata Technologies facility. Presumably, there's nothing inherently wrong with that, so long as none of these transactions is, per se, illegal.
However, legalities aside, how do transactions such as the one involving Sensata Technologies make Governor Romney qualified to be our next president? And, perhaps more importantly, what does the fate of Sensata Technologies' domestic manufacturing plant say about Governor Romney's tax policy, when the current, almost identical tax policy is having the opposite effect in terms of domestic investment, creating U.S. jobs, and growing our economy?