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Could Mitt Romney be a Billionaire?

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Mitt Romney At Bain & Company, Inc.

By Ben Cohen: I recently received a tip off about Mitt Romney and his wealth from a trusted source who is extremely well connected in political circles. My source informed me that he'd heard from a contact of his in a Swiss bank (that Romney uses)  who told him confidentially that the reason why Mitt Romney was hiding his tax returns for the past 10 years is because he is actually a lot wealthier than he's claiming to be.

A hell of a lot wealthier.

According to his contact, Mitt Romney is a billionaire, not a millionaire, and he's hiding his wealth from the public eye to avoid political embarrassment.

I wasn't sure exactly how to frame this article, so I thought detailing exactly how events transpired would be the best way to do it for maximum transparency and honesty. I can't divulge the name of my source, so readers will have to weigh up in their own minds based on the supporting evidence, but I suspect that the information is accurate. That's my personal judgment, and here's why.

After doing some research and talking to some investment bankers and a former asset manager a murky picture emerges that makes Romney's wealth status far more ambiguous than he's claiming.

Firstly, the fact that anyone would speculate on Romney's wealth is entirely his own fault. His fortune is tied up in an incredibly complex series of investment arrangements designed specifically to hide his worth from the public. He is running for the highest office in the land and he should be completely transparent about who he is and what he's worth. He hasn't been, so it's up to the press to fill in the gaps using the best information available.
According to an indepth report on Forbes that looks at all publicly available information, Romney is worth around $230 million - still an astonishing amount of money that puts him well inside the top 0.1% of Americans. According to his tax returns, Romney earned $21.7 million in 2010 and $20.9 million in 2011, almost all of it profits, dividends or interest from investments. The Washington Post reported:

None came from wages, the primary source of income for most Americans. Instead, Romney and his wife, Ann, collected millions in capital gains from a profusion of investments, as well as stock dividends and interest payments.

What we do know is this: Romney pays a disproportionately low tax rate on the money he has earned - an effective rate of around 17.9% overall,  around the same rate the very poorest Americans would pay on their income. Romney gets away with this due to income earned from investments being taxed at a much lower rate than actual labor. The tax records were released just after the worst week of Romney's campaign when the video of him labeling 47% of the American people as freeloaders came out, ostensibly because it couldn't get much worse and his campaign didn't want to give the Democrats more ammunition. Now it's out, everyone knows Romney pays pittance in tax in relation to his earnings.

So why won't he release more of his tax records, a precedent ironically set by his own father? As Nicholas Shaxson writes in Vanity Fair:

It was Mitt’s father, George Romney, who released 12 years of tax returns, in November 1967, just ahead of his presidential campaign, thereby setting a precedent that nearly every presidential candidate since has either willingly or unwillingly been subject to. George, then the governor of Michigan, explained why he was releasing so many years’ worth, saying, “One year could be a fluke, perhaps done for show."

If Romney Jr is only releasing 2010 and 2011 tax returns that show he paid as little to the federal government and state as was technically possible, what is he hiding from the previous years?

It could be argued he paid even less tax (Harry Reid has accused him of paying no tax at all), but given the awful time Romney is having, it doesn't seem like something his campaign would bother to hide. The public now knows Romney pays the lowest rate possible, and the damage has been done. The only other plausible argument is that Romney may have actually paid more tax on a much greater sum of money that he doesn't want anyone to know about. We already know that Romney has done his best to disguise his wealth - as Shaxson writes:

It is hard to know the size of these investments. Romney’s financial disclosure form lists 25 of them in an open-ended category, “Over $1 million,” including So­lamere and Elliott, and they are not broken down further. Romney hides behind a disclaimer that the fund managers “declined to provide such information” about their underlying assets. Many of these funds are set up in tax havens such as the Cayman Islands, where a confidentiality law states that you can be jailed for up to four years just for asking about such information.

If we go by Forbe's estimation that he's worth $230 million, he would have effectively made a 9.34% return on his fortune in 2010, and 9.1% in 2011. Max Keiser of the Kaiser Report said the following back in February:

"He says he's [Romney] only worth 250 million dollars. That's wrong. He's worth at least a billion dollars. Because he made $20 million on his investments. Interest rates on 10 year notes are around 2%. It's all passive investment, managed passively in a blind trust. There's no way he could have made 6 or 7% on that $250 million that he claims to have. Mitt Romney is a billionaire and he won't say it because he knows it will spark incredible backlash against that liar"

A Blind Trust is a trust in which the fiduciaries (the trustees) have full discretion over the assets, and the trust beneficiaries have no knowledge of the holdings of the trust and no right to intervene in their handling. The Romney's have all their assets managed by trustees so should have no knowledge of where the investments are held. Those type of returns wouldn't be out of the question for someone like Romney if he was in control of his assets, but he isn't and the sums are a little hard to swallow.

Let's say the blind trusts did perform amazingly well (there's also significant speculation as to whether Romney's Blind Trusts really are all that blind as his personal lawyer Bradford Malt is the trustee). It's certainly not an amount that would raise serious suspicions about Romney's overall net worth unless you have an intricate knowledge of wealth management (as Max Keiser does). But lets say his assets are far bigger than he's saying and could have potentially earned much more income. Would it be easy to hide?

According to another source who currently works in a big European bank, it is relatively simple to do if you have the means (ie. if you're rich). If Romney was a billionaire he would have no problem keeping that from the public.

"There are lots of things you can do," he said. "You can put the money into accounts and funnel the interest into trusts that aren't taxed and are passed onto your children. If you're very rich, you can also arrange it so that tax doesn't show up in certain years, or simply roll up the interest in a foreign account and don't take any of it out."

An article in Business Insider has a far more extensive list of exactly how you would do it, but the fact remains - if you want to hide money, it's not hard to do. And if you were taking interest out and were paying tax on it, public records would give an indication as to how much you were really worth. If didn't want anyone to know, you simply wouldn't release your tax returns.

I spoke to one tax attorney who dismissed the idea. "The premise seems to be going far beyond tax, to some idea that Romney has everything stashed in a Cook Islands trust like some divorced dentist," he said. "Makes no sense that he'd keep $250 million back and stash more elsewhere. You'd keep only living expenses back. Only in his little circle does anyone differentiate $250 million from $1 billion."

But I'm not so sure. The political implications of Romney being a billionaire would be even more severe than being a millionaire. Americans understand millions. A decent sized house costs a quarter of a million dollars in most parts of the country. A billion is something completely different - a sum so vast most people know it's a fortune they'll never amass. Romney's mantra is that anyone can become a millionaire like him. And to many Americans, that seems possible. Becoming a billion however, is not something he can sell.

Sadly, the more you dig into Romney's wealth, the more dead ends you run into. Shaxson's article highlights this problem and concludes that is basically impossible to accurately assess how much he has, and where it is. I spoke to a former asset wealth manager (again anonymously) who told me he was surprised how little estimations were about Romney's wealth given the extraordinary assets of Bain Capital the company Romney co-founded. According to the Bain website,  they have $66 billion in assets under management.

"It would make sense that he has a lot more money than he's claiming. Bain was huge in the 80's and those guys made billions. I'd be surprised if Romney didn't have more money," he said.

Everyone I spoke to who worked in finance pretty much said the same thing - that they were surprised how little Romney had made given his role in Bain and his prominence as an investor. $230 million might seem like a lot to regular people, but in Romney's circles, it's really not that much.

I asked Yves Smith of Naked Capitalism for her thoughts, and she came back with the following: "My quick guess is that he has considerably undervalued assets."

"You hide income from the taxman, which may lead you to hide assets - as in if you are living too high on the hog relative to your reported income, the taxman may take notice and start digging."

So far no digging, but as Smith points out, "I don't see much evidence that the IRS does that for people at Romney's level. Look, Madoff was living on the tax free proceeds of his Ponzi for decades and the IRS didn't notice."

Asking why he would bother to hide more wealth from the public is a reasonable question, but Romney's history of evasiveness and awkward personality means it's difficult to assess. Romney isn't comfortable in his own skin, at least around regular people, and his unwillingness to be transparent about his wealth and tax status is an obvious indicator he has something - or many things to hide.

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