The rich are different from you and me. They have Swiss bank accounts.
Well, at least Mitt Romney does.
That was one of the big revelations when Romney released his tax records in January -- a revelation that Vanity Fair
recently looked into, along with the rest of his finances. Of course, it's no secret that Mr. Romney is a man of means. But what is still secret is just how Romney has invested those means.
Maybe not so much secret as secretive. Romney has released his return for 2010 and an estimate for 2011. So we have a broad outline of what his personal finances look like. And they look something like an Epcot of financial investments: There is a blind trust with offshore accounts in Switzerland, Bermuda, and the Cayman Islands -- not to mention an almost comically large IRA account. None of this is illegal. But it has raised questions about Romney's Caribbean tax havens and his Swiss bank account. The former makes sense. The latter not as much.
Question #1: Remind me: Why does Romney have money in the Caribbean?
Let's take a quick detour. Imagine that a tax-exempt entity -- like a university endowment -- buys or otherwise acquires a business. Maybe a macaroni company. That company would have a nice little competitive edge. It wouldn't have to pay taxes. That's exactly what happened when some wealthy alums donated the Mueller Macaroni Company
to the New York University Law School in 1948. This loophole prompted Congress to close it 1950. Only a tax-exempt entity's "related" businesses would in fact be tax exempt. Everything else would be taxed as "unrelated business income".
What does this have to do with Mitt Romney? Well, university endowments and public pensions are some of the biggest investors in private equity funds like Romney's Bain Capital. Those investors don't want to be hit with the unrelated business tax -- so Bain Capital sets up shop in the Caymans where it can avoid the unrelated business income tax. You might still be wondering: What does this have to do with Mitt Romney -- at least now? He left Bain Capital in 1999 (or 2001
). He did, but he didn't. He still gets a share of Bain Capital's profits every year as part of his retirement package. And Bain still has corporate blockers in the Caymans. That's why Romney has investment income from the Caymans
Question #2: Why does Romney have a Swiss bank account? And what's so great about a Swiss bank account versus any other tax haven?
Swiss banks are the gold standard of tax havens because of their secrecy and stability. Actually, that sentence should be in the past tense. Swiss banks are not nearly as secret as they used to be. Time was, the Swiss government jealously guarded its banks' reputation for never revealing client information. It was a crime to do so. High-net individuals the world over flocked to the Alps to hide money from tax collectors back home. But that started to change in 2008. A former UBS banker
came forward with tales of how he helped wealthy American clients evade taxes -- including such charming details as smuggling diamonds in tubes of toothpaste. The IRS launched an investigation, and came up with a list of 52,000 names it wanted from the Swiss banking giant. A settlement
followed, and then a new U.S. law
. Now foreign banks have to cooperate with the IRS or face fairly tough penalties. Auf Wiedersehen
, Swiss banking secrecy über alles
But Swiss banks still have plenty going for them. They can thank the Swiss franc for that. It's a safe-haven currency -- and that makes their banks safe havens too. The Swiss are famous for their fiscal prudence and low inflation, which makes their currency particularly strong. That's even more true now thanks to the euro crisis. Demand for Swiss francs is so great that the Swiss National Bank had to cap the value of their currency last year. It was getting so expensive that it threatened to push the Swiss economy into deflation.
The Romney camp has hinted that he only had a Swiss bank account because he wanted Swiss francs. In other words, he was hedging against the dollar declining in value. That's fair, even if it's a bit odd for someone with $250 million
. But you don't need a Swiss bank account to get Swiss francs. You can just buy Swiss francs.
Another possibility is that Romney had the Swiss bank account to make it easier to wire money from one European investment to another. We can't say without seeing more tax returns. All we do know is his lawyer closed this Swiss bank account in 2010.
That's the final point. Mitt Romney's long-time lawyer, R. Bradford Malt, has managed Romney's personal finances since Romney was elected governor of Massachusetts. That's when Romney set up a blind trust, to avoid any possible conflicts of interest. Still, there are questions about just how blind
the trust has been. And, besides, Romney is ultimately responsible for his own money.Question #3: Is it fair for the Obama campaign to go after the Swiss bank account?
When most people hear the words "Swiss bank account" they think "tax evasion". That's not always fair. There are plenty of good reasons
an American might have a Swiss bank account. Maybe they live abroad. Or work for a Swiss company. But those are good reasons that don't apply to Mitt Romney. He didn't live abroad. And he didn't work for a Swiss company.
That doesn't mean Mitt Romney was up to no good. There's no evidence of that. It's entirely possible that Romney really was just hedging against the dollar. That's the legitimate reason a very wealthy person would want a Swiss bank account. The not-so-legitimate reason is the secrecy -- to hide money from the IRS. It's unfair for the Obama campaign to insinuate Romney was doing the latter. But it'd be a lot more unfair if Romney was more transparent. We just don't know enough to say anything definitively. We don't know how long the account existed. We don't know whether Romney's lawyer or Romney himself set it up.
What we do know is that this kind of stuff doesn't seem weird to Romney. It's what the über-wealthy do. But it is weird to most everyone else. It's not what the 99 percent do. Actually, we know one more thing. Romney can end this controversy whenever he wants. He just has to release more tax records. He's running for office for Pete's sake. He should say something.
In other words, Romney should take a page from the Swiss. Even they're less secretive nowadays.