Lying Liars

Romney’s Bootstraps are Tax-Deferred

With annual contribution limits of roughly $6,000 for your average American or $30,000 for a man like Mitt Romney, how exactly did Romney managed to accumulate over $100 million in his IRA?

We won't know for sure unless Romney comes clean, but the best guess as of now is stuffing cheap, bottomed-out stock plundered in Bain buyouts into the IRA. These penny stocks would later grow inside the IRA with a return rate somewhere in the neighborhood of 20,000 percent. Completely tax-free.

via Bloomberg

While there are limits to the amount that can be contributed tax-deferred to an IRA, there are no restrictions on the amount of money that the contributed capital can earn and can continue to earn, on a tax-deferred basis, even after the contributions have stopped. (The Internal Revenue Service will get its pound of flesh from Romney when he takes the money out of the IRA.) The only limit is the skill, or luck, of the IRA’s owner. If you are the Warren Buffett of IRA investors, it is conceivable that you could turn $450,000 into as much as $102 million -- an increase of 227 times -- but not very likely, especially as in the last decade or so, the stock market has been a roller coaster. Mere investing mortals would be lucky to still have $450,000 in the account. (The median American family has $42,500 in traditional IRAs, according to the Investment Company Institute.)

So how did Romney do it? Of course, we don’t know, but there have been several theories propagated to fill the considerable gap in knowledge left by Romney’s ongoing silence. Mark Maremont, a Pulitzer Prize-winning reporter at the Wall Street Journal (and a former classmate of mine at journalism school), has suggested that -- perfectly legally -- Romney contributed to his IRA using the low-basis, low-value stock he received as a partner at Bain Capital in the various buyouts the firm did while Romney was there.

Romney will have to pay taxes if or when he extracts money from his IRA, but every cent earned by the stocks inside the IRA has been tax-free.

Furthermore, it's entirely possible the stocks were intentionally undervalued when placed in the IRA to allow room for more shares. The shares would then regain their former value after a successful buyout.

In other words, we're down the rabbit hole of high finance. And if Mitt Romney doesn't come clean, we'll still be asking these questions on the day before the election.

It may have been legal, but needless to say, the average America does not have the capability to pull themselves up by their own tax-deferred bootstraps. And simply saying "it was legal" is not necessarily an adequate defense in the world of politics.

Most of what Wall Street did leading up to the financial crisis of 2008 was legal, but ask your average American what their opinion of Wall Street is.

  • bleedingheartliberal6

    Do you think it’s possible that ol’ Mitt is not just afraid of alienating his joe-6- pack base by exposing all of his tax-end-arounds, but, maybe he and his wife dont want the Mormon church to know that they only tithed about 2-5% of his real income, instead of the required 10%????? He would lose both legs of his base .

  • BenAu

    All this is coming at a perfect time in the campaign. Things are slow, so there’s plenty of time for this investigative approach to what “Mitt might be hiding”. Every possibility is going to be explored and the shadiness is just going to get shadier the longer he holds out.

    After despairing for so long that a man can lie with every second sentence and yet still not have his character questioned in the mainstream, I’m seriously hoping this may prove to be the entry point.

  • Draxiar

    You raise an excellent point that seems to be lost on the people that believe that avoiding taxes in the manner described above (and other means as well) is “American”: Legal doesn’t equate to ethical.

    That could very well be the dilemma Romney is facing now. The means by which he’s conducted his fiscal business may not be ethical in the eyes of the “commoners”. Most likely this would be revealed in his taxes. The longer he waits, the more damage could be inflicted.

    The Obama Campaign, I believe, should keep punching this bloody wound in the Romney Campaign.