So you don't have to go anywhere to read a bit of what was expected given that Romney's Bain was operating many
corporations from the Cayman Islands:
Bain Capital's tax breaks: Are they legal?
August 25, 2012
(MoneyWatch) Gossip website Gawker released 950 pages of Bain Capital records Thursday, shedding light on two controversial campaign issues: Mitt Romney's financial portfolio and the sometimes aggressive strategies used by Bain Capital, which he founded, and other private equity firms to reduce taxes that partners pay on income from their investments.
The document dump will stoke the political fires, as partisans call attention to documents such as Bain Capital Fund VII, a $515 million Cayman Island-based limited partnership in which Ann Romney has at least $1 million, according to financial disclosure forms. In the words of the writer, John Cook, the documents "reveal the mind-numbing, maze-like, and deeply opaque complexity with which Romney has handled his wealth, the exotic tax-avoidance schemes available only to the preposterously wealthy."
Reaction ranged from an angry Bain statement decrying the release of confidential documents to a yawn from a Fortune blogger who claimed this was old news to an accusation by a Colorado University law professor who argued that the documents revealed evidence of an illegal tax dodge. What's not in dispute: The documents show that Bain, like other private equity firms, goes to great lengths to reduce its tax liability, and they show how tax loopholes are available to wealthy investors that less affluent, salaried workers can't use.
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To understand why someone like Mitt Romney, who is worth an estimated $250 million, can pay a tax rate in the range of 13 percent (the top income tax rate, 35 percent, applies to that portion of income over $388,350, for married couples filing jointly), it helps to understand how private equity fund partners are paid. Fund managers earn a management fee, typically 2 percent of assets under management, and a share of the profits, typically 20 percent. (This structure, often referred to as 2 and 20, is also used in hedge funds, and that's why it's better to manage a hedge fund than invest in one.) In some cases, Bain charged 2 and 30.
The 2 and 20 structure makes for a nice tax deal: While the 2 percent management fee is taxed as ordinary income, the 20 is treated as a long-term capital gain, which is taxed at 15 percent. In private equity lingo, the income from profits is called "carried interest." Many people, including Warren Buffett, have criticized the tax treatment of carried interest, arguing that it's simply compensation, and ought to be taxed as such.
President Obama has called for a change in the law that would treat carried interest as income. Not surprisingly, private equity investors guard their tax break fiercely. In a widely reported remark in 2010, one of the biggest names in private equity equated such a tax hike with Nazism. "It's war. It's like when Hitler invaded Poland in 1939," said Blackstone chairman and co-founder Steve Schwarzman, who has a net worth of $5.5 billion, according to Forbes.
Here's where the fun begins. Not satisfied with only paying low rates on the carried interest, private equity partners, and their tax advisors, have come up with a tax strategy to pay the lower tax rate on their 2 percent management fee as well. The recently revealed Bain documents show that Bain Capital has used a strategy, known as management fee conversion, to convert their fees into carried interest. Also known as a management fee waiver, the strategy has been popular among private equity firms for years, and is dissected in this 2007 article in a tax journal. (page 18, for the intrepid)
Bain Used Strategy
The documents released yesterday suggest Bain used the fee waiver strategy. In the financials for Bain Fund X, the managers state that in 2009, they waived $89 million of the $214 million in fees owing that year. They further state that they waived a total of $338 million of fees for years up to and including 2009. In the financials for Bain Fund VII, the managers admit to having waived fees in the past.
http://m.cbsnews.com/fullstory.rbml?catid=57500221&feed_id=76&videofeed=43
It quacks like a duck, it looks like a duck, it's in a flock of ducks, gee, I wonder if it's a duck.
