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A Project of The Annenberg Public Policy Center

Obama’s ‘Boss’ Baloney

The Obama campaign strikes another low blow with a TV spot accusing Mitt Romney of “personally” approving a notoriously abusive tax-avoidance scheme and suggesting he may have paid “zero” tax. That’s badly misleading.

It wasn’t Romney who was avoiding taxes, it was Marriott Corp. And there’s no evidence to support the ad’s speculation that Romney himself paid no income tax, or that he did something illegal.

The ad opens with an unsupported insinuation that Romney isn’t releasing more federal income tax returns because some would show he didn’t pay any income tax in those years. The narrator asks, “Did Romney pay 10 percent in taxes? Five percent? Zero? We don’t know.” And the narrator might add, “We have no evidence to support what I just said.” But he doesn’t.

Instead, the narrator says, “But we do know that Romney personally approved over $70 million in fictional losses to the IRS as part of the notorious ‘Son of Boss’ scandal. One of the largest tax avoidance schemes in history.” On screen, we see similar quotes attributed to CNN, with the cable network’s logo prominently displayed. There’s so much deceit here we hardly know where to start.

  • The tax scheme didn’t benefit Romney, and the fictional losses were not his. The company involved was Marriott Corp, not Romney or Bain Capital. But the ad gives no hint of this.
  • CNN didn’t report this. Although the ad prominently features the CNN logo as the source of the printed quotes, they are actually the opinions of two outside tax experts with Democratic leanings.
  • Marriott isn’t solely responsible for “one of the largest tax avoidance schemes in history.” Viewers may get the mistaken impression that Romney — actually Marriott — is solely to blame for “one of the largest tax avoidance schemes in history.” Not true. It was a strategy used by many taxpayers that resulted in billions in lost revenue.
  • “Avoidance” is not illegal. The casual viewer may miss the important distinction between legal avoidance and illegal fraud or tax evasion. Combining “avoidance” with loaded terms like “scheme” and “notorious” and “scandal” and “fictional losses” further suggests possible tax fraud, but there’s no evidence Romney broke any law.

A viewer who squints hard might see that under the CNN logo, the ad attributes the quotes to an “op-ed” opinion piece by “Canellos & Kleinbard.” And as CNN notes on its site, in fine print, “The opinions expressed in this commentary are solely those of Peter C. Canellos and Edward D. Kleinbard.”

Who are they? Both are top-drawer tax experts, no doubt about that. Canellos is head of the tax department at a big New York law firm and former chair of the New York State Bar Association Tax Section. Kleinbard is a professor of law at the University of Southern California and a former chief of staff of the Joint Committee on Taxation of the U.S. Congress.

But both have given to Democratic candidates in the past, though neither is a major donor. Kleinbard’s only recorded donation to a federal candidate in the past five years is a $250 gift in 2010 to a local Southern California congressman, Democratic Rep. Adam Schiff of Burbank. Canellos gave a total of $6,300 during the same period, including $2,300 to the Obama campaign in 2008, $1,500 to former Democratic Party Chairman Howard Dean’s “Democracy for America” committee and $1,250 to a couple of Democratic Party committees.

In their article, they recap reporting done back in February by Jesse Drucker of Bloomberg News. Drucker said Romney headed the audit committee of Marriott Corp. from 1993 to 1998, during which time the company started using a tax shelter known to attorneys by its nickname: “Son of Boss.” The company claimed $71 million in losses under that shelter, which the IRS challenged. Marriott sued, but lost in court, appealed, and lost again in 2009. The court sided with government lawyers who called the shelter “fictitious,” “artificial,” “spectral,” an “illusion” and a “scheme,” Drucker reported.

In their more recent CNN article, Canellos and Kleinbard argue that the IRS rejection of the shelter was “entirely predictable” and that it is “disingenuous” of Romney’s campaign staff to say that he relied on Marriott’s tax department and advisers. Romney had “the financial sophistication to understand the tax avoidance involved,” they argue.

They call Romney “an executive who was willing to go to the edge, if not beyond, to bend the rules to seek an unfair advantage” for Marriott. And they ask whether the same might be true of his personal taxes: “Did he augment his wealth through highly aggressive tax stratagems of questionable validity?”

But questioning someone’s wisdom or business ethics as a corporate director is one thing, while suggesting scandalous personal behavior is another. Canellos and Kleinbard offer their personal opinions and speculation, but the Obama campaign’s ad condenses all that into an unfair and misleading insinuation. The Son of Boss claims come immediately after the speculation about Romney’s personal income tax payments, and there is no transition to let viewers know the ad is no longer talking about Romney’s personal finances.

Romney’s refusal to release more than two years’ worth of tax returns — far fewer than most presidential candidates in recent history — leaves an opening for his opponents to speculate about what he may be hiding. And the ad is correct that we don’t know if, prior to 2010, Romney paid less than 13.9 percent of his income in taxes, as he did in 2010. But the fact is, Romney didn’t claim $70 million in fictional losses for himself, and there’s no direct evidence that he used abusive or illegal methods to reduce his own taxes to zero, as this ad strains to imply.

— Brooks Jackson