It really comes as no surprise that Mitt Romney has engaged in devilish tax evasion tactics to grow his massive fortune; however, few people understand the very pertinent conflict of financial interest the Republican presidential candidate is toting around in his overstuffed IRA.
Romney disclosed the value of his IRA, funded during his time at Bain Capital, at as much as $101 million (with a bottom value of $20 million). How he got that much money in an investment vehicle that tops out at $30,000 in contributions per year is an interesting question, and one that we will deal with in a moment.
First, let’s calculate the windfall Romney will receive if he succeeds in winning the presidency and passing the aggressive income tax cuts he is campaigning on. Since IRA withdraws are taxed at current income tax rates, here’s the breakdown of the taxes Romney will pay in our two scenarios:
- If Obama wins in November, the presumption is the Bush tax cuts will expire and the base income tax rate for top-income earners will return to 39.6%. (It is currently 35% for the highest income earners.)
- Thus, with Obama in the White House, Romney would potentially pay $40 million in taxes on his IRA balance upon withdrawal – or more as the balance continues to grow over the next five years.
- If Romney wins the election, he has promised to enact steep income tax cuts, under which plan the top tier of income earners would start with a base rate of 28%before deductions.
- Thus, under his own tax plan, Romney would pay about $28.3 million in taxes – a savings of $11.7 million (just in IRA taxes, not counting other income sources).
So, saving almost $12 million in personal income is one thing Romney has to gain from prevailing against Obama. Now, let’s back up to how Romney ended up with over $100 million in his IRA in the first place – by using an “every-trick-in-the-book” strategy to defer taxes on tens of millions of dollars in income he earned at Bain.
IRAs aren’t meant as a tax shelter. The legal limit for yearly IRA contributions in most cases is $6,000, and the average American has well under $100,000 saved in an IRA. At Bain, Romney used an SEP-IRA, which is employer-funded and maxes out at $30,000 per year in contributions. Most reports and experts suggest that Romney grew his IRA exponentially by trickery; rolling profits earned from business ventures into the tax-deferred account, such as Bain’s rapid 289% return after investing in the credit rating agency Experian, buying it for $87 million in 1996 and flipping it for $252 million only seven weeks later.
Romney’s ruthless Machiavellian-ism isn’t going unnoticed. Last month, three Democratic lawmakers took action by writing to the Treasury and Labor Departments about Romney’s inventive tax shelter. In the letter, Reps. George Miller (D-CA), Sander Levin (D-MI), and Chris Van Hollen (D-MD), asserted that the wealthy should not be allowed to exploit tax deferments designed to provide for retirement by using them to shelter “massive assets.” The congressmen are asking officials to evaluate IRA contribution loopholes that allow for the “wrongful tax evasion” that is suspected in Romney’s case.
If all this really gets you angry about income inequality and the slow, painful death rattle of the American dream, I hope that you’ll turn yourself out at the polls come November.