Should I Put My Money in Caribbean Tax Havens Like Mitt Romney Does?
What's so special about the Cayman Islands? What's a tax haven? Can I have one, please? The answers to these questions and more.
Mitt Romney has millions of dollars spread around at least a dozen investment funds run by Bain Capital out of the Cayman Islands, a notorious tax haven, as ABC News reported on Wednesday. This raises some tricky questions, including but not limited to: Isn't this awfully suspicious? How does a tax haven work? And, should I get one? The short answers are, respectively: No, it's complicated but we'll explain, and probably not.
Is Mitt Romney hiding his money illegally?
No. Moving your money to an obscure tax-haven sounds suspicious, but as far as anybody knows, Romney's investments are above board. If he was trying to hide his money, he'd be doing a pretty terrible job, considering all this information was discovered through public documents.
Before we get into why some of Romney's money is on vacay in the Caribbean, we should talk about who actually controls his investments. Technically, Romney isn't supposed to have a say in where his fortune goes. To avoid potential conflicts of interest when he became governor of Massachusetts, Romney put his wealth in a "blind trust," which he supposedly has no hand in managing.
The trust is run by Romney's longtime lawyer, Bradford Malt. Back in 2007, when the issue of Romney's offshore investments first came to light, Malt told the Los Angeles Times that he had invested in a number of foreign funds, including one located in the Caymans. As he put it:
"I don't care whether it's the Cayman's or Mars, if it's organized in the Netherlands Antilles or the Jersey Islands," he said. "That means nothing to me. All I care about is whether it's a good fund or a bad fund. It doesn't affect his taxes."
Wait, if he's Romney's lawyer, how "blind" is this trust, really?
Good question! After all, Malt even invested $1 million of Romney's money in a fund run by the candidate's own son, Tagg. As ABC has reported, Romney's blind trust probably wouldn't be up to snuff for a federal elected official. His campaign has acknowledged so much. But since it was organized in Massachusetts, he got to meet a lower bar. To the best of anyone's knowledge, though, Romney isn't calling the shots on his investment portfolio.
That's sounds really simple!
Some of the biggest investors in the United States are tax-exempt organizations, like college endowments and public pension funds. But when it comes to putting their money with private equity, they have a problem. That's because tax-exempt organizations aren't allowed to use borrowed money to make financial investments, or run a for-profit business on the side. Otherwise, they're subject to a special "unrelated business income tax," which maxes out at 35%.