Mitt Romney and the ethics of tax avoidance

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Tax has barely been off of the front pages recently with a spate of avoidance stories involving high profile brands and celebrities. But, as Steven Perryman argues, it is an ethical issue that has threatened to derail the prospects of US Presidential candidate Mitt Romney too

Transparency in politics rarely ends well.

Just ask the MPs embroiled in the UK expenses scandal three years ago. Tales of duck houses, moat clearing and blue movies being claimed at public expense rightly caused widespread furore. America, it seems, is no different.

Tax avoidance and the 2012 US Presidential election

The US Presidential election has been facing its own tax scandal. It’s all Democratic Senate leader, Harry Reid’s, fault. He claimed on the Senate floor in August, based on an alleged informant inside Bain Capital where Mitt Romney made his fortune, that the Republican presidential challenger had paid no tax for 10 years.

The Romney campaign team reacted angrily, releasing a letter from his accountants with a summary of his returns from 1990-2009. The letter showed that he had paid an effective average of 20.2% over the period, with the lowest return 13.66%. In case you’re wondering, the top rate of income tax in America is 35%.

Even the casual observer would fail to notice the absence of the last two years returns in that initial riposte, which was also merely a ‘summary’ rather than the hard figures themselves. If anything, the disclosure stirred the issue up even more, with the campaign managers from the respective candidates engaging in a negotiation battle to settle the debate once and for all.

Romney under pressure

With President Obama’s tax returns from the previous 12 years there for all to see on his own website, and with naysayers rightly pointing out that Romney’s father, former Michigan Governor George, released a dozen years of tax returns during his own unsuccessful run for president in 1968, he was left with no choice. A video secretly recorded at a donor dinner, in which he disparaged Obama voters saying they pay no income tax, hardly helped his cause either.

Romney relented and released his much-anticipated 2011 tax return in September, which showed he paid a rate of 14.1%. This amounted to a tax amount of $1.9m (£1.1m) in taxes in 2011, on $13.7m of income. In 2010 he paid about $3m, a 13.9% rate. Painful reading for any Romney supporter, but as Fox News rightly points out, such figures can’t always be taken at face value.

What the disclosure did mean was that the candidates’ respective tax policies have been easier to digest for the American voting public. Knowing the information has enabled the Washington Post to apply both candidates’ earnings to their proposed tax systems. It certainly makes for interesting reading.

How does Romney pay such little income tax?

But how does Romney pay such low tax on seemingly large earnings? One of the ways has seen him effectively renting the tax-exempt status of the Mormon Church – a charity – to defer taxes.

It is a system which doesn’t raise an eyebrow anymore given that we have become accustomed to tax avoidance scandals involving Jimmy Carr, Bear Grylls and our own former Prime Minister, Tony Blair, this year to name a few. Although perfectly legal, such schemes raise ethical questions, particularly in austere times such as these.

Stateside the issue has inevitably threatened to derail the Romney campaign – Obama even using it as an attack in the second presidential debate.

Impact of Superstorm Sandy on the controversy

Of course, a Presidential campaign is rarely fought on one topic alone – and Superstorm Sandy has rightly usurped the lot over the past week, offering Obama the kind of profile raising and photo opportunities that resonate with voters at the most crucial time of a campaign.

With the ballots officially opening this morning, the muddy waters of transparency – this time at least – may not prove to be as decisive after all.

AAT has recently launched a new website – AAT Ethics – which looks into ethical issues such as tax avoidance, offering support and guidance through podcasts, videos and articles.

Steven Perryman is AAT Comment's former Content Editor.

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