Mr. Romney’s Government Handout
Published: October 1, 2012
Mitt Romney's Welfare Checks!
The biggest beneficiaries of government largess are not those who struggle along on Social Security payments, Medicare or Medicaid benefits, or earned-income tax credits, despite what Mitt Romney has told his donors. Rather, they are those at the highest end of the income scale: government contractors, co...
Published: October 1, 2012
Mitt Romney's Welfare Checks!
The biggest beneficiaries of government largess are not those who struggle along on Social Security payments, Medicare or Medicaid benefits, or earned-income tax credits, despite what Mitt Romney has told his donors. Rather, they are those at the highest end of the income scale: government contractors, co...
rporate farmers and very rich individuals who have figured out how to exploit the country’s poorly written tax code for their benefit.
The latter group’s most prominent member is Mr. Romney himself, whose astonishingly low tax rates are made possible by finding and using every loophole and flaw in the code. What his tax practices show is not illegal or unethical behavior, but rather the unfairness of a tax system that provides its most outlandish benefits only for the very, very rich and savvy. What is worse is that Mr. Romney has proposed making this profoundly dysfunctional system even more unfair.
Some of Mr. Romney’s financial tactics are well-known, like structuring his income so that most of it is taxed at the low capital-gains rate of 15 percent, or stashing investments in tax havens like Switzerland or the Cayman Islands. (The Times reported on Tuesday that the use of these havens not only saved him money, significantly enhancing his sizable retirement account, but also helped his company attract foreign investments.) But other strategies are so obscure that they are only known to the very few who worry about passing millions to their heirs without paying transfer taxes.
As Bloomberg News recently reported, Mr. Romney has managed to move nearly $100 million worth of assets into a trust for his heirs without paying any gift tax, which, like the estate tax, was established to ensure that society benefits from the dynastic transfer of great wealth. When he was running Bain Capital, the private equity firm, in 1998, he gave the trust shares of an Internet ad company, DoubleClick, in which Bain had invested, just before the company went public. The shares were worth little then, but insiders like Mr. Romney knew the company could flourish. After the company went public, the value of the shares went up tenfold. The trust then sold the shares, but their increased value escaped the gift tax because that tax applies just to the original value of the gift.
But that wasn’t the only trick that Mr. Romney used, none of which are of any use to ordinary taxpayers. Exploiting a flaw in the tax code, he set up the trust so that he could pay the income taxes on the capital gains on DoubleClick’s shares. Paying those taxes is another huge gift to his heirs, and this practice is widely used by the wealthy as another way to pass on money to another generation while avoiding gift or estate taxes. Earlier this year, President Obama proposed eliminating this loophole, but the idea went nowhere with Republicans in Congress.
Like most Republicans, Mr. Romney wants to eliminate the estate tax entirely, even though it currently applies only to estates of more than $10 million for a married couple. That would cost the treasury more than $1 trillion over a decade, but it would be a huge benefit for Mr. Romney’s heirs and for the other 0.3 percent of estates rich enough to qualify for the tax. Getting rid of the estate tax would subvert the gift tax (it was established as a backstop, to keep estates from being passed on before death) and would spare the rich all this complicated “estate planning,” which is just a euphemism for avoiding the tax.
As Warren Buffett has said, the estate tax increases equality of opportunity and curbs the movement toward a plutocracy. Mr. Romney’s plan to get rid of it, helping his family but few others, is one of the sharpest illustrations of his distance from ordinary Americans.
A version of this editorial appeared in print on October 2, 2012, on page A30 of the New York edition with the headline: Mr. Romney’s Government Handout.
The latter group’s most prominent member is Mr. Romney himself, whose astonishingly low tax rates are made possible by finding and using every loophole and flaw in the code. What his tax practices show is not illegal or unethical behavior, but rather the unfairness of a tax system that provides its most outlandish benefits only for the very, very rich and savvy. What is worse is that Mr. Romney has proposed making this profoundly dysfunctional system even more unfair.
Some of Mr. Romney’s financial tactics are well-known, like structuring his income so that most of it is taxed at the low capital-gains rate of 15 percent, or stashing investments in tax havens like Switzerland or the Cayman Islands. (The Times reported on Tuesday that the use of these havens not only saved him money, significantly enhancing his sizable retirement account, but also helped his company attract foreign investments.) But other strategies are so obscure that they are only known to the very few who worry about passing millions to their heirs without paying transfer taxes.
As Bloomberg News recently reported, Mr. Romney has managed to move nearly $100 million worth of assets into a trust for his heirs without paying any gift tax, which, like the estate tax, was established to ensure that society benefits from the dynastic transfer of great wealth. When he was running Bain Capital, the private equity firm, in 1998, he gave the trust shares of an Internet ad company, DoubleClick, in which Bain had invested, just before the company went public. The shares were worth little then, but insiders like Mr. Romney knew the company could flourish. After the company went public, the value of the shares went up tenfold. The trust then sold the shares, but their increased value escaped the gift tax because that tax applies just to the original value of the gift.
But that wasn’t the only trick that Mr. Romney used, none of which are of any use to ordinary taxpayers. Exploiting a flaw in the tax code, he set up the trust so that he could pay the income taxes on the capital gains on DoubleClick’s shares. Paying those taxes is another huge gift to his heirs, and this practice is widely used by the wealthy as another way to pass on money to another generation while avoiding gift or estate taxes. Earlier this year, President Obama proposed eliminating this loophole, but the idea went nowhere with Republicans in Congress.
Like most Republicans, Mr. Romney wants to eliminate the estate tax entirely, even though it currently applies only to estates of more than $10 million for a married couple. That would cost the treasury more than $1 trillion over a decade, but it would be a huge benefit for Mr. Romney’s heirs and for the other 0.3 percent of estates rich enough to qualify for the tax. Getting rid of the estate tax would subvert the gift tax (it was established as a backstop, to keep estates from being passed on before death) and would spare the rich all this complicated “estate planning,” which is just a euphemism for avoiding the tax.
As Warren Buffett has said, the estate tax increases equality of opportunity and curbs the movement toward a plutocracy. Mr. Romney’s plan to get rid of it, helping his family but few others, is one of the sharpest illustrations of his distance from ordinary Americans.
A version of this editorial appeared in print on October 2, 2012, on page A30 of the New York edition with the headline: Mr. Romney’s Government Handout.
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