Lee Sheppard, a columnist with the industry paper Tax Notes, has spent decades wading through books on taxation. But even Sheppard took a few days to figure out what Rafalca was doing in the 203-page tax return of Ann and Mitt Romney.
Rafalca is a fine, dark brown, 15-year-old Oldenburg dressage horse with an estimated value of $500,000 (404,000). Horse enthusiast Ann Romney, the wife of the Republican presidential candidate, has been a co-owner of the mare since 2006. Last week Rafalca, ridden by German-born equestrian Jan Ebeling, even competed for the United States in dressage at the London Olympics. No ordinary Olympian, the valuable horse traveled to London in a chartered jet -- in the style to which she is accustomed.
Rafalca is a pretty expensive source of entertainment, but not necessarily for the Romneys, as Sheppard discovered while poking around in their tax return. As it turns out, the political couple posted a loss of $77,731 for the mare's upkeep and transport on their 2010 tax return, just as if the horse were a business. Although the Romneys have not claimed the loss as a deduction yet, they were acting with foresight. Whenever they earn a little money with Rafalca in the future, be it through prizes or breeding fees, they will be able to carry forward the 2010 expenses as a deduction on future tax returns.
"Do we want a president who takes advantage of tax loopholes for his wife's horse hobby?" asks Sheppard, who just published a long article on the subject.
Do Americans even want Willard Mitt Romney, 65, in the White House? It's an increasingly relevant question. The Washington Post selected Romney for its "Worst Week in Washington" column after Romney's much-touted foreign trip turned into a flop. First he insinuated that the British would not be good Olympic hosts. Then, in Israel, he said that the Palestinians were economically backward because of their "culture." Finally, his spokesman verbally abused journalists in Warsaw. "Romney is perhaps the only politician who could start a trip that was supposed to be a charm offensive by being utterly devoid of charm and mildly offensive," the Daily Telegraph wrote bitingly.
Newsweek Calls Romney a Wimp
According to the Washington-based Pew Research Center, the Republican presidential candidate is now polling 10 percentage points behind President Barack Obama, as conservatives in the United States become increasingly exasperated with Romney. After all, he is campaigning against a president whose economic policies meet with disapproval among the majority of Americans. One of the reasons Romney is trailing Obama is that he persistently refuses to talk about his past and his plans for the future. He has been deliberately vague about his own proposals for America's future economic and foreign policy.
This approach prompted Newsweek to characterize Romney as a "wimp." This man avoids all risk, unlike previous Republican candidates like Ronald Reagan and George W. Bush, who both went on to win the White House. "It looks like they're banking on simply the angst about President Obama," influential conservative journalist Craig Shirley told Politico. What you've got to do is come up with a pitch, a formula, a message that is going to tell the American people, 'We've tried the last four years. I have a better plan and here's what it is.'"
Romney's biggest weakness is that he is seen as the candidate of the 0.1 percent, the richest of the rich in America. With an estimated net worth of $250 million, he is also one of the richest presidential candidates of all time.
His inability to shed this reputation is his own fault. The former businessman likes to pose while jet skiing in front of his $10-million lakeside vacation house, and he raves about how nice it is to "fire" people. Some 89 percent of Americans believe that Romney's main motivation is to help the rich, whose taxes he promises to cut considerably.
It isn't as if US citizens didn't have a weakness for rich politicians. They've voted the Kennedys and the Bushs into office, and in New York they elected multi-billionaire Michael Bloomberg as mayor. But Americans also expect full transparency from candidates for the White House, on matters ranging from marital fidelity to their health and the state of their finances.
Speculation About Unreleased Tax Returns
And that, precisely, is Romney's problem. The steadfast refusal to release his tax returns to the extent that former candidates have done has led to speculation. Mark McKinnon, a former campaign strategist for George W. Bush, said there was obviously something problematic in Romney's tax returns. And Harry Reid, the Democratic majority leader in the Senate, even insinuated that Romney hadn't paid any taxes at all for 10 years.
Romney's 2010 tax return, the only one he has released so far, offers an indication of how serious the problems could be. His investment advisors found so many loopholes that the Romneys paid taxes of only 13.9 percent on income of $21.6 million, a lower rate that the average secretary pays in the United States.
The Romneys' extensive investments abroad cover 55 pages of the joint return. Vanity Fair has learned that his former company, the investment firm Bain Capital, maintains 138 investment funds in the Cayman Islands, and that Romney has interests in 12 of them, with an estimated value of $30 million.
Romney, who doesn't tire of praising the United States as the "greatest country in the world," is proving to be less than patriotic in his investment strategies.
Until 2010, the Republican had $3 million deposited in a Swiss bank account. An investment firm in Bermuda helped him save additional taxes. Romney invested at least $1 million in Elliott Associates, a hedge fund of the worst sort. Elliott buys the bonds of dirt-poor African countries, often for very small amounts, and then tries to sue their governments for the money.
All of this can be found in the tax return Romney felt comfortable enough to release. But what secrets could be hidden in the others? More offshore accounts? Even lower tax rates? Politically sensitive investments for a candidate running on an anti-abortion platform? Bain, for example, once invested in a company that media reports claimed had helped abortion clinics dispose of fetuses.
Aggressive Investment Firm
Experts are not even ruling out the possibility of illegal transactions. In 1995, the Republican transferred assets that would now be worth $100 million to his five sons. Without reviewing the documents, it can't be determined whether he may have underreported the value of the transfers to avoid pesky taxes. It's a widespread practice, and US authorities only tend to investigate violations sporadically. "If detected, undervaluing large gifts to one's children could provoke large penalties from the I.R.S.," Columbia University law Professor Michael Graetz writes in the New York Times.
Romney remains defiant. "I'm simply not enthusiastic about giving (the Obama people) hundreds or thousands of more pages to pick through, distort, and lie about," he says. But even Romney's father George, the former CEO of a car company and former governor of Michigan, released 12 years of tax returns during his unsuccessful 1968 presidential candidacy. Ironically, in doing so he established the practice of tax transparency.
The longer the debate drags on, the more voters remember how Romney accumulated so many millions as the founder of Bain Capital, a particularly aggressive investment firm. Bain advisors repeatedly bought up healthy companies and saddled them with high levels of debt. Then the advisors collected lavish fees while the overleveraged companies went bankrupt. Rick Perry, one of Romney's rivals in the Republican primary, characterized the Bain people as "vultures."
Romney has argued that his years with the investment firm make him more qualified than President Obama to create the jobs that are so urgently needed in the United States. But now no one really believes him anymore.
The worries of his wealthy rival must seem like a gift from God to Obama. The president already published his 2011 tax return online in April, and it showed that he paid a tax rate of more than 20 percent last year. The Democrat is now a millionaire, thanks to the royalties for his memoirs. But he rarely forgets to remind voters of the modest circumstances in which he was raised.
In a recent speech, just as Romney was being photographed on jet skis,
Obama reminisced about spending vacations travelling in Greyhound buses and staying at budget motels in his youth.
Obama's advisors are using ads to paint Romney as a tax trickster. One ad features Romney doing a terribly off-key rendition of "America the Beautiful," while images of the picturesque beaches of the Cayman Islands flicker across the screen.
" The Obamans firmly believe that they've hit a nerve," writes New York Magazine, " and like a bunch of sadistic dentists, they plan on drilling away at that sucker until the patient/victim screams."