Wednesday, January 18, 2012

Things I do not understand

Lots of things are legal. You can marry your first cousin in some states. You can drink a fifth of vodka every day, provided you don't drive drunk or frighten the horses. You can write a book saying what a wonderful guy Stalin was.

You can do all those things, but is it a good idea to run for president in that case?

Now, is this comparable?
Although it is not apparent on his financial disclosure form, Mitt Romney has millions of dollars of his personal wealth in investment funds set up in the Cayman Islands, a notorious Caribbean tax haven.
Sure, a tax shelter in another country is legal. But isn't it a trifle sleazy? Less than completely patriotic? Getting away with everything you can?

Or is that just me?

... In comments, veteran commenter Ugh is skeptical that there's any savings to the Cayman funds. Political Wire now links to a WSJ (!) story saying Romney is indeed deriving a tax advantage.

As with any such story, there are two unrelated questions: is it true, and who's pursuing their advantage by arranging to promulgate this story?


  1. Not sleazy enough, for a republican. JL

  2. Meh. Wilkins claims this helps "U.S. investors avoid U.S. tax" but I'm not aware of how this could be the case, unless the U.S. investors are committing fraud. As the article notes, the reason to set these funds up on the Caymans or some other low-tax jurisdiction is to make them attractive to foreign investors, and not any tax advantage for Romney.

  3. It's just you. A justice of the SCOTUS once said that, while it was unlawful to evade the payment of taxes, it was the patriotic duty of every American to avoid the payment of taxes.

  4. Bill Dees gets it all wrong. Not a SCOTUS justice, nothing about tax evasion, and certainly nothing about "the patriotic duty of every American to avoid the payment of taxes." It's Learned Hand, 2d Circuit Justice, and the quote is "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."

    Gregory v. Helvering 69 F.2d 809, 810 (2d Cir. 1934), aff'd, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935)

  5. I dunno, Ugh ... I know nothing of tax law, and you surely do, but Blum and Wilkins both seem to think there's a tax advantage.

    Maybe if we get the Romney tax returns (esp. those not filed this year), we can figure it out.

  6. Reading the WSJ story (which is a follow up to the one I had read), it seems strange to me that (i) the UBIT rules apply to IRAs in the first place, and that (ii) investing through a foreign entity could avoid the rules, but I guess it could be true. The UBIT rules are aimed at what I think of as "traditional" non-profits, e.g., charities and not personal investment accounts, and are there as the article says, to prevent someone from running a "business" through a charity and avoiding taxes on the business income.

    But I'm not an expert in these areas, though I still maintain that the primary reason for setting up the private equity funds in foreign jurisdictions is for the foreign investor's benefit, as they generally avoid both US tax and home-country tax on the capital gains.