During another typically intelligent panel discussion on Chris Hayes' show on MSNBC this Sunday on the Republicans and Mitt Romney out there demagoguing President Obama asking Congress to pass the "Buffett Rule" so that millionaires and billionaires are not exploiting tax loopholes that allow them to pay far less of a percentage of their income in taxes compared to average working class citizens out there, David Cay Johnston brought up something I apparently missed earlier this year that he had reported on in January -- the fact that Mitt Romney was allowed to give his sons $100 million as a gift tax free, thanks to a tax loophole on "carried interest."
When the Romney campaign disclosed in December that the couple’s five sons had a $100 million trust fund, I suspected that, in setting up the fund, the Romneys used a tax strategy that allows some very rich people to avoid paying gift taxes. But it was impossible to know if this was the case without seeing their tax returns going back years.
So when Mitt Romney released the family’s 2010 tax return last week, I went looking. I found a hint on pages 132 and 134 of the return. It showed that the value of property placed that year into another family trust, the Ann D. Romney Blind Trust, was, for tax purposes, zero. The Ann Romney trust is not the same trust as the one that holds the Romney sons’ $100 million, but I wondered if the Romneys used the same approach in prior years when it came to valuing property placed into the sons’ trust.
Reuters emailed the Romney campaign spokeswoman to ask how much the Romneys paid in gift taxes on assets put into the sons’ trust over the last 17 years. The spokeswoman, citing Brad Malt, the Romney family tax lawyer, answered: none.
The idea that someone could pay zero gift taxes on contributions to a $100 million trust fund may surprise people who have heard arguments that the wealthy are overburdened by gift and estate taxes. But the Romneys’ gift-tax avoidance strategy is perfectly legal. Read on...
Johnston posted a video explaining the loophole in his post at Reuters which you can watch below the fold.
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Kevin Drum at Mother Jones flagged this interview with Johnston on CNN in January as well where he was discussing the same column at Reuters -- Mitt Romney's Kids Pay an Even Lower Tax Rate Than He Does:
As we all know, much of Mitt Romney's wealth is derived from "carried interest," a share of the profits from investments that Bain Capital made while he was CEO. This income is taxed at the same 15 percent rate as ordinary capital gains, which is why Romney's tax rate is so low.
But it turns out there's another interesting tidbit about carried interest that I've never heard of before: It's a great way of passing along a huge inheritance to your kids without paying any taxes. David Cay Johnston explains:
Johnston: The Romneys gave $100 million to their sons and paid not one penny of gift tax. They were able to take assets they have that are producing enormous income and, under the law, give that money to their children and not pay any taxes on it.
Sambolin: Is that something you specifically found in what has been released to you?
Johnston: Yes. I have suspected this and written about it in my column that this is what happened, and last night, Brad Malt, the attorney for the Romneys, confirmed to Reuters that we were correct. They have not paid a penny of gift tax. That's because Congress allows a very tiny group of people—the Romneys by their income are in the top 1 percent of the top 1 percent—to not count as having any value the real source of their income, something called carried interest, if they give it to their children.
As he noted, "Welcome to the wonderful world of estate planning for the super wealthy." The segment above from Up With Chris Hayes showed Romney out on the campaign trail saying President Obama was trying to "divide America" by asking that the rich like himself pay their fair share in taxes. As their panel of David Cay Johnston, Betsey Stevenson, Tom Perriello and Heather McGhee noted later in the program, that division does not have a fifty/fifty split, since the ones Romney is carrying water for are only the super rich in America and the upper 1 percent.