Under pressure from his Republican opponent, former Massachusetts Governor Mitt Romney yesterday abandoned months of resistance, and said he would make his tax returns public in April 2011.
Put the hesitation is open, understandable since Romney to seek one of the richest men of the presidency, received tax breaks as the controversy it causes a decrease in overall rate that millions of American workers whose the votes he can pay need to capture the white house.
This is because private-equity managers, as Romney is 15 years old when he ran Boston-based Bain Capital LLC, a large portion of their compensation receives a "carried interest". To treat this, the other ordinary income enables service providers are taxed at rates as high as 35 percent, as capital gains taxed at 15 percent.
The Republican front-runner said yesterday in Florence, South Carolina, his effective tax rate "probably" been around 15 percent, because his income "comes primarily from investments made in the past."
But these investments were largely former partners Romney has the money with other investors, not made his own money. The vast majority of resulting benefits are compensation for Bain to acquire work, beautification and sale of individual companies say critics.
"Earned income"
"This is earned income for them, not a return on capital employed," said Victor Fleischer, an associate professor of law at the University of Colorado, whose 2007 paper has contributed to this topic sparks a movement in Congress to try to change the law. "This is a process for converting capital gains in its workforce in a way that is unusual outside of the industry Investment Management. Ordinary people would not be able to do. "
Although he retired from Bath in February 1999, Romney, 64, will continue to benefit from the company profitable private equity funds and invest in more so-called "co-investment" vehicles, which generate both income taxed at 15 percent.
This preferential tax treatment is by Peter G. Peterson, co-founder of Blackstone, another private equity firm, many experts on tax policy and the billionaire Warren Buffett lambasted. Buffett said it was unfair for many wealthy investors to allow a lower overall tax rate to pay their workers. Even the House of Representatives Eric Cantor Majority Leader, a Republican from Virginia, has the will, the tax system as part of a plan to reduce the deficit would not increase government tax revenues shows scrap.
Taxes paid due
For months, Romney - payroll, pays about half the 31 percent rate President Barack Obama in the last three years - refused to reveal his tax information. "I do not intend today to release the tax returns," he said Jan. 11. "I paid taxes under the law is necessary."
As Romney wants the Republican nomination locked up in the Jan. 21 South Carolina primary, this position was crumbling under attacks from other Republicans. Onetime U.S. Speaker of the House Newt Gingrich, Texas Governor Rick Perry, former Utah Governor Jon Huntsman and former Alaska Governor Sarah Palin Romney called on all to disclose the information for you.
Gingrich said yesterday that Romney planned to publish in April, probably after winning the Republican nomination was "absurd." Instead, Romney should provide information to the public before South Carolina voted to do, he said.
"Either there is nothing - or is it something -? - Why did he let go Why is he hiding it," said Gingrich, in Florence.
Generous compensation
The tax code is the treatment of income from partnerships, private equity, hedge funds and real estate development means that some of the richest people in the country are taxed as if they were bus drivers, assistants or to health. Private equity compensation can waste three founders of the Washington-based Carlyle last year, each $ 134 million in distributions of their funds to only $ 275 000 in salary, according to a Securities and Exchange Commission filing.
In the middle of growing public concern about income inequality, can questions about his taxes a political vulnerability for Romney in the general election, even if they do not like him to victory in Iowa and New Hampshire and South Carolina South a leader in opinion polls.
Responsible for the Obama campaign to see the tax issue as a weakness in Romney. John Podesta, Obama's transition in 2008, ran and retains close ties to the White House, marked the Democratic line of attack. "It is likely to pay less tax than many people let go or fired at the company, he resumed," Podesta said in an interview with Bloomberg Television.
"Unfair Advantage"
Mark McKinnon, a Republican political strategist who advised former President George W. Bush said in an e-mail is the risk "that he will get a more favorable tax treatment than most Americans, and the voter as an elitist view that receives unfair advantage."
Andrea Saul, a spokesman for Romney's campaign, declined to comment on this story.
No law requires presidential candidates to declare their income, but most have since the adoption of the post-Watergate campaign finance laws. As a Senate candidate in 1994, Romney unsuccessfully challenged the incumbent, Senator Edward M. Kennedy to publish his tax information. Published in 1968, Romney's father, former Michigan Governor George Romney, his income during a failed attempt presidency.
In 2000, Bush and running mate Dick Cheney as part of the disclosure versa versa completed four years later. In 2008, Obama and Republican presidential candidate John McCain them.
Challenge
Romney, whose campaign estimated between its assets and $ 190 million $ 250 million, may face a major political challenge, as most previous candidates because of the nature of the activity of private equity.
Executives in the industry to collect large sums of money from pension funds, universities and wealthy individuals and generally use the money to acquire the company private or public enterprise units subpar. Following the improved performance of the company, often working in practice on leadership positions or as a member of the board, they sell the company to other investors or take it public.
Managers receive most of their pay that interest, a share of the profits on the underlying investments of the fund. The tax code treats profits as if the private equity partners have put their own money - like the average Americans who invest in mutual funds - paid or advice instead of running the company, to acquire. In most cases, set the private-equity firms, only a small piece of the fund's capital.
"Fund VIII"
Individual partners, as Romney are not taxed if they are given the right to share in future profits of a fund, even if that right is clearly of value, said Lee Sheppard, a tax lawyer and editor the Tax Analysts nonprofit case of the Church, Virginia. "An executive of a company comparable to the average prices for the award of a valuable contribution to their employer should be taxed," she added.
In May 2004, investors Bain in a memorandum distributed to private placement "Bain Capital Fund VIII" marked confidential, the paper boasted Bain ("one of the leading private equity firms in the world") offers more than 200 had been completed as of March 2004. The name of the first six funds had a return of 82 percent, it said.
Cayman Islands
Two hundred and 74 investors have signed up, including Romney and his wife Ann and pension funds of teachers in Texas and employees of the State of Pennsylvania.
Bain Capital Fund VIII, are registered in the Cayman Islands, illustrates the special tax provisions that accumulate Romney, Bain wealth both during implementation and in the 13 years since he left the company allows.
Romney and his wife of more than $ 1 million in Bain funds received $ 3.5 billion in 2010 to form after his recent financial disclosure. Even though Bain put only 0.1 percent of the capital of the fund is expected to take 30 percent of profits to investors in their investment, better than the industry standard of 20 percent and a reflection of registration of the stellar track company to be repaid.
Success Stories
The investment objective of the Fund included the success of the parent company of Dunkin 'Donuts, investors paid $ 500 million dividend to the success of November 2010 refinancing. A month later, the IPO Fleet or Technologies in Norcross, Georgia, the Fund an additional $ 61 million.
The Fund Bain draws more than 99.9 percent of the income or capital gains dividends, sent copies to the Fund VIII in 2010 and 2011 financial reports obtained by Bloomberg News. According to current tax law, profits and dividends are treated as partners, the share of profits or carried interest.
Bain Fund VIII had just $ 13,056 compared to interest income in the year 2010 with 249.8 million dollars in dividends and 665.1 million dollars in capital gains realized after the discovery of the confidentiality of financial results. During the first nine months of 2011, the Fund had only $ 6,539 in interest, $ 111.9 million in dividends and 445.1 million dollars in investment income.
Taxes may Romney 15 percent to the vast majority of more than $ 1 million they received from the Fund paid, according to Joann Weiner, an analyst at Bloomberg tax administration and former senior economist at the Treasury Department's Office of Tax Analysis.
$ 200 000 savings
Measured at the 35 percent tax on ordinary income, means that Romney can save taxes on this investment should be $ 200 000 - an amount equal to four times the average annual income of the typical American household.
And Bain Capital Fund VIII is only one of 31 funds linked Bain, who has an agreement to leave the company in 1999, Romney earned income last year, both to a blind trust Ann Romney, or account of her husband individual retirement. Together, these investments are planned in the year 2010, 5.5 million dollars between Romney and $ 21.5 million in revenue, according to the disclosure.
The percentage distribution of a fund, the interest is made varies, are recorded as investments mature and realized. In the early years of a fund pays all interest and dividends. Later, when the investment of public funds are made or sold, he made large profits with certain results, depending on performance.
Of interest usually performed
"For the resources to do very well, it is almost all carried interest," said Andrew Metrick, a professor told the Yale University School of Management, the industry has been investigating compensation practices.
It is impossible to say exactly how to save on taxes Romney, without the details of the agreement he reached with Bain when he left the company and its tax returns.
As an example, but if half of Romney "interest income related to Bain represented, they would have paid between $ 550,000 and $ 2.2 million less in taxes than if such income were taxed at ordinary income tax rates .
Joseph Bankman, a professor of law and business at Stanford Law School and an expert on tax policy, said Romney probably benefited greatly from the tax code's treatment of interest earned.
Great advantage
"It would be strange if it was just a lot of money to Bain Capital, and it does not have a lot of it," says Bankman. "You expect a partner in private equity to profit enormously from this provision."
In September, the increase of the Obama administration $ 18000000000 in the next decade by taxing carried interest at higher rates of ordinary income. The movement takes an offer 2007 Democratic Senate amid a lobbying campaign, the failure of private equity, hedge funds and real estate companies.
Earlier this month, confirmed Cantor, a Republican from Virginia, he is ready, breaks made tax on interest as part of a package of deficit reduction that has not been an increase in tax revenue Total government eliminated. Romney Tax Plan, which appears on the website of the campaign, is silent on the treatment of carried interest.
The Private Equity Capital Growth Council, an industry group said, is carried interest "fundamentally different" from regular salary. Current tax regulations are needed to reward risk-taking, they say. If the income is taxed on a regular, private equity could fall to $ 7700000000 $ 27000000000 a year to study for a 2010th Council
"With more concern"
"When there is more control there is a chance that the tax used to be revisited," said David Jones is a lawyer with Proskauer Rose LLP, the private equity firms. "It is fair to say that cause more concern."
For Romney, could the tax savings on their income VIII Fund may be more important than the above analysis suggests. Many allow their funds Bath, including the Fund VIII, and an escort vehicle in which Romney, to invest his own money, are in a blind trust Ann Romney has to be formed after the disclosure of financial.
Federal election law requires candidates do not specify the sources of income spouse more than $ 1,000,000. If funds were placed in the name of Mitt Romney, it would be nice.
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