The Money Manager
WASHINGTON — You can conduct byzantine transactions through opaque investment accounts and private corporations in offshore tax havens such as Bermuda and the Cayman Islands. Or you can credibly run for president at a time of great economic distress.
I don’t think you can do both.
Let me be clear that I have nothing against wealth. In fact, I have nothing against great wealth, which is how I would classify Mitt Romney’s estimated $250 million fortune. We can argue about the social utility of private equity firms such as Bain Capital, but Romney isn’t responsible for distorting the system so that financiers are grossly overpaid. He just took advantage of the situation.
Increasingly, however, I have to wonder whether the achievement Romney touts as his biggest asset in running for president — his business success — might be seen by many voters as a liability.
The question isn’t whether people can relate to a candidate who has tons of money. It’s whether they will connect with a man who didn’t make his money the old-fashioned way – by building a better widget – but by sending capital hither and yon via clicks of a computer mouse to take advantage of arcane opportunities most people never even know about.
Most Americans, for example, do not have an individual retirement account valued at between $20 million and $101 million, as Romney stated last year in a financial disclosure report.
When Romney was running Bain and building up his IRA, the maximum annual contribution permitted by the tax code was $2,000. So how did Romney’s IRA get so huge? He won’t say. It’s possible that he rolled over some money that was originally in a 401(k) retirement plan of the kind offered by many employers. But annual 401(k) contributions were then capped at $30,000, including an employer match — in Romney’s world, chump change.
Analysts surmise that Romney may have placed his interests in various Bain investment partnerships in the IRA, taking advantage of Internal Revenue Service rules that allow these interests to be undervalued for IRA purposes. In some cases they can even be valued at zero, since partnership interests represent future income, not present income, and …
OK, I know I’m losing you here — I’m in danger of losing myself — but you get the point. Individual retirement accounts were created as a way for middle-class Americans to save some tax-deferred money for their senior years. It isn’t clear exactly what Romney is using his gargantuan IRA for, but it’s certainly not what Congress intended.
Then there’s the question of a Bermuda-based company that Romney and his wife Ann own, Sankaty High Yield Asset Investors Ltd. According to The Associated Press, the company has been part of Romney’s portfolio for nearly 15 years but was not reported in any state or federal disclosure reports. It surfaced in Romney’s 2010 tax returns, which he reluctantly released earlier this year.
According to those returns, Sankaty is little more than an empty shell at the moment. But AP reports that the company “served as Romney’s partnership stake” in a larger group of Sankaty-named funds that Bain once used to manage more than $100 million in investments. (Sankaty, by the way, is the name of a lighthouse on Nantucket.) Channeling private-equity and hedge-fund investments through offshore firms in places such as Bermuda and the Caymans can allow investors to avoid a tax on what is known as “unrelated business income.”
Romney’s campaign says that he pays every penny he is required to pay in taxes — although his income is taxed at about 15 percent, a lower rate than most middle-class Americans pay. Hey, I understand; if I could get away with paying less in taxes, I’d do it, too. And I suppose that if God didn’t want us to have offshore pass-through accounts in sun-drenched tax havens, he wouldn’t have invented them.
But one of the sources of anger and anxiety in this country — both on the left and the right — is the sense that there are two sets of rules, one for the rich and powerful and one for everybody else. I don’t think voters want a “regular guy” as president; they want someone who is exceptional. But there is a point at which opportunism begins to shade into rapacity.
In making and managing his money, Romney appears to take every possible, conceivable, imaginable inch that the law arguably allows. That’s good finance. But I doubt it’s good politics.
Eugene Robinson’s email address is eugenerobinson@washpost.com. (c) 2012, Washington Post Writers Group
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Million and millions of people have IRAs and have also had employer sponsored plans that they have rolled over to an IRA, So what, ER? Mitt shouldn’t avail himself of that option? He could have left it in the employer plan, and it still would be tax-sheltered, zero difference.
I notice Mitt’s management experience, at Bain, at the Winter Olympics, at the governorship are given short shrift; everyone (read Dems) want to talk about his money and how he got it (Mitt sure does help them out, schmuck).
Mitt beautifully exemplifies the mindset that worships money above all else. Of course I’m sure he loves his family (probably even his dog) but beyond that? Endless flexibility.
“But one of the sources of anger and anxiety in this country — both on the left and the right — is the sense that there are two sets of rules, one for the rich and powerful and one for everybody else.”
It isn’t just a “sense” Mr. Robinson, it’s a reality.
Yea, I don’t think people will resent Romney for taking advantage of rules that allow him to do what he did to protect his money. What people will resent is the fact that people like Romney created those rules for themselves in the first place. The idea that certain forms of income common to the very wealthy were put in their own category of taxation in the first place is a sore spot. Most Americans, including the vast majority of small business “Job creators” that actually exist, are not in a position to benefit from these rules because they aren’t in the club that invented them.
dduck, the question is, how did Romney’s IRA reach that large amount since the annual contribution limits would seem to preclude the possibility.
JS, ANYONE that has a pension or profit sharing plan a 401(K) or 403(b) can and usually should tranfer it to an IRA. The contribution limits are separate from transfers.
You know, carrying this having too much money and taking advantage of rules available to us all, and that portrayed as a bad thing (you might recall that Obama got a “good” deal on his Chicago home) would mean that we should admire a candidate that has completely FU his financial life. Great credentials for a prez, not. Or better yet a candidate with no management or executive experience.