Hedge fund insider looks at Romney’s tax returns
Against the advice of others, I am going to weigh in on Mr. Romney’s decision to release only his 2010 and 2011 tax returns.
To quote the Republican nominee, “That’s all that’s necessary for people to understand something about my finances.” He is “simply not enthusiastic, about giving the Obama campaign, “hundreds or thousands of more pages to pick through, distort and lie about.”
Romney has known he was going to run for President for several years now. The tradition that all presidential candidates and their cabinet members release 10 years of tax returns is not news.
This standard for disclosure was set by Mitt’s father, the widely respected George Romney Jr. The senior Romney released 12 years of tax returns when he ran for the Republican nomination against Barry Goldwater in 1964.
Since 1964, if you wanted to be confirmed by Congress to serve in the president’s cabinet, you had to pony up 10 years of returns. Romney can be our president but he would never be confirmed as a member of his own cabinet. What irony.
Two years of tax returns is a terrible standard. It would allow and encourage any rich guy to pick any rising political star who shares his views and pay him an annual “consulting fee” of a million dollars a year. The candidate’s job would be to go out and build the base to be elected.
Two years before running for office, the contributions would stop. The candidate then releases two years of tax returns and the public would be no wiser for it.
I am willing to bet the ranch that Romney’s team required the vice president nominee, Paul Ryan, to release more than two years of tax returns
The reason Romney is not releasing more returns is because tax experts would be able to prove he utilized aggressive tax strategies that would prove toxic to his campaign, rendering him unelectable.
Mr. Romney has an IRA account that is worth between $20 million and $101 million. Mr. Romney started at Bain in 1977. He claims he left to head up the Olympics in Salt Lake in 1999. The maximum contribution you could make to an IRA during that time was $30,000 to $50,000.
It is easy to assume Romney put in the maximum into his IRA each year.
The math works something like this: 22 years, times $50,000, equals $1,100,000. How does $1.1 million grow to more than $20 million in 34 years? Romney placed undervalued assets into his IRA. When the assets reached their fair value, he sold.
When I was in the hedge fund business, I saw any number of managers place the hot IPOs into their personal IRA accounts instead of their hedge funds where they belonged. (Full disclosure: I never owned a stock outside of my hedge fund because, without disclosure to the client, it is dishonest and unethical.)
Since Romney was in the private equity business, he would have to put his IRA into an offshore account to avoid the “unrelated business income tax” at a 35 percent rate.
That is what most hedge fund managers did. That is not illegal.
While I have no doubt Romney paid every penny of tax under the law, I have grave doubts about his campaign’s claim that he did not benefit from his offshore accounts. Otherwise, these numbers don’t add up. And all of us who worked on Wall Street know it.
If Romney releases all 10 years, we will find he took advantage of the tax laws and nothing else. But if Mitt did what I am accusing him of doing, I don’t think his father would approve and he should not be our President.
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Joe Aaron is a retired hedge fund manager and current software finance-investor. He lives in Sonoma.