The real scandal isn't at the IRS

The IRS is tasked with the responsibility to review applications for tax exemption.  In what is known as the 501(c) process, organizations can apply for tax exemption by providing information which proves to the satisfaction of the IRS, that they are non-political, social welfare type organizations whose primary function is not to advance a political agenda.

The IRS has recently come under attack by Republicans in Congress who claim that the IRS over-stepped their authority when it came to reviewing tax exemption applications from Tea Party type organizations.  The outrage of Republicans is evident  in the chambers of Congress where Republicans led by Darrel Issa, chair of the special investigative committee, have sworn to get to the bottom of the connection of IRS wrong-doing with the White House and more importantly with President Obama.

Perhaps because Republicans are blinded by the rush that getting a chance to implicate the President of wrong-doing elicits, they are missing some of the important facts which could, and by all rights should, turn the tide of wrong-doing onto their constituents.

First, to even refer to an organization as a Republican group implicates them as being political.  This violates the meaning of a 501(c)3 and 501(c)4 and should not entitle them to tax exemption.  Even so, the IRS approved applications for many obviously Republican political groups such as the "Tea Party Patriots" the "American Patriots Against Government Excess", "National Tea Party Group" and "Tea Party Radio."  If you have any doubt that these organizations are primarily politically focused, all you have to do is go to their web sites to see it for yourself.

So why did the IRS approve these applications?  If they followed their own guidelines, they should have known that these organizations were primarily involved in politics.  So what did they base their  decisions on?  Despite what the right wing media and Republicans in Congress are attempting to convey, the IRS did not make their decisions based on the names representing these organizations.  They could not have, otherwise they would not have approved the applications.  They made their decisions based on the information that the organizations provided.  

It appears a safe bet that the information provided to the IRS by the applicants was insufficient to implicate the organizations as political action committees.  If this was done by the applicants to  intentionally mislead the IRS review, then it is a crime which is punishable by fines and/or imprisonment.  That is the real scandal here.  These organizations might have knowingly hidden information from the IRS in order to get unfair and undeserved tax advantages.  That sounds familiar.  Where have we seen this before?  Oh yeah, Romney was pretty good at that.

Lindsey Graham

Now in a relentless pursuit to find something bad to pin on the President, Senator Lindsey Graham (R- SC) is calling for a special prosecutor to investigate the entire IRS "scandal".  This could be the best thing that ever happened for the IRS and the worst thing for the Tea Party Patriots and their Republican leadership.

If a special prosecutor is called who is impartial, then I predict that the IRS and the President will be cleared of any wrong-doing.  Furthermore, some unhappy Tea Party organizations will be paying for their arrogance and deception when the real scandal is revealed.  Perhaps clearer Republican heads will prevail and convince Graham to drop the idea before the truth can be known.

That would be a pity.

How Republicans plan to transform the President's budget into the Paul Ryan budget

Republicans in Congress still can't seem to realize that their Party did not win the Presidency in 2012.  And by that I mean they still do not understand and do not represent the expectations of the American people.

One example of this is HR 444 REQUIRE A PLAN Act that was discussed today in the House.

Parenthetically the Act also adds the insulting attack remark erroneously directed towards the President, that it can also be called the "Require Presidential Leadership and No Deficit Act."  My guess is that the Republicans see leadership as making strong cuts into social programs to hurt the Americans who can least afford it and who most depend on it.  This would follow right in step with the Ryan budget and Republicans misguided thinking that revenue is off the table in budget talks.

Mr. Price

The Act introduced by Republican Mr. PRICE of Georgia (for himself, Mr. RYAN of Wisconsin, Ms. JENKINS, and Mr. SESSIONS) requires that, "if the President’s fiscal year 2014 budget does not achieve balance in a fiscal year covered by such budget, the President shall submit a supplemental unified budget by April 1, 2013, which identifies a fiscal year in which balance is achieved, and for other purposes."

It goes on to require that the supplemental budget include budget information required by US code but also include the Republicans wish list of items.  These are (a) An estimate of the fiscal year in which the supplemental budget is not expected to result in a deficit; (b) a detailed description of additional policies needed to accomplish no deficit; and (c) detailed description of the differences between the President's FY 2014 budget and the FY2014 supplemental budget requested.

There is no constituional requirement for a President to offer a budget which will balance by some future date.  Since the 1920's there have only been about three occassions where a budget actually did balance.  However Republicans appeared to be confused about the President's intentions.  They made it seem that this was a simple request that would help them understand where the President stands on balancing the budget.  But what are they really trying to do?

The reason that the Republicans imply they are proposing this Act is because the President's actions during his first term have shown he is not a good financial stewart.  The Act's section on "Findings" indicates that the President can't keep to his promises and has caused the deficit to rise during his term.  It's almost as if the President has authority over financial and budgetary policy and total control of the money that he was charged to spend and spent it unwisely.  Oh wait, that is the job of the Congress!

So what are the Republicans really trying to do by placing this Act into consideration?  I think they have a somewhat sinister plan in mind indeed.

CBO estimates of deficit causes

First, they are trying to create an image in the eyes of Americans that removes themselves from any blame they may have for the country's financial condition.  They won't admit  that it was their Party's administration that got us into the financial situation we are in and largely responsible for the deficit.  The graph at the left is the Congressional Budget Office's estimates of the factors leading to the deficit.  One can see that the largest contributors to our present deficit are the wars and Bush era tax cuts.  But deficits were not that important to Republicans when their guy was President.

Republicans pretend to be the only Party concerned with future generations who will be responsible for the deficit's payback.  While he was Mitt Romney's running partner, Paul Ryan's first budget plan would not balance the budget for thirty years.  And that one was considered harmful to the poor in society and the economy because of the magnitude of its cuts to social programs while at the same time cutting taxes for the rich.  Recently Ryan has been tasked by John Boehner to write a budget that will be balanced within ten years. Without considering revenue increases (as the Republicans believe), Ryan's new budget would start hurting people immediately.

It seems to me that with HR 444 and the previously passed HR 325 that temporarily raises the debt limit with stipulations for "No Budget/No Pay", Republicans are trying to force the President into cutting the social safety net, voucher-izing medicare and medicaid and making changes to social security that would not benefit the American worker.  All of these were Romney-Ryan policies that Americans rejected when they ended Romney's political career in the last election.

Ryan's Budget paves the path to
increased Prosperity for the wealthy

Republicans are really putting the cart before the horse if they think that the President can create a supplemental unified budget without Congress first acting on modifying the tax code and closing loop holes. The President cannot know the impact that new revenue will have to paying down the deficit  until Congress acts on tax law.  So once again Congress needs to understand that tax revenue must be considered and they have a more urgent role in addressing that than the President has to give them a supplemental unified budget.

Fortunately some Democrats understand that Republicans are trying to force a budget that looks like the Ryan budget and have added amendments to the Act to counteract this intention.  Unfortunately none of them was allowed during the actual rules committee session.

Mr McGovern of Massachusetts, a member of the committee made it clear that the members were only made aware of HR 444 on Thursday and the act was not entered until Friday last week.  He felt that there was not enough time to enter amendments.  He also made the point that the rules committee did not have any meetings, markups or open discussion around the need for the act and requested that it was entered into open rules.  That was voted down.

Mr Connelly of Virginia had submitted an amendment that prohibits "additional solutions" in the unified supplemental budget to include conversion of Medicare into a voucher program. However that amendment was not allowed.

Mr. Deutch of Florida submitted an amendment that removes social security from the definition of "Unified Budget" however that amendment was not allowed.

Jackson Lee of Texas submitted two amendments.  One protects the safety net of the most vulnerable in society.  It was not allowed.  The other proposes ending the estate and tax provisions so the applicable exclusion amount is allowed to revert to $1 million and the tax rate is allowed to be 55%.  It was not allowed. 

Chris Van Hollen from Maryland submitted an amendment to replace the entire sequester for 2013 which would cause deep cuts to domestic priorities and defense with a savings from specific policies that reflect a balanced approach to deficit reduction.  He wants to protect the most vulnerable and asks people making over $1 million to contribute more.  He wants to eliminate agriculture direct payments and cut subsidies to large oil companies.  Because he was not present due to his father's death, his substitute for sequester was voted down.

An amendment was submitted by Mark Takano of California which makes changes to the "Findings" section of the act.  He wants clarification that Congress holds responsibility for passing budgets and appropriating funds.  A responsibility that some Republicans have attempted to side-step.  That one was allowed.

Four Republican amendments were approved.  All of them require additional work from the Presdient to present more detail in the supplemental unified budget.

President Obama

As the President has stated publicly, like the Republicans, he also understands that the deficit should be brought under control.  Actions taken since his administration started have reduced the Bush deficit each year and the CBO expects that the deficit will be below $800 Billion by the end of 2013.

But in the President's case, his concern is that deficit reduction be done in a balanced approach with revenue increases and program cuts that do not harm the economy, that do not hurt Americans and are done fairly.

The divergence in the President's policies and Republican policies are fairly obvious to middle class Americans.

That's why he won the election.

Before the VP debates: My assessment of how it will go

Remember the first Presidential debate?  President Obama was put into a state of shock by the abrupt policy changes Mitt Romney decided to take effect immediately as of that debate night.  The President failed to call Romney on these and because of that, led some uniformed voters to see Romney's enthusiastic lies as facts.  Even though the Republican Campaign Committee has taken much of what he said back, the President has paid for his failure to respond to Romney's claims by loss of support in the polls.

It appears that Romney's exaggerated policy changes were just another move in this "chess game" for  the Presidency.  Being so far behind in the polls and having had so much bad press about his actions, words and deeds in this campaign, my guess is that Romney's campaign decided that they had nothing to lose and everything to gain by lying to voters to soften Romney's conservative views and improve his appeal to undecided voters.  After all, you have to win the Presidency first before you can carry out your actual policies.

Ryan

Biden

Tonight Vice President Biden and Congressman Ryan are debating each other.  I have to cite some of the differences that I think will make the first VP debate more honest and a better read of actual stances of the two contestants that voters can use to compare them.

Even though they are offensive to many voters, Paul Ryan believes that his policies are correct.  Having a somewhat slanted view of reality based on his faith in Ayn Rand's teachings, Ryan strongly believes in survival of the fittest.  Bill Clinton has aptly named this the "you're on your own" policy.  This belief system leads to such Ryan policies as removing the social safety net from the least fortunate Americans by cutting budgets for those services.  It leads to his desire to change social security into a privatized business.  It leads to Ryan's policies to reduce Medicare to a voucher system.  At the same time, Ayn Rands anti-Christian dog-eat-dog teachings taught Ryan that the most fit and powerful should receive the entitlements in society.  This leads to his policies of reducing taxes on the very rich without consideration for how the shortfall in tax revenue will be made up, even if it means that the less fortunate will pay or lose out for it.  Ryan will not run away from those beliefs.  Unlike President Obama's debate, there will be no surprises for Vice President Biden.

Ayn Rand

Vice President Biden will have an excellent opportunity to show middle class Americans that Ryan-Romney policies will hurt them.  I believe he will enthusiastically cite specific examples of their differences.   

Vice President Biden should reassure Americans that the Democratic Party is the Party of the middle- class while emphasizing that Republicans are the Party of the wealthy.   He should expose the Republicans' true stance on social issues, women's issues, tax plans, jobs plan and military spending and the effects those will have on people and on the deficit.  He should never let any of Ryan's debate  attacks stand un-returned.  If he can do those things he should revive the support of America back to President Obama.  

This debate means a lot and could turn the tide of popular opinion back to Obama.   Perhaps you don't agree but I believe President Obama should get a huge bounce in the polls because of Vice President Biden's victory this night.    

From Romney's Official Web Site - His Tax Plan explained

Romney and Ryan

While on the Campaign trail we hear a lot of platitudes and rhetoric from Romney and Ryan but very little factual information on how they plan to improve our economic condition.  The Romney tax plan has been one of these kinds of issues.  

So for this session, I will review the actual facts as presented by Romney on his official web site, http://www.mittromney.com  When I am done, I think you'll understand why he is so quiet about it on the campaign trail.  Those lines that are in quotes are extracted from Romney's web site.  Those lines that follow the quoted lines are my explanatory comments.

“To repair the nation’s tax code, marginal rates must be brought down to stimulate entrepreneurship, job creation, and investment, while still raising the revenue needed to fund a smaller, smarter, simpler government. The principle of fairness must be preserved in federal tax and spending policy.”

“Lower marginal tax rates secure for all Americans the economic gains from tax reform.”

The following paragraphs cite the various steps in Romney's plan.

Romney's Tax Plan For Individuals:

“Make permanent, across-the-board 20 percent cut in marginal rates"

Marginal rates have the greatest effect on the wealthiest of taxpayers. A twenty percent rate cut is a huge amount but only makes a real difference to the wealthiest among us.   Add to that the tax loop-holes that are only available to the wealthy and soon middle class America will not only be paying a higher tax percentage than the wealthy, but some may even pay more in absolute tax dollars than the rich.

“Maintain current tax rates on interest, dividends, and capital gains”

The categories of income included in interest, dividends and capital gains are used almost exclusively by the wealthy. The current tax rates for these are very low with capital gains as low as 15%. With the many tax loop-holes available to the ultra-rich, this tax rate is already lower than that for most wealthy taxpayers. The point is that this tax favoritism is again directed toward the rich. Most of the middle-class will have almost no tax savings at all because they do not have income from investments.

“Eliminate taxes for taxpayers with AGI below $200,000 on interest, dividends, and capital gains”

Again, these categories are already non-existent for most middle-class Americans. The estimated AGI income of the Middle class Americans is around $50,000. About 94% of America has AGI less than $100,000.  Ask yourself how much of your taxable income (not 401K investments) comes from cash stock trades done throughout the year.  Do you understand that Romney's plan is targeting benefits for the wealthy?

“Eliminate the Death Tax”

This tax is already non-existent for middle class Americans unless an individual has over $5,000,000 in assets.  And who do you think would benefit from such a tax elimination? Let me give you a clue.  It is estimated that the heirs of the each of Koch brothers would benefit by nearly $8 billion dollars if this tax was eliminated

“Repeal the Alternative Minimum Tax (AMT)”

The AMT is paid only if the regular tax amount would be less than the AMT amount. It is not used in addition to the regular tax rate, but as the name implies, as an alternative to the regular rate. It is normally required by individuals and Corporations with incomes over $200,000. Since Romney is proposing to make the regular tax rates for the wealthiest individuals much less, he must repeal the AMT, or his favoritism to the wealthy would be over-ridden by the AMT. So this strategy is not to benefit the middle-class, but instead to ensure that his tax favoritism for the wealthy stays in tact.

Romney's Corporate Tax Plan:

“Cut the corporate rate to 25 percent”

Romney's tax plan for Corporations calls for a 10% reduction in tax rates. Similar to the plan for wealthy individuals it goes without saying that Corporate Tax initiatives would favor the wealthiest in America. It has very little benefit on the middle class. No jobs will be created because Corporations have their taxes cut unless demand increases. The American worker is the source of nearly 75% of the demand in America. Reducing taxes for the rich will only benefit the rich as it has for the last thirty years with very little improvement in jobs or take-home pay for workers. When more workers are employed and wages are improved, demand will increase. This starts from the middle-class out and not from the top down.

“Strengthen and make permanent the R&D tax credit”

This tax advantage is intended to increase spending on Corporate Research. It is difficult to know how much of an impact that this tax credit has had on the economy but it is known what kind of tax advantages are had by Corporations because of it. A study by Ernst and Young in 2005 reported that 17,700 Corporations claimed $6.6 Billion in R&D Tax credits.

“Switch to a territorial tax system”

This is Romney's way of allowing American Corporations to escape paying taxes on any business carried out in foreign countries. A territorial Tax system is one that only taxes income earned in the United States. This would be a huge loop-hole for Corporate America to escape paying their fair share of taxes. It is difficult to estimate how much revenue would be lost since it would likely change Corporate practices to take advantage to the greatest extent possible.  It is easy to say that the reduction in Corporate tax revenue would be extremely high and outsourcing of plants and jobs would likely be increased to the max.

“Repeal the corporate Alternative Minimum Tax (AMT)”

For the same reason as the individual AMT repeal, this would be necessary if Romney's other reductions in taxes are to be effective in reducing taxes for the wealthy.

Ultimately, Romney's tax plan would favor the wealthiest of Americans and do little for the middle class.  With a territorial tax it may even hurt the middle class by taking more jobs out of the country.  And who do you think will get stuck paying the taxes that are being lifted from the rich?  You guessed it...Middle-class America.

If you hear Romney and Ryan proclaim that they are for the middle class during their campaign tour, now you'll know that they are both compulsive liars who will say anything to get your vote.  

Like sheep to the slaughter, millions of our middle class American Republicans are being led astray by the slick double-talk of their so-called concerned Republican leaders.  

Save your vote and your job.  Vote a total Democratic ticket this November.

As anxious as I am for the release of the iPhone 5, I'm even more anxious for the release of Rmoney tax records on September 28th.

Today, CNN reported that Price Waterhouse Cooper's (PWC) Franklin, TN, the Republican Campaign and the Democratic Campaign offices received a package from an anonymous person who claims that Mitt and Ann Romney's tax records were stolen from the PWC office and will be released to the Public on September 28th.  PWC is an accounting firm that is often used for complex tax returns.

Some of the details of this break-in are reported by the group or person who claims responsibility on the website called "pastebin.com" which you can find here. 

Although CNN claims that the group is holding the data ransom for $1,000,000, there is no mention of this in the letter posted to the paste bin site.  Perhaps this info was included in the package left with PWC, or perhaps was just made up.  This was not clear as of this writing.

The Secret Service is reportedly involved in an investigation.

It was not certain if this was a scam or a real incident, but the Republican and Democratic Campaign offices both did report receiving the package which they purport to not have opened.

I guess time will tell.

Republican optimism is so refreshing it's like drinking soured milk

Mean old white men taking their football and walking off the playing field.  That's how I'm seeing the Republican Party lately.  It doesn't matter to them that the economy is in the dumps and that the American people who they are sworn to represent are suffering.  They will obstruct progress on economic improvement by simply refusing to play.

Many authors have written about this do-nothing Congress that we have been saddled with during this administration's term but writing about it doesn't help.  President Obama, in giving them the benefit of the doubt said that he believed Republican obstruction would end if he were re-elected.  His reasoning included the assumption that there would be no longer any reason to block legislation in his last term because there would be nothing for the Republicans to gain by it.  Now the Republicans, by way of Mitch McConnell have said they won't cooperate with Obama even if he wins the upcoming election.

America should be outraged.  Once again they are throwing America out the window for their own selfish reasons.  This Party does not represent you America.  They are a bunch of angry old white men who think that they are above the Americans they represent.  How many of you voted for your Republican leaders so that they could do nothing but obstruct progress and prevent resolution of problems?  These fools say that if a coach doesn't have any wins in three years, you'd boot him out.  So it follows that if the players all sat down on the playing field during every game in spite of their coach, you should be looking for better players.  

These worthless idiots are showing you how little they care about you.  They are all nice and cozy with their high paying government sponsored jobs with terrific insurance plans and excellent retirement plans.  They are already taken care of.  They do not care about you.

Republican leaders have proven that they are liars.  They have proven that they are obstructionists.  They have proven that they do not represent you.  What are they still doing in office?  

Your vote is the key.  Don't waste it.  Vote Democratic in all elections and let's get this country back on the right path.

If Romney's speech is all it takes to convince America that he should be President, then America isn't listening

After three days of self indulgent speeches by Republican Governors and repeated lies about the out of context words 'you didn't build that' and false statements about Obama's hidden agenda to screw the elderly by stealing from medicare,  I was actually looking forward to Romney's speech.  I wanted to hear for myself how this potential President of the United States would explain how he plans to make things better for the people of this great country.

But, if you're someone who is not easily impressed, a thinker, or use to dealing with facts, then you were probably disappointed by Romney's address to the Republican National Convention.

After getting by all the fakery about being concerned that Obama was unsuccessful and that America deserved better, Romney started getting into the complaints about the current administration.

Romney's explanation of Obama's failure is based on the fact that he does not have business experience.  It may seem reasonable to ordinary Americans that a CEO would be a good person to fix our struggling economy, but is this necessarily true?

The most important thing driving the actions of a Corporate businessman like Romney is to make a profit through the sale of goods or services.  A government not only does not sell goods or services, it also does not have a profit motive.  A government is driven by concern for all members of it citizenry.  Sometimes that concern is in the form of social programs to help Americans through times of hardship.  Sometimes it means building an infrastructure of roads, bridges and technology that benefit society and provide citizens and businesses a means to accomplish more.  In Corporate America, times of economic difficulty usually mean that a Corporate CEO takes actions to reduce those elements of cost that he believes are not indispensable.  Interpreting this into a CEO-President Romney terms, this means cutting those social programs that the government provides.  As expected Romney was short on explanations of how his business experience at Bain Capital would help him be a better President than Obama.  How much he believes the importance of business experience may have been exposed today when he mis-spoke and called America a "Company" instead of a "Country."

Romney dismisses the idea that the economic problems we have been experiencing were the result of the Bush Presidency.  He simply states that Obama should just accept the blame for it because he hasn't gotten us out of it yet.  This is as anti-intellectual as stating that the person sent in to help fix a mess confess that he created the mess because he wasn't done cleaning up yet.  People have to realize that the  recession we are in is the worst economic disaster since the Great Depression.  That disaster took nearly fifteen years to get resolved.  Instead, Romney would return to Bush era practices that caused our present economic situation.  Additionally, Romney would not mention that there are many signs that the economy is improving and has been since Obama came into office.  Obama's policies are working despite all the obstruction that Republicans in Congress have caused in order to prevent him from being successful.  As they have stated themselves, Republicans in Congress had a most important objective to obstruct everything Obama proposed in order to make him appear to be impotent and unsuccessful.  They did this in the midst of the economic disaster and they did it to the detriment of the American people they are sworn to represent.

Jobs under Bush (red) vs Obama (blue)

Romney claims that Obama crushed the middle class because there are no jobs.  He does not admit that since Obama has been in office new jobs have shifted their negative trend from the Bush era and have been on a constant increasing trend.

Romney says that Obama hates small business and intends to increase taxes on small business.  He does not admit that Obama has only reduced taxes on small business since he has been in office.  Obama's newest proposal for taxes does not increase tax on small business.  Government programs such as the Small Business Administration are strong and helping small businessmen and women everyday.

In his speech Romney continues the lie about Obama stealing 716 Billion dollars from medicare to fund Obama-Care.  I hope everyone knows that this lie which has been disproved by numerous independent sources will not become true simply because the Republican leadership re-states it over and over again.

His speech took on a very militaristic character at one point.  I thought for sure he was against cutting the military budget because he has plans to start a war with Iran if he was elected.

Romney concluded his speech with promises to the American people.  Romney gave no detailed explanation of how these promises will be accomplished so I guess he just wants us to trust him.  He promised:

1. Twelve million new jobs.  It has been estimated that we are currently on a path to accomplish this without any new Romney actions within four years, so I guess this one is possible, but still an empty promise.

2. Energy independence by 2020. This claim is made even though Romney is critical of Obama's interest in  funding research on new forms of energy.  Romney has signed onto the Oil and Coal coalition as well, so I guess he intends to drill and dig more in America.  We have been told many times by the oil companies when they increase gas prices, that oil is in limited supply.  So over the long term how does Romney expect to become energy independent?

3. Create new trade agreements and punish any country that cheats.  Which countries and how punishment would be carried out was left to our imagination.

4. Assure that the "job creators" investments won't vanish.  Romney will also cut the deficit and balance the budget.  None of this is explained, but protecting the wealthy  investors sounds like tax law reform and Wall Street regulation is not high on Romney's agenda.

5. Reduce taxes on business.  I guess this is to support the job creator lie or maybe to give more credence to the possibility that the job creators really will turn away from American workers as an effective threat against having their taxes raised.

6. Repeal (and now replace) Obama-Care.  I can't believe Romney thinks taking health insurance away from the American people will be seen as a good thing to anyone except die-hard (and healthy) Republicans.  Again Romney gives no explanation on any of this.

In concluding his speech, Romney's additional unexplained rhetoric included statements that seemed intended as a band-aid to cover what has recently become controversial about Republicans.  He vows to care for the sick, statements apparently made to soften the view that he intends to repeal Obama-Care.  He claims that he will respect the elderly, seemingly trying to change the popular view that Republicans like he and Ryan have plans to change Medicare into a voucher program.

Empty promises claiming certainty of success may sound good but without details give us no factual information to evaluate whether they will ever be achievable.  I guess we'll need to listen closely to Romney's explanations if they exist in future appearances.

I'm so looking forward to the Presidential debates in October.  Perhaps by then Romney will have better explanations for his promises.  If not, President Obama will walk all over him.

Romney's head will be spinning and he'll probably have to admit that his Party really was not only responsible for the current  economic disaster, but also responsible for blocking  progress on resolving it.




       

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.