Gov. Romney was pressed this morning in a Fox News interview to explain his tax haven investments through the Cayman Islands and Swiss bank accounts. His answers defy common sense, for the reasons outlined below, and give rise to more questions about his investments in tax havens.
"Does Gov. Romney really expect Americans to believe that he wasn't trying to avoid paying taxes by putting his money in the Cayman Islands and Switzerland?" said Rep. Sander Levin (D-MI), Ways and Means Committee Ranking Member, who has introduced legislation to close the carried interest tax loophole and is preparing to introduce legislation requiring presidential candidates to disclose 10 years of tax returns (see below for background). "His explanations defy common sense and only give rise to more questions about his investments in tax havens and his use of other tax loopholes. Gov. Romney said today that he expects 'that by virtue of disclosing all these things, people can take a look at it and see whether that's something they're comfortable with or not.' He needs to come clean with the American public about why he invested in tax havens and meet the threshold of financial and tax return disclosure set by so many presidential candidates before him."
Here's why Romney's explanation makes no sense:
Gov. Romney implied that he placed his investments in the Cayman Islands in order to have greater access to foreign investments -- an explanation that makes no sense. Any New York bank has access to those same investments. Gov. Romney's explanation is like trying to say that he had to travel to Japan to buy a Toyota. Given the top legal and tax professional talent that he employed, someone surely would have told him that isn't the case. Everyone knows why people house investments in the Caymans. It's not the stability of their financial institutions nor the growth of the Cayman economy. It's to reduce or avoid taxes.
Gov. Romney claims that his investment structures and foreign bank accounts resulted in "not one dollar of reduction in taxes." We've established that the argument he offers regarding foreign investment is bogus, given any New York bank or U.S. financial institution could have made any such investment on his behalf. In fact, it's likely that investing in the Cayman Islands or creating bank accounts in Switzerland is more costly than investing through a U.S. financial institution, given the much greater cost required to create these complicated structures. Which leads to the question: Why were those investments made in institutions located in the Cayman Islands, if not for reducing tax liability or avoiding transparency? That simple question is one Mr. Romney has yet to answer.
TRANSCRIPT OF INTERVIEW:
On Tax Savings: "Well, first of all, there was no reduction, not one dollar of reduction in taxes, by virtue of having an account in Switzerland or a Cayman Islands investment. Those -- the dollars of taxes remained exactly the same. There was no tax savings at all.
And the conduct of the -- of the -- of the trustee in making investments was entirely consist with U.S. law and all the taxes paid were those legally owed and there was no tax savings by virtue of those entities."
On Foreign Investment: "Don't -- don't invest in anything outside the United States? I don't know whether a trustee -- I mean I could have said don't make any investments in any foreign companies, in any foreign bonds, in any foreign currency, only U.S. entities. And, by the way, don't buy any foreign products, don't have any Japanese TVs or foreign cars.
I mean -- yes, I could have done that. But, you know, I did live my life and I expect that by virtue of disclosing all these things, people can take a look at it and see whether that's something the -- something they're comfortable with or not. I'm -- I'm not going to try and hide who I am and try and manipulate my life to try and avoid the truth."
BACKGROUND ON LEVIN LEGISLATION:
Rep. Levin has introduced legislation to close the carried interest loophole and ensure that income earned managing other people's money is taxed at the same ordinary income tax rates as the income earned by millions of other Americans for services that they provide. Technical description of the legislation.
Rep. Levin is preparing to introduce legislation to amend the Ethics in Government Act of 1978 to require presidential candidates to make public 10 years of tax returns. In addition, the legislation would require presidential candidate financial disclosures to include the following information not currently included on disclosures and not easily discernible from tax returns. These disclosures would provide a fuller picture of a candidate's financial holdings and interests. In general terms, the legislation would require the candidate to also disclose:
* The location (country), value, and economic purpose of each offshore account, holding or investment of the candidate (other than investments in publicly traded corporations).
* The portion of the candidate's capital gains income attributable to an investment of the candidate's capital and the portion that is earned by managing other people's money (i.e. carried interest income).
* Details of any ongoing compensatory arrangement between the candidate and any other individual or entity.
* More comprehensive disclosure of assets, including purchases and sales of assets, held by tax preferred accounts such as IRAs and 401(k) plans.
* Details of the assets and activities of any entity in which the candidate has a controlling interest.