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Subject: Oh Mitt rss

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Chad Ellis
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So just as I finish highlighting one of the things I like about Romney, I read about some details coming out about how Bain handled taxes.

First, we have "Total Return Equity Swaps" which is at best the sort of highly sketchy tax avoidance scheme I talked about before. Securities on which interest and dividends would normally be taxable were "taken off balance sheet". Essentially an untraded derivative security was created such that its value would be equivalent to the underlying assets but because it wasn't those assets the income wasn't reported.

I say at best because this is in a legal gray area. The IRA largely ignored it until 2010 (when it issued what amounts to a "cut the bullshit" notice) but the law specifies that you can't avoid tax on investment income by using something that is economically equivalent.

Then there's the treatment of management fees as carried interest. As I've talked about before, one of the most bizarre tax treatments in our code is that the "carried interest" a private equity firm earns -- which is basically commission on the gains of the fund -- is taxed at the capital gains rate. It's stupid, it's a pretty blatant favor to a politically connected industry, but whatever.

Then there's the management fee. This is zero-risk, pure commission. It's basically, "You've got $100 million in my fund so I charge you $2 million a year for my management services". Pure commission, and it's taxed as regular income. Except that Bain engaged in an apparently dubious (as in unlikely to hold up in court if challenged by the IRS) scheme to "convert" their management fees into more carried interest and thus pay a lower rate.

The Romney defense to this is interesting:

Romney spokesperson wrote:
As we have said many times before, Governor and Mrs. Romney's assets are managed on a blind basis. They do not control the investment of these assets, the investment decisions are made by a trustee.


OK, but here's the thing. This is Romney's company. If these practices started only after he left then he should be able to say so. Does anyone think that they started after he left? (Presumably such a person also thinks that Romney signed off on the Son of Boss tax avoidance scheme at Marriott by accident.)

Then there's the fact that the "blind trust" defense is bullshit. We know it's bullshit because Romney told us in advance that it's bullshit back when he was running against a guy who had a blind trust. Basically, a blind trust is great for avoiding accidental conflicts of interest (if you're a major political figure then investing in common stocks always has that risk). It's not a get-out-of-jail-free card because you set the basic rules the trustee is to follow and, if it's important enough, you hire the independent auditor who checks to make sure those rules are being followed.

Bleah. I'm going to go watch the teacher video again.

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Eric "Shippy McShipperson" Mowrer
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Ah, so you learned more of what you already knew about him.
 
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The Steak Fairy
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Chad_Ellis wrote:


The IRA largely ignored it until 2010 (when it issued what amounts to a "cut the bullshit" notice) but the law specifies that you can't avoid tax on investment income by using something that is economically equivalent.


Yes, they were far too busy fighting those mysterious orange men to pay attention to this sort of tax dodge. I'm not sure what changed in their agenda during 2010, though.
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Boaty McBoatface
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MisterCranky wrote:
Chad_Ellis wrote:


The IRA largely ignored it until 2010 (when it issued what amounts to a "cut the bullshit" notice) but the law specifies that you can't avoid tax on investment income by using something that is economically equivalent.


Yes, they were far too busy fighting those mysterious orange men to pay attention to this sort of tax dodge. I'm not sure what changed in their agenda during 2010, though.


They were told to stop turning a blind eye and actuakly enforce the law?
 
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Rich Charters
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The supreme court upholds that tax avoidance is a legal right of the taxpayer:

“Over and over again the courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible."

“The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted."

SUPREME COURT OF THE UNITED STATES
GREGORY v. HELVERING
293 U.S. 465; (1934)

I think that these 'loopholes' should be identified and closed, but does that mean that Mitt (or the rest of us) should not take advantage of loopholes while they are still open? For instance, should we stop deducting the interest on our homes, and our charitible donations because those deductions may be eliminated by future changes to the tax code??

I don't know the specifics of the practices you call out above, but if the financial professionals recommended it, and the auditing firm upheld it, I don't think we (as outsiders with limited visibility into the specifics) can make an informed decision about how the taxes should have been handled.
 
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Eric "Shippy McShipperson" Mowrer
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richcharters wrote:
The supreme court upholds that tax avoidance is a legal right of the taxpayer:

“Over and over again the courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible."

“The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted."

SUPREME COURT OF THE UNITED STATES
GREGORY v. HELVERING
293 U.S. 465; (1934)

I think that these 'loopholes' should be identified and closed, but does that mean that Mitt (or the rest of us) should not take advantage of loopholes while they are still open? For instance, should we stop deducting the interest on our homes, and our charitible donations because those deductions may be eliminated by future changes to the tax code??

I don't know the specifics of the practices you call out above, but if the financial professionals recommended it, and the auditing firm upheld it, I don't think we (as outsiders with limited visibility into the specifics) can make an informed decision about how the taxes should have been handled.


It may be fair to the relationship between an individual tax payer and the government, but is it fair to all of the other tax payers who can't afford teams of tax attorneys?
 
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Chad Ellis
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richcharters wrote:
The supreme court upholds that tax avoidance is a legal right of the taxpayer:

“Over and over again the courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible."

“The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted."

SUPREME COURT OF THE UNITED STATES
GREGORY v. HELVERING
293 U.S. 465; (1934)

I think that these 'loopholes' should be identified and closed, but does that mean that Mitt (or the rest of us) should not take advantage of loopholes while they are still open? For instance, should we stop deducting the interest on our homes, and our charitible donations because those deductions may be eliminated by future changes to the tax code??

I don't know the specifics of the practices you call out above, but if the financial professionals recommended it, and the auditing firm upheld it, I don't think we (as outsiders with limited visibility into the specifics) can make an informed decision about how the taxes should have been handled.


I disagree, at least in some cases. First off, there is a huge difference between, for example, a specified tax deduction and what we're talking about here. Your or I might think that as policy a given deduction is a good or a bad idea, but I don't think anyone argues that a person shouldn't take the specific deductions that are allowed.

It's another thing when people invent a new mechanism and then assert that it eliminates some income when in fact it doesn't. Here's one of the examples:

You own some stock. It pays $10,000 of dividends each year and its price can fluctuate. You would normally pay taxes on the dividends and you want the exposure to the stock (you bought it because you think it's a good investment). What Bain (and apparently Romney) did was to sell the stock to a separate entity and then have that entity issue a security that matches the total return on the stock. The holder has exactly the same economics but now claims that he isn't receiving dividend income because the dividends are going to that separate entity.

The problem is that this is not legal. Tax law clearly states that in situations like this where the economic reality has not changed, normal taxes cannot be avoided. The distinction is between "things the law permits" and "things the law does not permit but which have not been challenged in court".
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Dan Schaeffer
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richcharters wrote:
The supreme court upholds that tax avoidance is a legal right of the taxpayer:

“Over and over again the courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible."

“The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted."

SUPREME COURT OF THE UNITED STATES
GREGORY v. HELVERING
293 U.S. 465; (1934)

I think that these 'loopholes' should be identified and closed, but does that mean that Mitt (or the rest of us) should not take advantage of loopholes while they are still open? For instance, should we stop deducting the interest on our homes, and our charitible donations because those deductions may be eliminated by future changes to the tax code??

I don't know the specifics of the practices you call out above, but if the financial professionals recommended it, and the auditing firm upheld it, I don't think we (as outsiders with limited visibility into the specifics) can make an informed decision about how the taxes should have been handled.


There are two primary possibilities:

1. Mitt's tax returns reflect something illegal (or perhaps that he took advantage of the 2009 tax amnesty for people who had evaded tax obligations by using undisclosed offshore accounts).

2. Mitt's tax returns show perfectly legal methods by which he managed to eliminate most, if not all, of his personal tax burden.

Neither of these possibilities is a particularly positive showing for a presidential candidate. The former is an obvious problem - it involves illegality. But the latter is a big problem for a candidate who has to convince people that he's not simply angling to improve the lot of the richest Americans, that he's not the beneficiary of favorable tax treatment that just isn't available to the vast majority of citizens.

The third possibility is that there's nothing of the sort in his tax returns, which makes it all the more incomprehensible that he would refuse to release more of them. There is a point at which "standing on principle" - when so many of his predecessors did not consider that a principle at all - begins to smell fishy.
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