Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Monday, October 29, 2012

Tax Expert Calvin Johnson 'Skeptical' Of Mitt Romney's Taxes

A respected tax attorney and deficit hawk wrote a letter to the editor of Tax Notes on Monday saying that, "There is good reason to be skeptical" of Mitt Romney's claim to have paid all the taxes he legally owes.

The letter, by University of Texas Law School Professor Calvin Johnson, focuses on two trusts Romney has set up: one for his children, which is worth over $100 million, and an $87 million retirement trust. These trusts have grown at an enormous rate -- Johnson notes that they have been more than 10 times as profitable as Warren Buffett's investments over the same time frame. Johnson writes that Romney may have played fast and loose with the law by undervaluing Bain Capital assets that were contributed to the trusts. By undervaluing the assets, Romney could avoid paying gift taxes.

    Romney's main asset was his partnership interest in Bain Capital. Bain Capital was a leveraged buyout fund, which made its money by buying all of the stock of target companies and replacing most of the stock with debt. The replacement of stock with debt got rid of almost all the corporate tax of the acquired corporations because the interest on the debt was deductible. Getting rid of corporate tax by the acquisition typically meant that Bain Capital would increase the value of its investment in the small residual stock it held by two to nine times, just by taking over the target company. The big multiple increase in value was immediate. The subsequent growth in value of the acquired stock would be more modest and losses were common. When Romney made his contribution to the kids' trust and his retirement trust the enhancement had already occurred. It is likely that the partnership interests were worth $25 million to $75 million when contributed, judging by what a smart buyer would pay for them, which is too large to fit under the $1 million gift tax exemption or the limitations on contributions to the retirement trust.

    Misvaluation of that order of magnitude is subject to a penalty of 400 percent of the tax at issue, without regard to the subjective state of mind of the contributor. For Romney, the misevaluation penalty would be many tens of millions of dollars.

Johnson spearheads The Shelf Project, an academic effort to raise tax revenue by closing loopholes in the tax code, rather than by raising tax rates.

Original Article
Source: huffington post
Author: Zach Carter

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