As everybody who has followed anything about this election cycle knows, Mitt Romney--likely the wealthiest man to run for president, the only bankster/private equity fund founder (sole shareholder, CEO and manager) to run for president, and probably the only person with multiple multi-million dollar accounts stashed away in tax havens like Bermuda, Cayman Islands and Swiss banks to run for president--still thinks the kinds of information that one can glean from full disclosure of tax returns isn't relevant to his attempt to gain the presidency. He has reiterated his refusal to release more than the 2010 and (estimated, at this point) 2011 returns.
Yet there are many questions voters can legitimately ask about Romney's finances and tax returns, questions that cannot be answered with certainty without seeing multiple years of returns. Let's consider the most obvious ones.
1. Offshoring of assets: It is clear from the paucity of return information we do have that the Romneys hold a considerable portion of their assets offshore. It is not unreasonable to wonder why someone who desires to be President of the US would find it necessary or even reasonable to put so much of his (or their) assets offshore, taking them out of the US. Clearly, offshore assets are harder to trace, harder to account for, and possibly easier to hide from tax administrators but one would certainly hope that wouldn't be the reason behind a very wealthy candidate's use of offshore accounts. Just as clearly, the fact of offshore multimillion dollar accounts does not establish tax avoidance, since Romney could be appropriately reporting and paying taxes on all of his foreign holdings. Yet the fact that it is not illegal per se to hold assets offshore begs the question that does count-- why is he holding so much in offshore accounts? What's the benefit to him? If he is as patriotic as he claims, why doesn't he show that by putting his assets in the US, in essence "putting his money where his mouth is"? If he can't clearly explain to voters what the reasonable benefit to him is of having assets stashed offshore, then voters may draw the conclusion that he has something to hide.
2. Hobby horses?: Like many of the ultra wealthy, the Romneys have enough money to engage in whatever pastimes and pleasures they like--they can own an expensive horse, arrange for it to be pastured and cared for near one of their many multimillion-dollar residences, and even ship it overseas (costing tens of thousands of dollars) for participation in sporting events. The question this raises for ordinary Americans is how do the Romneys treat this activity on their tax returns, and is that treatment justifiable under the rules? There are rules for activities that are "not engaged in for profit" under section 183 (generally called the hobby loss provision), that allow participants to deduct hobby expenses only to the extent of income from the hobby activity. Activities engaged in for profit include active conduct of businesses and investment activities. Everything else falls under this hobby provision, which amounts to a truly generous provision for mostly wealthy households who can afford to buy expensive toys that allow them to sometimes earn related income--Ie, this provision covers consumption that one engages in for personal enjoyment rather than for the potential profits. There is a test requiring profits in 3 out of 5 years (4 out of 7 for activities involving horses) to escape the hobby provision. So voters can rightly wonder whether the Romney's treat their costs for their horseshow competitions as a business. (This is the same question tax experts had about Todd Palin's claim that his snowmobile racing was a business even though there appeared to be a good deal of circumstancial evidence that it was instead merely a pleasurable sports activity/hobby.) To know whether not treating such activities as hobbies under section 183 is correct, one needs to see at least 5 consecutive years of tax returns: there simply is insufficient information without that.
3. Passive activities? The same type of activities that raise questions about the categorization as hobby or business/investment also potentially raise questions about the passive activity rules. Section 469 limits the ability of taxpayers to use "passive activity losses" against other income, such as that from businesses actively conducted by the taxpayer (including salaries from the business of being an employee). Generally, losses from passive investments are "schedularized", meaning that they are generally allowed only against passive income (there are exceptions). It would be useful, again, to see multiple years of returns in order to reach a comfortable conclusion about the way the Romneys' various activities fall within these rules (or not).
4. Retirement accounts? One question making waves is how a retirement account for which strict contribution limitations apply could possibly have a value of more than $100 million today if only about $30,000 of assets was put in just a decade ago. See, e.g., Felix Salmon, Opinion: Did Romney put Bain Capital shares in his IRA? Reuters, July 16, 2012 (noting comments by Bill Cohan, Nicholas Shaxson). We all know that our retirement accounts (generally created with cash contributions from our salaries) have tended to lose money, not gain--and certainly most Americans' retirement accounts haven't gained at those astronomical levels. So voters could reasonably ask what assets were added to that account that could have increased in worth so significantly in such a short period of time. Without the release and more disclosure of such information, voters might reasonably be suspicious that assets were knowingly undervalued upon being added, with the knowledge that their actual fair market value would show significant amounts attributable to earnings within the account.
The Salmon article cited above mentions a theory that the retirement accounts were "pumped with risky A shares in Bain, that "often had aggressively low valuations when they were first issued" and could "create issues at an IRS audit." Salmon proposes instead that Romney loaded his IRAs with his own shares in Bain, of which he remained sole owner and CEO until 2002. Salmon seems to be suggesting it was not just at the beginning, when he could likely reasonably claim a zero value, but annually thereafter: he notes that "Romney would have had every incentive to keep the official valuation of Bain Capital low for many years, since the lower Bain Capital was wroth, the more of it he could put into his retirement accounts every year. Again, the IRS might well be interested in the valuation techniques Romney used for the purposes of his retirement account contributions. And then ... when Romney left Bain, he would have switched from minimizing Bain Capital's official value to maximizing it." Id.
Another theory mentioned in the article is the tendency of investors in partnerships to undervalue interests when first putting them into an IRA, under the argument [labelled as "dubious" by Salmon, since all securities represent future income] that partnership interests merely represent future income, not current value. Salmon notes that an "aggressive tax lawyer" might make such an approach "possible."
It is likely that the retirement accounts were funded early on with Romney's shares in Bain, before it was obvious for tax purposes that it would be a hugely profitable enterprise. Thus, it would seem that Romney would benefit measurably from transparency here, since there is otherwise reasonable cause for continuing speculation about potential intentional undervaluations of contributed assets.
There are many other questions voters could reasonable explore about the way such an ultra wealthy presidential candidate shares the burden of taxation with ordinary voters, such as how much of Romney's income is consistently earned in carried interest, dividends, and capital gains, all of which enjoy an extraordinarily favorable preferential tax rate under the Bush tax cuts, or how much of Romney's income is outright excluded under generous tax expenditure provisions governing certain financial products purchased primarily (or exclusively) by the rich, such as muni bonds. A voter might also like to see how the 1999 through 2002 tax returns show income from Bain Capital, during the period that Romney remained CEO and signed off on important SEC and tax documents but now claims he was retroactively retired and therefore completely out of the loop on the very deals and decisions he was signing off on. (Would you want to invest in that business if you knew that about it at the time?)
Romney says he won't release any more tax returns. His adviser says no matter how many he released, it wouldn't be enough. See David Muir, Romney Adviser: No Matter How Many Tax Returns, ABC News.com (July 16, 2012). That excuse for nonrelease is clearly just that--an excuse. Nobody demands a lifetime of returns. Romney's father set a good precedent with 12 years, which would be especially reasonable here since it would show Romney's returns for those disputed turn of the century years.
Romney seems to be saying just "trust me" that everything is above board and everything filed correctly and that voters have no reason to be interested in any of the details of how he holds his assets or how he manages them or what he claims about his various activities on his tax returns. But that's a little like his assertion that voters don't have any reason to have questions about his "retroactive retirement" from Bain Capital, for which he signed federally required SEC and tax forms as sole shareholder and CEO for years after he now claims he had quit paying any attention to company decisions. Clearly, voters should have an interest in assessing for themselves the extent of Romney's offshoring, the way he has filed on his expensive hobbies, and whether those filings--even if they are entirely accurate, as hopefully they are-- give him tax advantages that ordinary people have no access to.
It is telling that even staunch right-winger George Will "slammed" Romney on this issue, saying "Romney 'must have calculated that there are higher costs in releasing them.'" George Stephanopoulos, George Will, Matthew Dowd Blast Romney for not Releasing Tax Returns, ABC News.com (July 15, 2012).
After all, in 2008 McCain apparently requested--and received--two decades' worth of Romney tax returns as part of the Veep vetting process. George Stephanopoulos, George Will, Matthew Dowd Blast Romney for not Releasing Tax Returns, ABC News.com, July 15, 2012 (noting that Romney reportedly provided 23 years of tax returns to the McCain campaign in 2008). The fact that McCain commented today that his choice of Sarah Palin over Romney had nothing to do with anything on the returns but rather with Palin's superior candidacy is irrelevant, since we cannot know whether the campaign could or did make a thorough analysis of those returns or how they weighed any issues they saw (or didn't see). See McCain: Palin was better VP choice than Romney in 2008, CNN, July 17, 2012. What any voter can reasonably say is this: If it was reasonable for McCain to view more than a couple of years of tax returns to reach an assessment of potential issues that might affect the electibility of the man (presumably issues relating to character, honesty, business and investment skills, philosophy, and patriotism), then it is also reasonable for American voters to do the same.