Today’s guest post is from my long time, dear friend, a TV writer-producer with an endless and impressive resumé, David Garber. If you're anything like me, the minute you hear the words finances, taxes, or accountants, you start to glaze over. This explanation from an accountant friend of David's helped me, so I hope it helps some of you, too:
A friend, who's an accountant came over last night and I asked him if he could explain the Romney tax situation regarding foreign, off-shore banking, income, investments and such, based on the 2010 and 2011 Federal tax returns as we've seen them. He put it in English -- instead of all these pundits trying to explain it with legal and accounting terms. I think now get it, and perhaps your readers would understand it when put in my friends words. By the way, I do have a BS in Business Administration, and I didn't understand this until now.
The Cayman Island thing goes this way: (which by the way is legal, though to what degree legal and moral overlap in this will always be fodder for debate)
Mitt deposits money from business dealings around the world, some in the US, many in foreign lands into off-shore banks. (This is done through foreign corporations his 'blind trust' controls/owns. Some of these banks he uses, BTW, are just post office boxes or storefronts, not a bank like we in the states think of them.
He then takes out money from that account, but in a foreign currency -- for example, Cayman Dollars.
When he brings that money into the states, it's taxed at a lower rate and he's given credit as if he's bringing in a foreign investment.
Then he reconverts the currency into American money in his US banks but it's already been taxed as a foreign investment and he gets to write off additional conversion charges so the reduced money is already taxed, free and clear. It's coming from his foreign corporation.
Then he ships the American money to China (through his blind trusts investments) to purchase energy or other companies, takes an investment tax credit to further reduce his tax liability or redeposits it back into the Swiss or other foreign banks, which give him a premium interest rate because he's using American dollars.
It's all legal, but by doing this, he's avoiding paying some American corporate taxes and getting a write-off against any money he stores here, accruing interest. He can even back foreign currencies against the dollar using that money, which again, isn't illegal, just a bit immoral -- an American hedging against the US dollar.
So goes the Romney cycle. By using the Caymans he avoids much of the US corp taxes which are around 37% and he still gets to write off the houses, boats, travel, meals, clothes, haircuts -- just about everything he spends money on. It's a write-off against his businesses here.