Monday, July 23, 2012

How to shelter $100,000,000 in an IRA

Recent controversy over Mitt Romney's tax returns has included questions over his IRA (individual retirement account) which is reported to contain well over $100,000,000.

For those of you who do not have an IRA, it is important to note that regulations impose a $5000 limit to the annual contribution that an individual can make to it and even less than this was allowed in the years before 2012.

If Mitt Romney worked at Bain Capital for 25 years, then at the current allowable deposit amount and excluding interest, Mitt's principal would grow to $125,000 in that time.  Yet Romney has nearly 1000 times that amount in his IRA.  So let's say that the investments made by the IRA gave Romney a 15% return each year.  After twenty-five years that IRA should contain about $1,600,000.  Still a far cry from $100,000,000.

So how could Romney's IRA contain so much more?  Allow me to speculate.

When Romney founded Bain Capital, it was created as a Private Corporation.  Legally, Private Corporations do not have the financial transparency that Public Corporations have.  The stock of the Private Corporation is not sold to the public and usually remains under the ownership of the partners of the Investment firm.

The United States Treasury Office began to see a phenomenon occurring with Private Corporations around year 2000.  In increasing numbers, Private Corporations began to find tax shelters to protect their profits from United States taxes.  Additionally, certain stock based compensation plans did not comply with what IRS called "deferred compensation" tax rules.  For example, certain individuals were given stock options with an exercise price that was less than the fair market value of the company's common stock.  To block this practice after year 2000, regulations were adopted to add an additional 20% tax on these transactions.  The idea was to discourage evading taxes by writing regulations that made it less profitable to do so.

In certain companies (Bain may be one of them), under-priced stocks were given to the owners and directly deposited into their IRA accounts.  So let's say the $5000 limit on the IRA deposit was achieved by under-pricing these stocks by a huge amount.  For example, let's speculate that the per share fair market value of the stock was $50.00 but the owners got shares deposited into their accounts at $0.10.  In that case, the number of shares at the fair market value is 100, but at the reduced price is 50,000.  For reporting to the IRS, the Individual Retirement Account meets the regulations and only $5000 is reported as being deposited.  Yet in reality, the true value of the number of shares is 50,000 shares x $50.00 per share = $2,500,000.  

Repeat this year after year and you will soon have $100,000,000.  Even if you do not reduce the price of the stock as much as in my example, you will still be there in no time.

If the individual has a Roth IRA, then the situation is even more favorable.  With a Roth IRA, the taxes are paid on the deposit amount and are not taxed upon withdrawal at retirement.  So in our example above, the Roth IRA owner would pay taxes on $5000 up front and not on the $2,500,000 withdrawn during retirement.

So if you want to shelter $100,000,000 in an IRA, open a Private Corporation, setup a Roth IRA and give yourself stock options at a seriously reduced price.  Pay taxes on $5000 and enjoy the tax-free high life at retirement.

Sunday, July 22, 2012

More proof that the Romney's are out of touch with the American middle class

Most political observers understand that the Romney's have huge personal wealth.  We know some things about the source of that wealth from what we hear or read in the media.  We know Mitt Romney was born into a wealthy family and got his business started from his father's money.  We know he helped found Bain Capital and his business activities in that company made him many millions of dollars.  He worked hard and successfully reaped the monetary benefits of his work.  Although we may be jealous of his huge success, any of us would be happy to have accomplished the same thing.

I have no problem with Romney's financial status.  However, the thing that appears to me to be so worrisome about a Romney President is the disconnect he has with the commoners of America; those of us who are not in the top one percent.

More evidence of this disconnect was evident in a TV interview of Mrs. Ann Romney.  Ann Romney also comes from a wealthy family background, her father owning a marine parts manufacturing facility in Michigan when she was young.  The social circle that the two families interacted with included the wealthy, famous and political leaders.  Their wedding ceremony was attended by Gerald Ford, and they got congratulations messages from then President Richard Nixon.

During the interview, Mrs Romney was asked to explain why Mitt Romney will not release more than one or two years of income tax returns for public review.  Initially she skirted the issue and never gave a direct answer.  Perhaps, because of the persistence of the reporter who asked the question again and seemed to frustrate Mrs. Romney, she answered "There are so many things that people would question in them...we are only releasing two years of income tax returns to you people and that's it!"

Mrs. Romney, the public is going to question Mitt's financial dealings even more after that answer.  Mitt is not running for dog catcher of the United States.  He is running for President of the United States.  With such high stakes, the American public deserves to know that Mitt's background is beyond reproach.  Failing to reveal information from the public is only going to be seen as secrecy that is concealing something very damaging.

And what is up with your selected phraseology; "YOU" people?  Who says that except one who sees themselves separated from the people she is talking about or talking to.   Perhaps living in upper class bliss for all those years has given the Romney's the feeling that they are above the rest of us.  I fear that this statement explains the way that the entire Romney family sees themselves.  Better than you people.  Just who will a President Mitt Romney be loyal to if he views the rest of us as unimportant working class "human capital" (as his web-site calls us).  Are we only to be used and abused by his corporate backers?

America has a government that is supposed to be of the people, for the people and by the people.  It is not a government just of, for and by the wealthy.  Electing Mitt Romney will get us much closer to the latter and so if you are not a member of the financially top one percent, I urge you to vote Democratic in the upcoming elections.

Thursday, July 19, 2012

Senate Republicans believe Fox news propaganda

As intelligent people know, Fox news is a propaganda machine for the Republican party.  In the past few days we have seen so-called "news" get reported in such a way that it belittles the intelligence of the American voting public.

For example, with the backing of at least four fringe Republican Congressmen, Michele Bachmann has officially called for an investigation into the background of Huma Abedin, deputy chief for Secretary Hillary Clinton.  Bachmann claims that Huma Abedin is connected to the once terrorist group the Muslim Brotherhood. Bachmann believes the radical group now influences the Democratic factions of the government.  This story was supported by Fox news and by such Fox reporters as Glenn Beck on his internet radio show.  

The repercussions of this hateful dialog reached Egypt, where Secretary Clinton was visiting.  The Muslim Brotherhood is a once violent group that was involved in the assassination of Egyptian leader Prime Minister Mahmoud an-Nukrashi Pasha in the 1940's.  Mrs Clinton's motorcade was pelted with tomatoes and shoes by a crowd who informed the news reporters there that they did this because of information they got from American news shown on Fox news and the internet.

Some Republicans, like John McCain who have not lost their minds, have criticized Michele Bachmann and called for a stop to the nonsense.  But many who want to believe in any reason to associate the Democratic Party and President Obama with the "enemy" probably will continue to believe it.

But at least the Bachmann controversy was news.  

Then there is this.. the most obvious perversion of a message presented in a speech by President Obama, where Fox news knowingly took the President's words out of context and reported that the President  believes that "...if you have a business, you didn't build that."

During the speech, the President was showing the great support that the government has for business.  His full speech, which Fox news would not report, explained that government research and grants helped create the internet, government bills to fund and create the infrastructure of roads and bridges and other government funded activities help business to thrive.  The words "...if you have a business, you didn't build that" was in reference to the government funded projects.  For example, you didn't build the internet.  You didn't build the bridges and roads, etc.  It was in no way intended to mean that the President does not believe you created your own business.  Yet that is what Fox news wants America to believe.  See the explanation by Jon Stewart here.

Apparently Fox news convinced even Mitt Romney, who uses it in his public speeches and in a new political attack ad, to demonstrate how hateful the President is towards business.  Romney has continued to lie to the public using this out of context quote over and over again in television commercials and public meetings with business leaders.  His campaign reportedly is scheduling 24 meetings with business leaders across the country to give them an opportunity to vent at Obama's supposed criticism of business.  This is ridiculous but I am beginning to think that the Republican national committee is quite capable of spreading ridiculous ideas such as this.  I hope the American public realizes the lie because it is another example of Romney's character flaws.

Even more recently, Fox news perverted the words of President Obama again.  This time the President was speaking about economic policy.  He told the crowd that we have seen the results of the Republican policies on the economy under President Bush and we have seen the results of Democratic policies on the economy under President Clinton.  He referred to the Republican policies as "their" policies.  He referred to the Democratic policies as "our" policies.  At one point in the speech the President stated (and I'm paraphrasing here) "...we have seen the effects of "their" policies and we have seen the effects of our policies.  Their policies don't work.  Our policies do work."

The President understands that history proves him out.  He understands that he inherited the worst economic disaster since the great depression from the Republicans.  He knows that it is only a matter of time before his policies will bring us to the strong economy we had under former President Clinton.  He has expressed his serious concern about the obstacles that Republicans in Congress have caused to prevent progress on economic legislation to carry out these policies.

Yet Fox news only showed the statement about "our policies work" and went on a tirade calling the President foolish for believing that his policies are working.  Again misleading the public into believing that the President's thinking is flawed.  

This kind of reporting is nothing more than propaganda and lies.  For Fox news it also means they are guilty of false advertising.  They tout the slogan "Fair and Balanced" about their news programs, but they are anything but.

To make matters worse, some of the Republicans in Congress also watch Fox news and believe the lies.  Today, two Republican Senators, Mr Poe of Texas and Mr Herger from California wasted the taxpayers money by spending time criticizing the President's supposed hatred of business by using this lie told by Fox news.  Both quoted the out of context words reported by Fox news as proof. 

When I think of the obstruction that Republicans have run to oppose any sound ideas presented by Democrats or the President, I used to think that Republicans thought they were invincible.  Now I think that they are just pitifully stupid.

It seems each day, Fox news continues to prove the validity of the results of the Fairleigh Dickinson University study which found that Fox news viewers are the least accurately informed of any other news program viewers.  And that also includes those who do not view any broadcast news at all.