Mitt Romney yesterday admitted for the first time that his tax rate is about 15 percent, lower than the rate paid by millions of middle class families. Romney is able to pay such a low rate (even though the top income tax rate is 35 percent) because his income comes overwhelmingly from investments and he is able to use a pernicious loophole available to wealthy money managers.
Romney has been refusing to release his tax returns, finally conceding to releasing his 2011 return after he files it in April. However, only releasing his 2011 returns would give Romney the opportunity to keep under wraps some of the financial engineering he may have done to avoid taxes before the last calendar year. As Reuters noted, those returns “could shed light on how Romney and Bain use offshore strategies to avoid taxes.” In fact, ABC News reported today that Romney has millions of dollars parked in several Bain funds that are set up in tax shelters in order to help their investors avoid U.S. taxes:
Although it is not apparent on his financial disclosure form, Mitt Romney has millions of dollars of his personal wealth in investment funds set up in the Cayman Islands, a notorious Caribbean tax haven…As one of the wealthiest candidates to run for president in recent times, Romney has used a variety of techniques to help minimize the taxes on his estimated $250 million fortune. In addition to paying the lower tax rate on his investment income, Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.
Even if these funds don’t help Romney directly dodge U.S. taxes, which the campaign claims they don’t, they convey a host of advantages to Bain and Romney, including “higher management fees and greater foreign interest” from investors looking to avoid U.S. taxes. As the Washington Post’s Suzy Khimm noted, “just one of these offshore-linked funds — Bain Capital Fund VIII, based in the Cayman Islands — generated $1 million for the Romneys in 2010.”
Offshore funds are attractive to investors, since they help with tax evasion, and more investor interest translates into more profit for Bain and Romney. As we’ve noted, Romney has a lucrative retirement deal with Bain that is paying him millions each year.
In contrast to Romney’s steadfast refusal to release his tax returns, George Romney (Mitt’s father) released 12 years worth of tax returns when he ran for president in 1968. Those returns showed that the elder Romney paid a 37 percent effective tax rate.