Political Irony

Yesterday, Gawker published 950 pages of “internal audits, financial statements, and private investor letters” for companies and other entities in which Mitt Romney has a significant investment interest (mostly through Bain Capital).

The whole thing reeks of irony. Indeed, defenders of Romney scream that Gawker itself, while pointing out that Romney avoided taxes by using things like offshore accounts in the Cayman Islands, is organized under a shell company based in … you guessed it … the Cayman Islands. To their credit, the article in Gawker does explicitly acknowledge the irony, saying that “It is of course breathtakingly routine and legal for hedge funds and equity funds (and blog companies!) to locate themselves in the Cayman Islands for tax, regulatory, and privacy reasons.”

OK, we get it. Gawker is not known as a paragon of virtue. But do two wrongs make a right? Just because Gawker does something questionable, does it make it ok for someone running for president to do the same thing?

The bottom line is that nobody is questioning the authenticity of the documents released. And now that, a day later, actual tax experts are looking through the documents, they are finding tax-avoidance techniques employed by Bain Capital — when Romney was CEO and sole shareholder — that would not pass muster.

For example, Bain regularly treated management fees they earned as capital gains. The problem with this is that it is “not legal” and “if challenged in court, Bain would lose”. Of course, this is just the studied opinion of a tax expert (a professor of law at the University of Colorado), not the judgement of a tax court. But a tax court judgement could take years (or, more importantly, until after the election).

Other practices seen in the documents are highly questionable. For example, the practice of holding US dividend paying stocks in an offshore account and pretending (for accounting purposes) that you don’t own the actual stock, but instead own a derivative product that is identical in every way to the stock, except that it isn’t the stock, so therefore no US taxes are owed. According to another tax expert, who is a professor of taxation at the New York University School of Law, “taxpayers who engaged in it to avoid the dividend withholding tax were coming perilously close to committing tax fraud, in cases where the economic equivalence to direct ownership was too great.” Indeed, the IRS has issued notices warning against this practice. But Romney did it.

Contrary to what Romney has said, according to at least one tax expert “Bottom line: Mitt Romney has not paid all the taxes required under law.”