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Something's been bugging me about Mitt's Magical Taxes for some time.  It's been bugging a lot of people including lawmakers.  How did Mitt Romney amass a $100 Million IRA Account?

As diaried by Jed Lewiston

Individual Retirement Accounts were designed as a tax-free way for middle-class Americans to plan for their retirement. The annual contribution limit is $6,000, but somehow Mitt Romney managed to to build his IRA into a $100+ million treasure chest. Without specifically naming Romney, House Democrats are saying they want a review of the loopholes that someone like Mitt Romney would need to exploit in order to generate such a massive amount of tax-free wealth in an IRA:


Even if Romney broke no laws, the stated purpose of IRAs certainly is not to allow people like him to build $100+ million fortunes without paying any taxes...

"Without paying any taxes"

Jed posted this on August 3rd, four days after Harry Reid's initial Huffington Post interview where he claimed a source told him Mitt Romney didn't pay any taxes for 10 years.

How do you pay no taxes for ten years?  When all the money you're receiving as income is going into your tax free IRA account.

The Media Intelligensia have completely blown off the idea that Romney Paid No Taxes for Ten Years. Politifact.

"It would be easier for someone like Steve Jobs to pay zero, as most of his wealth was in company stock, which isn’t taxed until sold and may never be sold," Miller told Salon. The Salon article continued, "But Romney’s arrangement with Bain is different. He would have earned management fees, and when Bain sold the underlying companies that it invested in, Romney would have been subject to tax on his share. 'It’s possible he paid very little in taxes, but I find it hard to believe that he paid none,' Miller said."
This makes sense except for two mistakes this person makes. 1) Like Steve Jobs, Mitt Romney was the owner and (sole) stock holder in Bain Capital, and no he wouldn't normally sell that stock except that b) He DID Sell Bain Capital's Stock (or trade it) and hasn't been earning any management fees or salary since 2001-2002.

2002, uh isn't that Ten Years Ago?  Coincidence? I think not.  The fact that this time frame fits perfectly with his sale of Bain, and the fact that the person making this allegation is a Bain investor who would be the buyer on the other side of such a sale is telling.  Very telling.

The real question isn't did he not pay any taxes, but did he not pay any Federal Income Taxes on the Sale of Bain?

hungrycoyote posted this a couple days back noting how one commenter on Talking Points Memo had really grabbed Josh Marshall's attention.

Anyone making $10 to $20 million per year will pay a lot of taxes in absolute dollars — state taxes, property taxes, city taxes, sales taxes, etc. But the distinction you’re missing is whether or not these taxes were income taxes.
Here this TPM reader focuses on an issue that I've raised before, and was also brought up by EngineerScotty is that Romney has certainly paid "taxes" as he's continued to claim.  Sales taxes.  Capital Gains taxes.  Property Taxes. "A lot of taxes" as he maintains. However he may not have been paying Federal Income Taxes until recently when he decided to "clean up" his taxes after being rejected for Veep by John McCain.  He also hasn't been paying any Payroll Taxes because he hasn't been making any Payroll Income.

He's unemployed. He said so himself.

He's been unemployed since he began to sell his shares in Bain Capital in 2002, so as result his base tax rate isn't 32% as it would be for anyone else earning about $21.7 Million a year.  It's only 15%, because all he's earning is Capital Gains - not Income, except for what's coming from his investments.  But one wonders, where and when did he pay taxes on his sale of Bain?

This is what Romney's 2007 Federal Financial Disclosure Form (which is a couple years before the one complete return we have for 2010) lists as his only sources of Income (not counting Investment Income from his Blind Trust).

There ain't much there you can tax.  

But wait, it gets worse.  The key point raised by the TPM Reader is that Romney could have achieved a far lower rate than that during the years after he sold Bain Capital if he had held his original stock, for which as you all must know he was the sole stock holder, through his IRA.

Yes, but you’re missing the piece on the timeline where Romney cut a retirement deal with his partners to buy out his shares in the Bain Capital management company. Where it could be zero is if Romney had previously contributed his shares of the Bain Capital management company that he controlled 100% of into his IRA over the years.


The management company shares are generally considered to have relatively nominal value (i.e. you can conceivably put them into an IRA) as there generally isn’t a lot of (or any) income/revenue associated with them — however, since the management company owns the brand name and controls the funds and all hiring/firing/compensation decisions (within Bain Capital), if Romney’s partners wanted to continue using the name “Bain Capital” and take over control of the private equity firm and funds in the future, they would have to buy back Romney’s shares over a period of several years for hundred+ of millions of dollars. This is not uncommon in private equity firms undergoing an ownership transition. Since these shares (could) have been contributed to an IRA over the years, the Romney’s income 2002 to 2009 would largely be from his partners at Bain buying back shares that he’s already contributed to his IRA, and just like any trading you do in your IRA, the sale of these shares would be tax free until after he turns 65 (and/or withdraws from said IRA) and he’d pay zero income taxes on that. So, if he had transferred 50% of his Bain management co. shares to an IRA, if he was being paid $20M per year to have those shares bought back, his tax rate would be a blended 7.5%. If the management company shares were held overseas or had overseas blocker entities, it is conceivable it could be even lower than that. Also, he could use his taxable shares as charitable gifts and his non-taxable IRA shares as tax free income.

So there you have it. Speculative though it may be, it's possible that Romney had had a major portion of his Management Shares in Bain held in his IRA.  Since those shares were considered fairly low value in and of themselves they could easily have remained below the $3000-$6000 contribution limit for IRA that Jed was talking about, particularly if Romney had been gradually doing this thru his entire 25 year stewardship of Bain.

So then in 2002 when he decides to leave Bain and sell it to it's new investors and owners, what's really happening from his side of the ledger is that he's not being paid in cash, he's been paid in STOCK which he continues to hold in his IRA account, and for which that IRA mystically and magically balloons to a value of over $100 Million.

$100 Million which so far, Romney has paid zero income taxes on, because he hasn't accessed the IRA yet.  Why should he, he's making $20 Million a year just from his dividends on his Blind trust alone without lifting a finger or working for even a half a minute?

And of course one of the Bain investors would know this - because they're the ones buying his IRA Stock.  They are party to the financial deal which is making this possible.

Now, this might not be the final answer - but it does make sense and explain why Romney wouldn't want anyone to see his taxes prior to 2010, because then we'd see how he made over $100 Million without paying any taxes on any of it. Yet.

Again, this is speculative, but then again all Governor Romney has left us with - is speculation.


9:14 AM PT: I brought this up the last time I wrote about this and teacherken was correct to address 2003-2007, but the ten year timeline continues to stick despite Romney's stint as Governor because he accepted no salary for it.  

Boston Globe via Wiki.

A Romney spokesman noted that Romney did not accept a salary while he was Governor and that he paid for his personal and political travel...

So he didn't pay any payroll taxes then either.

5:22 PM PT: BayAreaKen, who is a Wall Street Wealth Advisor has just written a diary that explains, from a professional perspective exactly how this type of use of an IRA to defer massive amounts of tax on your stock could be achieved.

And further, just why Romney may be so desperate to be President - other than y'know the Nearly Unlimited Power, his Enormous Glowing EGO, All the GattlingGuns & Drones you can Eat, plus the usual Daddy Issues -  because implementing the RomneyHood $5 Trillion Tax Cut Kick Back For the Rich could save him $20 Million Plus PERSONALLY when it comes time to start taking mandatory disbursements on that IRA in about 4 and a half years.

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