So What About Romney's Offshore Tax Havens?

By Megan McArdle (from The Atlantic)



So the story-of-the-week seems to be Mitt Romney's off-shore investments. I am deeply confused by the reporting. Either that, or the reporters are.

I first saw this story via Sarah Kliff at the Washington Post:

One possibility is that the tax rate might not be the only politically troublesome revelation in Romney's returns. Over at Reuters, Sam Youngman suggests that his work with Bain Capital might have led Romney to shelter income offshore

The Sam Youngman piece does indeed sort of suggest this, but it's more than a bit hazy on how.

His vast fortune is invested in dozens of funds linked to Bain Capital LLC, the powerhouse private equity firm he co-founded and led for 15 years. Several Bain funds have offshore connections and take advantage of tax breaks used only by the U.S. financial elite.

His tax returns could shed light on how Romney and Bain use offshore strategies to avoid taxes, said Daniel Berman, a former U.S. Treasury deputy international tax counsel and now director of tax at Boston University's graduate tax program.

Bain funds in which Romney is invested are scattered from Delaware to the Cayman Islands and Bermuda, Ireland and Hong Kong, according to a Reuters analysis of securities filings.

"Certain interests in foreign investment structures would have to be reported on attachments to his return," Berman said.

All of these things are true, but they do not add up to tax evasion, or even tax avoidance. Corporations do not have to pay taxes on income unless they repatriate the money. Individuals, however, do. The quote sort of muddies the distinction--the returns, we're told, could shed light on how "Romney and Bain" use offshore strategies to avoid taxes, but while I'm certainly not an international tax expert, from what I know, that the phrases "could shed light" and "and Bain" are doing a whole lot of work there.

As far as I know, there are only a few ways to "shelter" income offshore, and they usually look very much like "sheltering" income onshore--which is to say that we do not tax people on unrealized capital gains. And for very good reason--just ask all the dotcommers with employee stock options who paid huge taxes to exercise those options, and then saw the value of those options fall to zero. The IRS didn't give them their money back, either.

The tax expert Youngman consulted implies that this is a very confusing concept:

"I remember as a young lawyer being surprised to see tax returns of very successful investors showing net losses - because they were recognizing net losses" but not yet factoring in unrealized gains, Berman said.

I am sure that Professor Berman is a very smart, knowledgeable man; it is unfortunate that Youngman chose a quote that makes him sound like an idiot. "Some years, even successful people with a lot of assets lose money" should not be a shocking proposition for anyone old enough to graduate from law school--or read Reuters. Would you really be surprised to hear that the owner of a California 7-11 had lost money in 2001, even though the building he'd bought in 1981 had appreciated by 70%?

The other way I know of to avoid taxes with an offshore strategy is to invest in a US corporation which doesn't repatriate earnings, and therefore doesn't pay taxes on this. Any of you who invest in GE, UPS, or Apple are enjoying this sort of tax shelter, and if you sold some of the stock, I suppose it would be technically accurate to say that your tax returns shed light on whether "George and Apple use offshore strategies to avoid taxes", but this would not really be a very interesting statement. You still have to pay taxes if you want to get your hands on any of the money.

Most of the writing I've seen today about this seems to be confusing the Cayman's role as an offshore tax haven, and its other role as a headquarters for hedge funds. They are not entirely unrelated, but they are also not the same thing. Cayman, and a lot of other islands, became tax havens because they wouldn't tell your government if you had money there. It's not because there is some special tax break for investing there.

If the investments are showing up on Romney's tax return, then they are definitionally not this sort of tax haven.

Now, the US tax code is very complicated, and I am not an international tax expert, and it's certainly possible that Bain has hit on some structure which allows its investors to enjoy tax-sheltered income while actually having access to it--and that this structure would show up on Romney's return. For all I know, every rich person in the country has a portfolio positively stuffed with such investments.

But if so, I would like to hear such structures described, not obliquely hinted at. I know I have some tax experts in my readership, so how about it?

Bah,Bah,Baaaah! Hey you Sheeple' I'm not for Romney! Ever!

Are The GOP Debaters Foolish Enough to Take CNN's Bait?
By C. Edmund Wright

So CNN's executives have let it slip (at least to Drudge*) that they are "going to let them just go at it" in what they are calling the "Republican Debate of the Year" tonight in South Carolina.

Let me translate:

'We are going to do our damndest to get the candidates to go at each other and totally ignore Barack Obama. We're going to ask those cute little questions like 'Governor Romney, with Speaker Gingrich standing right here, will you say to his face that he's the biggest son of a blah blah blah..... '

So please tell me, Republican candidates, that you are not foolish enough to fall for this. Please? No one has gained anything in this cycle in the debates by trashing other Republicans. (more on that later)

Quite the opposite in fact. Consider the travails of Newt:

Gingrich had an unprecedented standing ovation from most of the crowd Monday night in a now famous exchange with Juan Williams. To gain that kind of amazing response, Newt uttered not a single syllable about any of this GOP opponents. Instead, Newt overwhelmed the liberal Williams and his typical template with logic and history and power and passion and -- get this -- conservative principle!

The response was amazing. His standing ovation was so loud and universal that it had to include many folks who entered the hall supporting others instead of Gingrich. This is not everyday stuff. Not only that, but it gained Newt millions of dollars worth of accolades on Rush and Hannity and other talk shows the next day. All of this has given him huge bumps in both national and S.C. polls.

And it worked because this is what the Republican base voters are so obviously craving. That is why they responded so powerfully. And in fact, Newt's other great moments -- on terror, local control of schools and unemployment compensation -- were all moments generated by a classic Gingrich lecture where conservatism simply over powered failed liberal prescriptions for these issues.

Actually, if you go back through the 16 debates and track the big crowd moments, most of them result from Gingrich taking apart a liberal premise and usually a liberal questioner in the process. It's the primary reason Gingrich went from around 5% support to 35- 45% a few weeks ago. He didn't have any advertising to speak of. It was all the debates and that was all about attacking liberalism and doing it very effectively.

Monday, the only time Gingrich mentioned another GOP candidate in any of these exchanges is when Ron Paul used left wing Code Pink logic on how to deal with terrorists and Newt slapped him down. But the crowd roar was not at Paul being slapped down. It was in response to another liberal sacred cow being skewered.

In other words, the problems we have in our country today are not the fault of Mitt Romney, Newt Gingrich, Rick Santorum, Rick Perry or Ron Paul. The problem is Barack Obama and the solution is removing him and as many liked minded members of congress as possible from office. Period.

Why these candidates, and their consultants and strategists can't understand this is agonizing and symptomatic of a Washington culture that does not understand the nation it tortures. The consultant class is largely from D.C. or at least "of" D.C. Ironic is that when Rick Perry hired all of Newt's consultants away upon entering the race, Perry was at about 35% in the polls. His consultants have taken him right to about 6% now. Meanwhile, Newt and Herman Cain (who never had hired any of the consultant class) soared.

Conversely, the attacks in the debates have backfired. Michelle Bachmann imploded when she went Bachmann Turn-Off Overdrive on Rick Perry over the HPV issue. After making a legitimate point on parental control and a smaller point on crony capitalism, she should have let it go. But no, she had to paint Perry as the next Joseph Mengele. And it failed. Her campaign went straight downhill from there and she never recovered. She tried by being the attack dog in all of the debates, including her trite "Newt Romney" attack. She limped away with barely 5% of her home state vote.

After the HPV attacks, a wounded Perry made a few unforced errors -- including a pathetic exchange with Romney over who cut Mitt's grass. Then we had the kindergarten food fight over what was -- or was not -- said in Mitt's book. From two governors who want to be President?

And there were numerous other exchanges like that and all of it was simply for the amusement of the media moderators. And it is driven by an inside the beltway culture -- blind as it is -- that looks at all of this as a game instead of understanding that this is about the future of our Republic and whether it survives or not.

The voters, however, largely understand the gravity of the situation -- and once again are way ahead of most of the candidates and their consultants as well as the pundit class. Thus, they respond on those occasions when the candidates figure it out as well. On Monday night, Newt figured it out. He put the Bain disaster behind him and re-focused on the problem: Barack Obama and liberalism. He aimed, fired and scored several direct hits and might have saved his campaign in the process.

Tonight he and all of the candidates have another opportunity to do the same. There is the Keystone Pipeline issue just lying there for the taking, not to mention the recess appointments made by Obama and of course the NLRB assault on South Carolina is still a raw issue.

The candidate who ignores the CNN bait and his GOP opponents and focuses on the real problems will win this debate. If none of them figure this out, we all lose and it's a win for CNN and Barack Obama. You know that and I know that instinctively. Why is this so hard to figure out?

*CNN SOURCE: 'WE HAVE REPUBLICAN DEBATE OF YEAR TOMORROW NIGHT. WE ARE GOING TO LET THEM JUST GO AT IT'... DEVELOPING...

The author is a frequent contributor to American Thinker and currently a senior consultant for an outside group supporting Newt Gingrich.

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Iran, the U.S. and the Strait of Hormuz Crisis

By George Friedman

The United States reportedly sent a letter to Iran via multiple intermediaries last week warning Tehran that any attempt to close the Strait of Hormuz constituted a red line for Washington. The same week, a chemist associated with Iran's nuclear program was killed in Tehran. In Ankara, Iranian parliamentary speaker Ali Larijani met with Turkish officials and has been floating hints of flexibility in negotiations over Iran's nuclear program.

This week, a routine rotation of U.S. aircraft carriers is taking place in the Middle East, with the potential for three carrier strike groups to be on station in the U.S. Fifth Fleet's area of operations and a fourth carrier strike group based in Japan about a week's transit from the region. Next week, Gen. Michael Dempsey, chairman of the Joint Chiefs of Staff, will travel to Israel to meet with senior Israeli officials. And Iran is scheduling another set of war games in the Persian Gulf for February that will focus on the Islamic Revolutionary Guard Corps' irregular tactics for closing the Strait of Hormuz.

While tensions are escalating in the Persian Gulf, the financial crisis in Europe has continued, with downgrades in France's credit rating the latest blow. Meanwhile, China continued its struggle to maintain exports in the face of economic weakness among its major customers while inflation continued to increase the cost of Chinese exports.

Fundamental changes in how Europe and China work and their long-term consequences represent the major systemic shifts in the international system. In the more immediate future, however, the U.S.-Iranian dynamic has the most serious potential consequences for the world.
The U.S.-Iranian Dynamic

The increasing tensions in the region are not unexpected. As we have argued for some time, the U.S. invasion of Iraq and the subsequent decision to withdraw created a massive power vacuum in Iraq that Iran needed -- and was able -- to fill. Iran and Iraq fought a brutal war in the 1980s that caused about 1 million Iranian casualties, and Iran's fundamental national interest is assuring that no Iraqi regime able to threaten Iranian national security re-emerges. The U.S. invasion and withdrawal from Iraq provided Iran an opportunity to secure its western frontier, one it could not pass on.

If Iran does come to have a dominant influence in Iraq -- and I don't mean Iran turning Iraq into a satellite -- several things follow. Most important, the status of the Arabian Peninsula is subject to change. On paper, Iran has the most substantial conventional military force of any nation in the Persian Gulf. Absent outside players, power on paper is not insignificant. While technologically sophisticated, the military strength of the Arabian Peninsula nations on paper is much smaller, and they lack the Iranian military's ideologically committed manpower.

But Iran's direct military power is more the backdrop than the main engine of Iranian power. It is the strength of Tehran's covert capabilities and influence that makes Iran significant. Iran's covert intelligence capability is quite good. It has spent decades building political alliances by a range of means, and not only by nefarious methods. The Iranians have worked among the Shia, but not exclusively so; they have built a network of influence among a range of classes and religious and ethnic groups. And they have systematically built alliances and relationships with significant figures to counter overt U.S. power. With U.S. military power departing Iraq, Iran's relationships become all the more valuable.

The withdrawal of U.S. forces has had a profound psychological impact on the political elites of the Persian Gulf. Since the decline of British power after World War II, the United States has been the guarantor of the Arabian Peninsula's elites and therefore of the flow of oil from the region. The foundation of that guarantee has been military power, as seen in the response to Iraq's invasion of Kuwait in 1990. The United States still has substantial military power in the Persian Gulf, and its air and naval forces could likely cope with any overt provocation by Iran.

But that's not how the Iranians operate. For all their rhetoric, they are cautious in their policies. This does not mean they are passive. It simply means that they avoid high-risk moves. They will rely on their covert capabilities and relationships. Those relationships now exist in an environment in which many reasonable Arab leaders see a shift in the balance of power, with the United States growing weaker and less predictable in the region and Iran becoming stronger. This provides fertile soil for Iranian allies to pressure regional regimes into accommodations with Iran.
The Syrian Angle

Events in Syria compound this situation. The purported imminent collapse of Syrian President Bashar al Assad's regime in Syria has proved less imminent than many in the West imagined. At the same time, the isolation of the al Assad regime by the West -- and more important, by other Arab countries -- has created a situation where the regime is more dependent than ever on Iran.

Should the al Assad regime -- or the Syrian regime without al Assad -- survive, Iran would therefore enjoy tremendous influence with Syria, as well as with Hezbollah in Lebanon. The current course in Iraq coupled with the survival of an Alawite regime in Syria would create an Iranian sphere of influence stretching from western Afghanistan to the Mediterranean. This would represent a fundamental shift in the regional balance of power and probably would redefine Iranian relations with the Arabian Peninsula. This is obviously in Iran's interest. It is not in the interests of the United States, however.

The United States has sought to head this off via a twofold response. Clandestinely, it has engaged in an active campaign of sabotage and assassination targeting Iran's nuclear efforts. Publicly, it has created a sanctions regime against Iran, most recently targeting Iran's oil exports. However, the latter effort faces many challenges.

Japan, the No. 2 buyer of Iranian crude, has pledged its support but has not outlined concrete plans to reduce its purchases. The Chinese and Indians -- Iran's No. 1 and 3 buyers of crude, respectively -- will continue to buy from Iran despite increased U.S. pressure. In spite of U.S. Treasury Secretary Timothy Geithner's visit last week, the Chinese are not prepared to impose sanctions, and the Russians are not likely to enforce sanctions even if they agreed to them. Turkey is unwilling to create a confrontation with Iran and is trying to remain a vital trade conduit for the Iranians regardless of sanctions. At the same time, while the Europeans seem prepared to participate in harder-hitting sanctions on Iranian oil, they already have delayed action on these sanctions and certainly are in no position politically or otherwise to participate in military action. The European economic crisis is at root a political crisis, so even if the Europeans could add significant military weight, which they generally lack, concerted action of any sort is unlikely.

Neither, for that matter, does the United States have the ability to do much militarily. Invading Iran is out of the question. The mountainous geography of Iran, a nation of about 70 million people, makes direct occupation impossible given available American forces.

Air operations against Iran are an option, but they could not be confined to nuclear facilities. Iran still doesn't have nuclear weapons, and while nuclear weapons would compound the strategic problem, the problem would still exist without them. The center of gravity of Iran's power is the relative strength of its conventional forces in the region. Absent those, Iran would be less capable of wielding covert power, as the psychological matrix would shift.

An air campaign against Iran's conventional forces would play to American military strengths, but it has two problems. First, it would be an extended campaign, one lasting months. Iran's capabilities are large and dispersed, and as seen in Desert Storm and Kosovo against weaker opponents, such operations take a long time and are not guaranteed to be effective. Second, the Iranians have counters. One, of course, is the Strait of Hormuz. The second is the use of its special operations forces and allies in and out of the region to conduct terrorist attacks. An extended air campaign coupled with terrorist attacks could increase distrust of American power rather than increase it among U.S. allies, to say nothing of the question of whether Washington could sustain political support in a coalition or within the United States itself.
The Covert Option

The United States and Israel both have covert options as well. They have networks of influence in the region and highly capable covert forces, which they have said publicly that they would use to limit Iran's acquisition of nuclear weapons without resorting to overt force. We assume, though we lack evidence, that the assassination of the Iranian chemist associated with the country's nuclear program last week was either a U.S. or Israeli operation or some combination of the two. Not only did it eliminate a scientist, it also bred insecurity and morale problems among those working on the program. It also signaled the region that the United States and Israel have options inside Iran.

The U.S. desire to support an Iranian anti-government movement generally has failed. Tehran showed in 2009 that it could suppress demonstrations, and it was obvious that the demonstrators did not have the widespread support needed to overcome such repression. Though the United States has sought to support internal dissidents in Iran since 1979, it has not succeeded in producing a meaningful threat to the clerical regime. Therefore, covert operations are being aimed directly at the nuclear program with the hope that successes there might ripple through other, more immediately significant sectors.

As we have long argued, the Iranians already have a "nuclear option," namely, the prospect of blockading the Strait of Hormuz, through which roughly 35 percent of seaborne crude and 20 percent of the world's traded oil passes daily. Doing so would hurt them, too, of course. But failing to deter an air or covert campaign, they might choose to close off the strait. Temporarily disrupting the flow of oil, even intermittently, could rapidly create a global economic crisis given the fragility of the world economy.

The United States does not want to see that. Washington will be extremely cautious in its actions unless it can act with a high degree of assurance that it can prevent such a disruption, something difficult to guarantee. It also will restrain Israel, which might have the ability to strike at a few nuclear facilities but lacks the force to completely eliminate the program much less target Iran's conventional capability and manage the consequences of that strike in the Strait of Hormuz. Only the United States could do all that, and given the possible consequences, it will be loathe to attempt it.

The United States continues, therefore, with sanctions and covert actions while Iran continues building its covert power in Iraq and in the region. Each will try to convince the region that its power will be supreme in a year. The region is skeptical of both, but will have to live with one of the two, or with an ongoing test of wills -- an unnerving prospect. Each side is seeking to magnify its power for psychological effect without crossing a red line that prompts the other to take extreme measures. Iran signals its willingness to attempt to close Hormuz and its development of nuclear weapons, but it doesn't cross the line to actually closing the strait or detonating a nuclear device. The United States pressures Iran and moves forces around, but it doesn't cross the red line of commencing military actions. Thus, each avoids triggering unacceptable actions by the other.

The problem for the United States is that the status quo ultimately works against it. If al Assad survives and if the situation in Iraq proceeds as it has been proceeding, then Iran is creating a reality that will define the region. The United States does not have a broad and effective coalition, and certainly not one that would rally in the event of war. It has only Israel, and Israel is as uneasy with direct military action as the United States is. It does not want to see a failed attack and it does not want to see more instability in the Arab world. For all its rhetoric, Israel has a weak hand to play. The only virtue of the American hand is that it is stronger -- but only relatively speaking.

For the United States, preventing the expansion of an Iranian sphere of influence is a primary concern. Iraq is going to be a difficult arena to stop Iran's expansion. Syria therefore is key at present. Al Assad appears weak, and his replacement by a Sunni government would limit -- but not destroy -- any Iranian sphere of influence. It would be a reversal for Iran, and the United States badly needs to apply one. But the problem is that the United States cannot be seen as the direct agent of regime change in Syria, and al Assad is not as weak as has been claimed. Even so, Syria is where the United States can work to block Iran without crossing Iran's red lines.

The normal outcome of a situation like this one, in which neither Iran nor the United States can afford to cross the other's red lines since the consequences would be too great for each, would be some sort of negotiation toward a longer-term accommodation. Ideology aside -- and the United States negotiating with the "Axis of Evil" or Iran with the "Great Satan" would be tough sells to their respective domestic audiences -- the problem with this is that it is difficult to see what each has to offer the other. What Iran wants -- a dominant position in the region and a redefinition of how oil revenues are allocated and distributed -- would make the United States dependent on Iran. What the United States wants -- an Iran that does not build a sphere of influence but instead remains within its borders -- would cost Iran a historic opportunity to assert its longstanding claims.

We find ourselves in a situation in which neither side wants to force the other into extreme steps and neither side is in a position to enter into broader accommodations. And that's what makes the situation dangerous. When fundamental issues are at stake, each side is in a position to profoundly harm the other if pressed, and neither side is in a position to negotiate a broad settlement, a long game of chess ensues. And in that game of chess, the possibilities of miscalculation, of a bluff that the other side mistakes for an action, are very real.

Europe and China are redefining the way the world works. But kingdoms run on oil, as someone once said, and a lot of oil comes through Hormuz. Iran may or may not be able to close the strait, and that reshapes Europe and China. The New Year thus begins where we expected: at the Strait of Hormuz.

Men at War

By WILLIAM KRISTOL


We’ll stipulate that of course the Marines who urinated on the bodies of dead Taliban in Helmand Province, Afghanistan, last year should be appropriately disciplined, assuming things are as they appear in the video.
Photo of General George Patton urinating in the Rhine River

Gen. George S. Patton, March 24, 1945

But it’s also worth noting that pissing has a distinguished place in American military history. Most famously, General George S. Patton relieved himself in the Rhine on March 24, 1945—and made sure he was photographed doing so. Patton later recalled: “I drove to the Rhine River and went across on the pontoon bridge. I stopped in the middle to take a piss and then picked up some dirt on the far side in emulation of William the Conqueror.” (At the time, actually, Patton was less concerned with emulating William the Conqueror and more worried about finishing off the enemy. Later that day he sent a communiqué to General Dwight D. Eisenhower, in command of Supreme Headquarters Allied Expeditionary Force: “Dear SHAEF, I have just pissed into the Rhine River. For God’s sake, send some gasoline.”)

It wasn’t just American generals who seemed preoccupied with pissing back in 1945. Three weeks earlier, Winston Churchill had visited the front lines near Jülich. Churchill had long dreamed of urinating on Hitler’s much-vaunted Siegfried Line to show his contempt for Hitler and Nazism. Unlike Patton, Churchill forbade photographs of the occasion. But General Alan Brooke, chief of the Imperial General Staff, who was with Churchill that day, later wrote: “I shall never forget the childish grin of intense satisfaction that spread all over his face as he looked down at the critical moment.”


So perhaps, as Rep. Allen West, once a battalion commander in Iraq, put it last week, all the sanctimonious Obama administration bigwigs “need to chill.” Did Defense Secretary Leon E. Panetta really need to speak up at all? Couldn’t comment have been left to some junior public affairs officer at Camp Lejeune? And once he decided to weigh in, did Panetta need to condemn the Marines’ action as not just deplorable but “utterly deplorable”? Perhaps he felt a need to match Secretary of State Hillary Clinton, who expressed not just dismay but “total dismay.”

Maybe, our current civilian leaders should spend a little less time posturing and a little more time supporting the troops who’ve been sent abroad to fight at the direction of their administration. They are, after all, carrying out a mission the civilian leadership has judged crucial to our national security. We know from the administration’s recent “strategic guidance” that President Obama now believes “the tide of war is receding” and that “we are turning a page.” That would be nice. But the “tide of war” resulted last year in fierce fighting, with seven dead and many more wounded from the 3rd Battalion, 2nd Marines, in Helmand. Soldiers and Marines continue today to fight and die at the direction of the commander in chief. Until the page is fully turned (if it ever is), he and his administration have a responsibility to err on the side of supporting our troops, rather than competing to chastise them sanctimoniously—even when a few of them have done something foolish.

Indeed, the foolishness of these few young Marines is as nothing compared with the foolishness of Obama administration officials.

US, Israel in open rift over Iran: Big joint military drill cancelled Debka

US-Israeli discord over action against Iran went into overdrive Sunday, Jan. 15 when the White House called off Austere Challenge 12, the biggest joint war game the US and Israel have every staged, ready to go in spring, in reprisal for a comment by Israeli Deputy Prime Minister Moshe Yaalon in an early morning radio interview. He said the United States was hesitant over sanctions against Iran's central bank and oil for fear of a spike in oil prices.....

DEBKA file's military sources report that a third aircraft carrier and strike group, the USS Abraham Lincoln, is also on its way to the Persian Gulf. This massive military buildup indicates that either President Obama rates the odds of an Israel attack as high and is bolstering the defenses of US military assets against Iranian reprisals - or, alternatively, that the United States intends to beat Israel to the draw and attack Iran itself.