Skip to main content
Part of complete coverage on
 

Why won't Romney release more tax returns?

By Edward D. Kleinbard and Peter C. Canellos, Special to CNN
July 18, 2012 -- Updated 1650 GMT (0050 HKT)
Mitt Romney has released only one full tax return so far.
Mitt Romney has released only one full tax return so far.
STORY HIGHLIGHTS
  • Mitt Romney has only released one complete tax return for 2010
  • Edward Kleinbard, Peter Canellos: Romney needs to be transparent about his finances
  • Romney's 2010 tax return reveals red flags about tax compliance issues, they say
  • Kleinbard, Canellos: Electorate deserves a thorough vetting of presidential candidates

Editor's note: Edward D. Kleinbard is a professor at Gould School of Law at the University of Southern California. He is the former chief of staff of Congress's Joint Committee on Taxation. Peter C. Canellos, a lawyer, is former chair of the New York State Bar Association Tax Section.

(CNN) -- By announcing that he will release no further tax returns beyond his 2010 and 2011 returns, Mitt Romney appears to have exempted himself from the proud bipartisan tradition of presidential nominees displaying genuine financial candor with the electorate.

What is more, his disclosure to date is in the wrong direction: It is the release of Romney's past returns, not his current ones, that matters.

Since George Romney inaugurated the practice more than 40 years ago by releasing 12 years of tax returns in his bid for the Republican Party nomination, presidential nominees have been transparent with voters about their personal finances. For this reason, we have not suffered a significant tax scandal involving a nominee or sitting president since President Richard Nixon's abuse of the tax code.

Either Romney has an unresolved father figure issue, or he has some special reason not to follow a tradition established by his father.

News: Romney campaign expected to launch multipronged effort to rebut attacks

Edward D. Kleinbard
Edward D. Kleinbard

Given Romney's financial sophistication, it has been assumed by some that there cannot be any tax skeletons in his closet. His reluctance to disclose past returns, however, undermines that assumption. We are left with the difficult task of plausibly reconstructing his financial record based on the one full return that he has released. The result is troubling.

Mitt Romney is extraordinarily wealthy, but that is not a justification for nondisclosure. He has made no secret of his wealth, and required campaign disclosures already hint at its magnitude. While Romney may have dissembled about when he actually left Bain Capital, he has been disassociated with the firm long enough that he cannot argue that his tax returns will reveal proprietary secrets.

Nor is this just an exercise in financial titillation or gossip. Disclosure goes to the heart of the truthfulness with which a nominee engages the American people, and it assures us that he in fact has comported himself before the election with the high moral character we associate with a future president.

Romney's 2010 tax return, when combined with his FEC disclosure, reveals red flags that raise serious tax compliance questions with respect to his possible tax minimization strategies in earlier years. The release in October of his 2011 return will at best act as a distraction from these questions.

So, what are the issues?

The first is Romney's Swiss bank account. Most presidential candidates don't think it appropriate to bet that the U.S. dollar will lose value by speculating in Swiss Francs, which is basically the rationale offered by the trustee of Romney's "blind" trust for opening this account. What's more, if you really want just to speculate on foreign currencies, you don't need a Swiss bank account to do so.

The Swiss bank account raises tax compliance questions, too.

News: Americans view Romney's campaign more unfavorably than Obama's

The account seems to have been closed early in 2010, but was the income in fact reported on earlier tax returns? Did the Romneys timely file the required disclosure forms to the Treasury Department (so-called FBAR reports)?

The IRS announced in 2009 a partial tax amnesty for unreported foreign bank accounts, in light of the Justice Department's criminal investigations involving several Swiss banks. To date, some 34,500 Americans have taken advantage of such amnesty programs. Did the Romneys avail themselves of any of these amnesty programs? One hopes that such a suggestion is preposterous, but that is what disclosure is for -- to replace speculation with truth-telling to the American people.

Second, Romney's $100 million IRA is remarkable in its size. Even under the most generous assumptions, Romney would have been restricted to annual contributions of $30,000 while he worked at Bain. How does this grow to $100 million?

One possibility is that a truly mighty oak sprang up virtually overnight from relatively tiny annual acorns because of the unprecedented prescience of every one of Romney's investment choices.

Another, which on its face is quite plausible, is that Romney stuffed far more into his retirement plans each year than the maximum allowed by law by claiming that the stock of the Bain company deals that the retirement plan acquired had only a nominal value. He presumably would have done so by relying on a special IRS "safe harbor" rule relating to the taxation of a service partner's receipt of such interests, but that rule emphatically does not apply to an interest when sold to a retirement plan, which is supposed to be measured by its true fair market value.

Third, the vast amounts in Romney's family trusts raise a parallel question: Did Romney report and pay gift tax on the funding of these trusts or did he claim similarly unreasonable valuations, which likewise would have exposed him to serious penalties if all the facts were known?

Fourth, the complexity of Romney's one publicly released tax return, with all its foreign accounts, trusts, corporations and partnerships, leaves even experts (including us) scratching their heads. Disclosure of multiple years' tax returns is part of the answer here, but in this case it isn't sufficient. Romney's financial affairs are so arcane, so opaque and so tied up in his continuing income from Bain Capital that more is needed, including an explanation of the $100 million IRA.

Finally, there's the puzzle of the Romneys' extraordinarily low effective tax rate.

For 2010, the Romneys enjoyed a federal tax rate of only 13.9% on their adjusted gross income of roughly $22 million, which gave them a lower federal tax burden (including payroll, income and excise taxes) than the average American wage-earning family in the $40,000 to $50,000 range. The principal reason for this munificently low tax rate is that much of Romney's income, even today, comes from "carried interest," which is just the jargon used by the private equity industry for compensation received for managing other people's money.

The vast majority of tax scholars and policy experts agree that awarding a super-low tax rate to this one form of labor income is completely unjustified as a policy matter. Romney has not explained how, as president, he can bring objectivity to bear on this tax loophole that is estimated as costing all of us billions of dollars every year.

News: Romney cites incident of helping campaign contributor

The U.S. presidency is a position of immense magnitude and requires a thorough vetting. What the American people deserve is a complete and honest presentation by Romney of how his wealth was accumulated, where it is now invested, what purpose is served by all the various offshore vehicles in which he has an interest and what his financial relationship with Bain Capital has been since his retirement from the company. These are all factors that go to the heart of his character and values.

For a nominee to America's highest office, a clear and transparent reporting of his finances should be nothing more than routine.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of Edward D. Kleinbard and Peter C. Canellos.

ADVERTISEMENT
Part of complete coverage on
October 28, 2014 -- Updated 1237 GMT (2037 HKT)
Errol Louis says forced to choose between narrow political advantage and the public good, the governors showed they are willing to take the easy way out over Ebola.
October 27, 2014 -- Updated 1803 GMT (0203 HKT)
Eric Liu says with our family and friends and neighbors, each one of us must decide what kind of civilization we expect in the United States. It's our responsibility to set tone and standards, with our laws and norms
October 27, 2014 -- Updated 1145 GMT (1945 HKT)
Sally Kohn says the UNC report highlights how some colleges exploit student athletes while offering little in return
October 26, 2014 -- Updated 1904 GMT (0304 HKT)
Terrorists don't represent Islam, but Muslims must step up efforts to counter some of the bigotry within the world of Islam, says Fareed Zakaria
October 24, 2014 -- Updated 1302 GMT (2102 HKT)
Scott Yates says extending Daylight Saving Time could save energy, reduce heart attacks and get you more sleep
October 27, 2014 -- Updated 0032 GMT (0832 HKT)
Reza Aslan says the interplay between beliefs and actions is a lot more complicated than critics of Islam portray
October 27, 2014 -- Updated 1119 GMT (1919 HKT)
Julian Zelizer says control of the Senate will be decided by a few close contests
October 24, 2014 -- Updated 1212 GMT (2012 HKT)
The response of some U.S. institutions that should know better to Ebola has been anything but inspiring, writes Idris Ayodeji Bello.
October 22, 2014 -- Updated 2101 GMT (0501 HKT)
Paul Callan says the grand jury is the right process to use to decide if charges should be brought against the police officer
October 23, 2014 -- Updated 1619 GMT (0019 HKT)
Theresa Brown says the Ebola crisis brought nurses into the national conversation on health care. They need to stay there.
October 21, 2014 -- Updated 2235 GMT (0635 HKT)
Patrick Hornbeck says don't buy the hype: The arguments the Vatican used in its interim report would have virtually guaranteed that same-sex couples remained second class citizens
October 24, 2014 -- Updated 1630 GMT (0030 HKT)
The Swedes will find sitting on the fence to be increasingly uncomfortable with Putin as next door neighbor, writes Gary Schmitt
October 24, 2014 -- Updated 1632 GMT (0032 HKT)
The Ottawa shooting pre-empted Malala's appearances in Canada, but her message to young people needs to be spread, writes Frida Ghitis
October 26, 2014 -- Updated 0148 GMT (0948 HKT)
Paul Begala says Iowa's U.S. Senate candidate, Joni Ernst, told NRA she has right to use gun to defend herself--even from the government. But shooting at officials is not what the Founders had in mind
October 23, 2014 -- Updated 2208 GMT (0608 HKT)
John Sutter: Why are we so surprised the head of a major international corporation learned another language?
October 23, 2014 -- Updated 2154 GMT (0554 HKT)
Jason Johnson says Ferguson isn't a downtrodden community rising up against the white oppressor, but it is looking for justice
October 24, 2014 -- Updated 1621 GMT (0021 HKT)
Sally Kohn says a video of little girls dressed as princesses using the F-word very loudly to condemn sexism is provocative. But is it exploitative?
October 21, 2014 -- Updated 2006 GMT (0406 HKT)
Timothy Stanley says Lewinsky is shamelessly playing the victim in her affair with Bill Clinton, humiliating Hillary Clinton again and aiding her critics
October 23, 2014 -- Updated 1414 GMT (2214 HKT)
Imagine being rescued from modern slavery, only to be charged with a crime, writes John Sutter
October 21, 2014 -- Updated 1600 GMT (0000 HKT)
Tidal flooding used to be a relatively rare occurrence along the East Coast. Not anymore, write Melanie Fitzpatrick and Erika Spanger-Siegfried.
October 21, 2014 -- Updated 1135 GMT (1935 HKT)
Carol Costello says activists, writers, politicians have begun discussing their abortions. But will that new approach make a difference on an old battleground?
October 21, 2014 -- Updated 1312 GMT (2112 HKT)
Sigrid Fry-Revere says the National Organ Transplant Act has caused more Americans to die waiting for an organ than died in both World Wars, Korea, Vietnam, Afghanistan and Iraq
ADVERTISEMENT