Published on July 18th, 2012 | by Luis Cavalcanti

The Romney Tax Withholding Strategy

Mitt Romney Caricature Romney is clearly uncomfortable talking about his personal income. He’s an extremely wealthy man who has lived an extremely wealthy life. The problem with living in that incredible sphere of wealth is that you are not in control of your dollars in the way that most of us are.

Romney probably doesn’t write his checks. Romney probably doesn’t have any idea how many bank accounts he has or where they are located. My guess is that doing personal due diligence on the part of the Romney campaign would be more tedious and impossible than doing due diligence on any candidate whom he is vetting for the job of Vice President. Chances are, Romney pays tens of thousands of dollars for his personal tax preparation. He probably pays the best of accountants (Price Waterhouse Cooper according to his return – although he doesn’t indicate how much he pays for filing for whatever reason; I’m not an accountant so I couldn’t even begin to explain), and pays whatever amount of money he is told before the April 15 deadline. Chances are that each year, his tax preparation puts out more pages than are in the Obamacare legislation (not quite, but Romney’s 2010 tax returns were something like 200 pages long). This is not your mother’s tax return. Chances are you’ve never had a tax return that is as long. You’re lucky if you have because it probably meant you made a lot of money.

First of all, I want you to consider what’s going on here. Romney pays a giant corporation to prepare his taxes. They are the most reputable tax preperation firm in the world. They prepare the taxes of the world’s most important firms, and apparently the world’s richest individuals. Now think about accountants you might use. H&R Block, TurboTax, some guy your dad recommended. Why do you use them? You’re probably not rich. You probably hate taxes. You could probably just sit down and prepare them yourself, although that’s boring.

The reason you use H&R Block, Turbotax, or some other tax guy is because you think they are going to 1) make your life easier because you don’t have to think about taxes, and 2) you are convinced that their software (or their expertise in the case of the person) will find you the most deductions. In fact, if you watch their commercials, the entire pitch of every single tax preparer is that they will find you the most deductions.

Romney can’t exactly use TurboTax, but I guarantee he’s no different than you. He pays someone to find the most deductions possible. If they suck at finding him deductions, he will go elsewhere. Would you want to elect a person who overpays his taxes? I would prefer having someone who is fiscally responsible, does what they can to keep their personal income. If you run your life like you will run the government, it seems to indicate that Romney is a money saver. I don’t think he will be. My guess is he’ll be a pretty big spender who governs by the polls – a lot like Clinton. But man, what do the democrats think they will find in these tax returns?

Here’s the thing, Romney isn’t hiding anything. Each tax return is 100+ pages. Going over the last 10 or 15 years is going to require a lot of qualified individuals to spend a lot of time nitpicking through two or three thousand pages of numbers, figuring out exactly what is in there. Romney’s a smart guy, but there is a reason he didn’t prepare his own taxes: he’s not an accountant. What that means is he doesn’t even know what’s in there himself. Moreover, if his tax preparer didn’t do whatever he could to get Romney every deduction he’s allowed, he wouldn’t be doing his job. For God sakes, despite take deductions, there are even attempts at drumming up scandals regarding deductions that Romney didn’t take

What his tax returns will definitely show is that he’s given tons and tons of money to charity. In 2010, Romney gave nearly $3 million to charity. He’s criticized as paying something like 15% of his money in taxes. But he gave 14% of what he earned to charity. How much did you give in 2010? Most people give 1 to 3% to charity.

So what is the reason that Romney is withholding these documents? My guess is that the Romney campaign has a two-fold strategy here. I’m guessing the Romney campaign is going to allow the Obama administration to spend a week or two defining him as a tax cheat. He’s going to go on the news and act truly humble about what might be in there. He’s going to say that he’s quite uncomfortable talking about his personal finances. All the while, his team is combing through them to make sure that he actually is as clean as he probably is. Then, as he dips in the polls, Romney will release his tax returns. Reporters will comb through them, discover that he is a bit of a philanthropist, very generous with his money, and that there is almost nothing untoward. The next week will be dominated by stories of the Romney family’s generosity.

The only thing left to explain are these overseas accounts. Again, Romney is likely to have very little knowledge of these overseas accounts.

The caricature that most of us who are not as wealthy have of the rich tycoon is that they sit at their behind oaken desk, smoking a cigar, twiddling their thumbs, considering philosophically complicated ways of hoarding their cash. At the end of each day, they open their Scrooge McDuck money vault and take a gander over all their life’s earnings and take the occasional dive into their hard-earned dollar bills. And while the thought of backstroking through hordes of Benjamins is a thought as attractive to most of us as having all gold teeth is to a famous wrapper, it’s just not how it works. Neither is he logging into his Wells Fargo account everyday to see how much money he has.

If you think that Romney made his money by concerning himself over how to keep it, you don’t understand entrepreneurship. The life of an entrepreneur, especially one who takes the risks implicit in private equity, has lived a life on the verge of losing everything or gaining everything. Some win, some lose. Romney happened to win. He probably has very little concept of precisely how much money sits in his hundreds of bank accounts. Ultimately, if you think that any very wealthy man has spent his time filling out or even looking over a 500 page document that will, regardless of what he does, require him to simply write an enormous check, you’re kidding yourself.

So as the next few weeks unfold, I’m wondering what will happen. I’m betting that Romney is taking account of his money, discovering under which proverbial couch cushions his various financial advisors have put it, and shoring things up.

But consider what it says about Americans that a wealthy man can be demonized for trying to take advantage of government-allowed tax deductions. When did entrepreneurship become a disqualification for public office? Romney’s not my favorite candidate, he’s not as principled as I would like. I might even go so far as to say he’s a bit shifty (position wise). But he’s got more real-world experience than anyone has ever had in the history of the Presidency. He’s run a payroll, he understand the barriers to corporate governance. He’s in tax bracket that requires him to pay someone else to fill out his taxes because of complication. If Obama wants to criticize someone for not paying enough in taxes, he should work to simplify the tax code. The only people who might be upset by a simplified tax code would be big tax preparation firms like H&R Block and Price Waterhouse Cooper. Big companies like PWC would probably move into more auditing (forensic and otherwise), and accounting, which is what their wheelhouse is anyway. But to me, the Romney debate is more about tax code complications than it is about Romney’s personal finances.