With his personal wealth becoming a growing controversy on the campaign trail, Mitt Romney finally heeded repeated calls to release his tax returns this morning. He brought in a team of experts for a conference call with reporters to discuss the data contained in the more than 500 page document dump and defend him against charges his Swiss accounts, investments in Cayman Islands funds and fifteen percent tax rate represent efforts to game the system.
“The 500 some pages being released today include six schedules, 18 forms and 69 statements. It is complicated and it is also fully transparent,” Mr. Romney’s national counsel, Ben Ginsberg, said at the start of the call. ”The returns also reflect that Governor Romney earned his wealth as a highly successful businessman, success that’s created wealth for his family and jobs for around 100,000 Americans. He is very proud of that success.”
Mr. Romney’s returns showed he made approximately $42.5 million in the past two years and paid about $6.2 million in taxes during that same period. Based on his adjusted gross income, Mr. Romney’s average tax rate for the past two years was about 14.65 percent, a hair below what he estimated when he admitted he paid “probably closer to the 15 percent rate” prior to releasing his returns. His rate is also well below the 35 percent rate other earners in the top income tax bracket pay without creative accounting. A tax rate of 15 percent is the same paid by those who make $35,350 or less per year.
Before the conference call began, reporters waiting on hold were treated to a smooth jazz muzak rendition of Elton John’s “Can You Feel The Love Tonight.” In spite of the music, love was most certainly not in the air. This year’s race for the Republican nomination is playing out against the backdrop of months of protests against the financial industry. In this climate of recession-driven populist rage, Mr. Romney’s background with the powerhouse consulting firm Bain Capital and his vast personal fortune have become liabilities on the campaign trail. Perhaps sensing an opportunity to score political points, three of Mr. Romney’s Republican rivals–Newt Gingrich, Rick Santorum and Rick Perry, all piled on Mr. Romney for his initial failure to release his tax returns in the past month.
On the conference call with the press, Mr. Ginsberg emphasized that, while Mr. Romney’s rate is low, it’s perfectly legal.
“This effective tax rate comes about because of the policies contained in the current U.S. tax laws passed by Congress,” he said. “That’s a 15 percent rate on capital gains and on qualified dividends as well as deductions for the Romney’s charitable contributions and for state taxes.”
Mr. Romney gave approximately $7 million in charitable donations over the past two years and the bulk of his income came from interest on existing investments, which does indeed allow him to escape the 35 percent rate. However, a growing number of critics, including the billionaire investor Warren Buffett, have called for the tax system to be overhauled to eliminate loopholes used by wealthy citizens to lower their rates, and even before he unveiled his returns, Mr. Romney’s admission his rate was around 15 percent was characterized as a symptom of the problem.
Public interest in Mr. Romney’s taxes reached such a fever pitch in advance of his big returns reveal that at least one online betting outfit was taking wagers on his tax rate. In stump speeches, Mr. Romney has attempted to fight against this “resentment of success” and “politics of envy,” but his efforts haven’t stopped his opponents and voters from fixating on his wealth and even he has admitted there should be changes made to the tax code. Mr. Ginsberg pointed this out on the conference call before the question ever came up.
“Since you’ll ask, under Governor Romney’s short term tax return proposal, the Romneys would have about the same effective tax rate that they have today,” Mr. Ginsberg said. “While his proposal would reduce the effective tax rate for low and middle income families, it is also noteworthy that under Newt Gingrich’s proposal the Romneys would have a zero effective tax rate. As you know, Governor Romney is opposed to that.”
After his team of experts went through the basics of Mr. Romney’s taxes, they attempted to address “misreporting” and inaccuracies about specific elements of his finances including his investments in the Caymans, the controversial mortgage lenders Fannie and Freddie Mac, and a Swiss bank account. Brad Malt, a partner at the law firm Ropes & Gray who has served as the trustee for the Romney family’s three trusts since 2003, came on the call to explain that he was the one who set up Mr. Romney’s various investments.
“All of these investments are included in blind trusts. That means the trustee of the blind trusts, which is me, has sole responsibility for making, holding and disclosing of the investments,” Mr. Malt said. “The Romneys are not involved in buying or selling any of those assets, nor do we provide disclosure of individual assets to either Governor Romney or Mrs. Romney. The only time governor and Mrs. Romney have seen the detailed holdings of these trusts is when we file the personal disclosure forms mandated by federal election law.”
With their legendarily secretive banks, both Switzerland and the Caymans have become poster children for offshore tax shelters. Mr. Malt said Mr. Romney’s money is invested in “some third party funds which are organized in the Cayman Islands” and not one of the infamous accounts offered by the Caribbean country.
“I read a press account this morning that refers to these funds as accounts. That is simply wrong. These are not accounts in any sense of the word. These are investments in third party entities,” Mr. Malt said. “Suppose I buy 100 shares of Toyota stock. I do not have a Japanese account, I have 100 shares of Toyota stock in my U.S. brokerage account. … It is a foreign investment, it is not a foreign account. … The blind trust’s investment in the Cayman funds are taxed exactly the same as if Governor Romney owned his share of investments made by the funds directly and in the United States rather than through Cayman funds.”
Mr. Malt said everything was also above board with Mr. Romney’s Swiss account.
“One other question that came up is why is there a Swiss bank account listed on the Romneys tax return. It is listed because I set that account up for diversification in 2003 when I became trustee of the blind trusts,” Mr. Malt said. “It is a bank account, nothing more, nothing less, an ordinary bank account. It earns some income, which is fully reported on the form 1040.”
Despite these assurances, Mr. Malt said he closed the account in 2010 to avoid potential political problems for Mr. Romney.
“I regularly review Governor Romney’s investments, and just in connection with one of my periodic reviews, I decided that this account wasn’t serving any particular purpose. It might or might not be consistent with Governor Romney’s political views, you know, again the taxes were all fully paid, et cetera, but it just wasn’t worth it and I closed the account.”
Mr. Romney’s big tax returns reveal consisted of his 2010 return and his estimated return for last year. In 2008, when he submitted to John McCain’s vice presidential vetting process, Mr. Romney turned over 23 years of tax returns. His father, George Romney, set the precedent for presidential candidates releasing their financial information when he unveiled 12 years of his returns in advance of the 1968 presidential election.
On the conference call, The Politicker asked the Romney campaign tax team why Mr. Romney felt two years of returns was a sufficient disclosure this time around. Mr. Ginsberg said he thought the disclosure would be enough to end controversy over Mr. Romney’s taxes among anyone who’s not working out of President Barack Obama’s re-election campaign headquarters in Chicago.
“The release is more than 500 pages of tax returns for both 2010 and 2011. That’s in addition to the personal financial disclosures that have been filed. It’s an extensive disclosure and we feel it satisfies the public, if not the Obama opposition research guys’ desire to look at the Romneys,” Mr. Ginsberg said. “It’s interesting to note that, on the call today, there are 26 people from the Chicago area listening in and I think that sort of sums up the state of play.”
Mr. Romney’s release of his tax return definitely didn’t stop his opponents from focusing on his tax returns. A few hours after his campaign’s conference call ended, the Democratic National Committee scheduled a conference call of their own where USC Gould School of Law Professor Ed Kleinbard argued that, while not illegal, Mr. Romney’s low tax rate showed the need for greater fairness in the tax code.
President Obama’s campaign and Mr. Romney’s rivals will clearly never tire of making an issue out of his finances, the question remains whether voters feel the same way. With Mr. Gingrich’s recent victory in the South Carolina primary and subsequent rise in the polls putting Mr. Romney’s once-inevitable victory in jeopardy he certainly can’t afford much more controversy.