The rich are different from you and me, as F. Scott Fitzgerald famously observed. For one thing, they grow up learning to be secretive about how they make their money and how much they make.
The very rich also have many devices for hiding their wealth and avoiding paying taxes that are unavailable to ordinary people. Most of the time, these are kept secret from the rest of us so we have little idea of what is going on. The few times the veil of secrecy is lifted is when they are taken to court by people who were once close to them and know the secrets but have had a falling out, such as in business disputes or messy divorces.
Another opportunity for the veil to be lifted is when one of them runs for high public office like the presidency, when it becomes worth the while for reporters to dig deep into the candidate’s life. This is happening with the highly secretive Mitt Romney. The magazine Vanity Fair has published a long article by Nicholas Shaxson which alleges that Romney has more money secreted away in offshore accounts than were revealed in his earlier limited disclosure of his tax returns. As the magazine’s introduction to the article explains:
For all Mitt Romney’s touting of his business record, when it comes to his own money the Republican nominee is remarkably shy about disclosing numbers and investments. Nicholas Shaxson delves into the murky world of offshore finance, revealing loopholes that allow the very wealthy to skirt tax laws, and investigating just how much of Romney’s fortune (with $30 million in Bain Capital funds in the Cayman Islands alone?) looks pretty strange for a presidential candidate.
In the article itself, Shaxson is careful to say that there is no proof that Romney violated any tax laws but what it clear is that he very much operated in the grey zone of tax shelters where what is legal and what is not is hard to distinguish.
The assertion that he broke no laws is widely accepted. But it is worth asking if it is actually true. The answer, in fact, isn’t straightforward. Romney, like the superhero who whirls and backflips unscathed through a web of laser beams while everyone else gets zapped, is certainly a remarkable financial acrobat. But careful analysis of his financial and business affairs also reveals a man who, like some other Wall Street titans, seems comfortable striding into some fuzzy gray zones.
That aspect of Romney I expected, But the article told me something that was surprising. I had been of course aware that rich Americans used other countries as tax havens, and sometimes to hide money gained by criminal means. I had not known that the US deliberately reciprocated as a matter of government policy, providing a similar hiding place for foreign criminal money.
Little noticed in the academic discussions of financialization is the role of offshore tax havens, one of the big reasons the financial sector has become so powerful. In 1966, Michael Hudson, a young Chase Manhattan balance-of-payments economist, was in a company elevator when he was handed a memo by a former State Department operative. The memo came from the U.S. government, and Hudson was tasked with figuring out how much foreign money the U.S. might attract. “They were saying, ‘We want to replace Switzerland,’ ” Hudson explains. “All this money will come here if we make this the criminal center of the world. We wanted foreign criminal money, which was patriotic, but not American criminal money.”
In the years since then, almost unknown to most Americans, the United States has turned itself into a giant tax haven for foreigners, just as the memo suggested. Federal and state tax laws have been deliberately shaped to give foreigners special tax exemptions unavailable to Americans, plus financial secrecy and exemptions from regulatory restraints. [My italics-MS] “We have criticized offshore tax havens for their secrecy and lack of transparency,” said Senator Carl Levin. “But look what is going on in our own backyard.”
In this grand scenario, tax havens such as the Caymans serve as feeders of foreign savings into Tax Haven U.S.A. from abroad, providing foreign investors with additional ways to skip around tax, disclosure, and regulatory requirements that they might trigger if they invested directly.
The money sucked into Tax Haven U.S.A., often via the “feeder” tax havens, is frequently tax-evading and other criminal foreign money, in the spirit of Hudson’s 1966 memo, and it is predominantly channeled not into productive investment but into real estate and financial business.
In other words, this money was partly responsible for the real estate bubble that triggered the financial collapse of 2008. The article provides a good window on the transglobal oligarchy at work. They have set up international structures so that wherever they may happen to live, there is a place to park your money to avoid paying taxes at the rates that ordinary people pay.
Romney’s company Bain Capital is one of those companies involved in such transactions, but again Shaxson chooses his words carefully.
There is absolutely no evidence that Bain has done anything illegal, but private equity is one channel for this secrecy-shrouded foreign money to enter the United States, and a filing for Mitt Romney’s first $37 million Bain Capital Fund, of 1984, provides a rare window into this. One foreign investor, of $2 million, was the newspaper tycoon, tax evader, and fraudster Robert Maxwell, who fell from his yacht, and drowned, off of the Canary Islands in 1991 in strange circumstances, after looting his company’s pension fund.
Many Americans might react with a shrug to the idea of shady foreign money such as Robert Maxwell’s being invested here. But, says Rebecca Wilkins, of the Washington, D.C.–based nonprofit Citizens for Tax Justice, “It is shocking that a presidential candidate should think that is O.K.”
This stuff will undoubtedly be embarrassing to Romney’s campaign. I was curious to see how the Obama campaign would deal with such an effective weapon against his opponent. It cannot attack the whole idea of tax shelters and havens since it too is a servant of the oligarchy and cannot risk alienating its patrons by attacking the very means by which the oligarchy accumulates its wealth.
It looks like it has chosen the narrower tack of hinting that Romney may have violated the law and thus should release his tax returns for multiple years to see if they were legal and if he paid at an even lower rate than the absurdly low 13.9% he paid in the one year for which he released his taxes.
Romney strikes me as too cautious and buttoned-down to do anything that is flatly and obviously illegal. But he also strikes me as someone who is willing to take every advantage of every loophole and favorable interpretation of the law to skirt as close to the line of illegality as possible. Such an attitude may be seen as a plus in the financial world he came from, perhaps even a necessity, but looks bad in a presidential candidate.
It looks like calls for the release of Romney’s tax returns are going to be used as a cudgel to beat Romney with and will play the role that the release of Obama’s birth certificate played in the 2008 election, except that this is a real issue. It will be very interesting to watch this play out in the coming days.