A collection of newsworthy information as reported from newspapers, magazines, and blogs.

Monday, September 3, 2012

Don’t Let Romney Break America

Naming a child is a delicate process.  We purchase books on the subject that defines the meanings of a name.  We sometimes choose a beloved family member’s name.  But how many people name their children after a friend.  How close of a friendship does one has to be chosen as the name to be assigned to their child?  George Romney, GOP candidate Willard Mitt Romney’s father, named him after hotel magnate John Willard Marriott and his cousin Milton “Mitt” Romney, a former quarterback for the Chicago Bears. 

George Romney and John Marriott’s friendship and connections with Rollins, Gardeners and other members of the Mormon Church have formed a financial bulwark and support network for Mr. Romney at every important point in his political career.  Starting with his 1994 Senate race, moving into the 2002 Salt Lake City Olympics effort that became his political springboard and continuing through his first foray into presidential politics, they have been there to open doors, provide seed money and rally support.   To take one concrete measure of their support, records show that roughly two dozen members of Mormon families provided nearly $8 million of the financing for the “SuperPac” working to elect Mr. Romney, Restore Our Future, putting them in league with its Wall Street, real estate and energy donors. Prominent Mormons including David G. Neeleman, the JetBlue founder, and Eric Varvel, the chief executive officer of the banking division at Credit Suisse, are on his finance team.  Many of Mr. Romney’s major Mormon backers are tied to businesses with robust agendas in Washington — lobbying on tax, aviation and tourism policy, according to federal filings — and have something to gain by having a friend in the White House.
In 1971, he earned a Bachelor of Arts from Brigham Young University and, in 1975, a joint Juris Doctor and Master of Business Administration from Harvard University.  Romney entered the management consulting industry, and in 1977 secured a position at Bain & Company.  In 1984, he co-founded and led the spin-off Bain Capital.  To free up money to invest in the new business, founder Bill Bain and his partners cashed out much of their stock in the consulting firm leaving it saddled with about $200 million in debt. 

Bain &Company got into deep financial trouble partly because the founding partners of Bain Capital had stripped it of cash and saddled it with debt.   “Mitt Romney’s business man reputation was on the line.  Bain sold top-dollar strategic advice to big businesses about how to protect them from going bust.  If Bain & Company went bankrupt, “anyone associated with them would have looked clownish.”  Even though Bain & Company was deep in debt the firm was actually flush with cash.  But Bain had inserted a poison pill in its loan agreement with the banks:  Instead of being required to use its cash to pay back the firm’s creditors, the money could be pocketed by Bain executives in the form of fat bonuses – starting with VPs making $200,000 and up.  The bonus loophole gave Romney a perverse form of leverage. 

Romney managed to convince Bain’s creditors to take a steep discount on Bain debt, using a threat to pay Bain executives big bonuses that would have stripped it of the cash it had left, leaving creditors with next to nothing.  One of those creditors was the FDIC, which had taken over a bank that loaned money to Bain.  The FDIC ended up collecting about $14 million of the $30 million Bain owed it.  Taxpayers didn’t foot the bill for this.  Those costs were in turn probably absorbed by bank customers in the form of higher fees.  Even as consumers took a loss, however, a small group of investors wound up getting a good deal in the bailout. Bain Capital – the very firm that had triggered the crisis in the first place – walked away with $4 million. That was the fee it charged Bain & Company for loaning the consulting firm the services of its chief executive – one Willard Mitt Romney.

While entrenched with the Bain & Company debacle, he served on the board of directors of Marriott International from 1993 to 2002 and again 2009 to 2011.  During his tenure, six years, he chaired the board’s audit committee.  While Romney was on the board, Marriott engaged in a number of corporate tax avoidance schemes. 

1.     Son of Boss tax shelter: Marriott executed a Son of Boss trade in mid-1994—a scheme that manufactures “a gigantic tax loss out of thin air” to offset actual gains “without any economic risk, cost, or loss.” Marriott later filed a return claiming an artificial loss to lower the company’s taxable income.  Marriott implemented the Son of Boss tax shelter scheme, which resulted in the company claiming $71 million in losses that federal courts later ruled never existed.   Son of Boss schemes were notorious, involving about 1,800 people and costing the IRS an estimated $6 billion, and was described as “perhaps the largest tax avoidance scheme in history.”   
2.     “Spray and pray”: Marriott purchased four synthetic fuel plants in 2001 in order to benefit from federal tax credits for synthetic fuels, a strategy which was dubbed “spray and pray”. In 2002, the company legally claimed $159 million of those credits, reducing their effective tax rate to just 6.8 percent—far below the normal corporate rate of 35%. Even Sen. John McCain criticized Marriott’s behavior:  “One of the greatest beneficiaries of this tax shelter—and that is all that it is, a tax shelter—is a very profitable hotel chain: Marriott.’’

3.     Profit-shifting to Luxembourg: In 2009, Marriott collected $229 million in revenue—primarily from royalty, licensing and franchising fees—at its Luxembourg subsidiary, Global Hospitality Licensing S.à.r.l. The subsidiary reported having only one employee. By the end of 2011, the company $451 million in offshore earnings that it left overseas to delay paying US income taxes. Under Romney’s proposed corporate tax plan, Marriott would never have to pay U.S. taxes on those earnings.

4.     Questionable deductions: The IRS challenged $1 billion in deductions Marriott took related to an employee from 2000 to 2002. The company eventually agreed to pay about $220 million of what it owed in income taxes, excise taxes, and interest to the IRS and a number of states.


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