By Edward Zelinsky
On a personal level, I enjoyed the news reports that Mitt Romney holds assets worth tens of millions of dollars in his individual retirement account (IRA). These reports confirm a central thesis of The Origins of the Ownership Society, namely, the extent to which defined contribution accounts, such as IRAs and 401(k) accounts, have become central features of American life.
I was also gratified as colleagues, friends and neighbors who are often skeptical of what I do for a living (“You actually teach about pensions?”) sought my opinion about Mitt Romney’s IRA. Since we don’t have all of the details, my answers entailed a certain amount of conjecture. For those too sheepish to ask, here are the questions most frequently posed to me and my answers:
Mitt Romney. Photo by Gage Skidmore. Source: Wikimedia Commons.
Because he was a better investor than you. It appears that Mitt Romney’s IRA largely consists of investments he made while a partner at Bain Capital and of the proceeds from such Bain investments. Those investments were apparently made in Mitt Romney’s 401(k) account when the investments had relatively little value. When he left Bain, these investments were rolled over, i.e., transferred tax-free, to Mitt Romney’s IRA. While these investments were modest when initially made, they are now quite valuable. That is what successful private equity investors do.
When must Mitt Romney pay taxes on the assets in his IRA?
April 1, 2018. He could start paying taxes before then but what the Code calls his “required beginning date” is April 1, 2018. This date is set by a statutory formula which is quizzical even by the standards of the Internal Revenue Code: Mitt Romney was born on March 12, 1947. He will be 70 years old on March 12, 2017. Six months after this birthday is September 12, 2017. Therefore, Mitt Romney must start to draw down and pay tax on his IRA as of April 1, 2018.
How much tax will Mitt Romney have to pay then?
It will depend on the size of the IRA at that time and the tax rates then in effect. Because Mrs. Romney is only two years younger than her husband, the first distribution from Mitt Romney’s account on or before April 1, 2018 must be at least 3.65% of the account as it then exists. This percentage is based on the Romneys’ joint life expectancies as determined by Treasury actuarial tables. Thus, for example, if Mitt Romney’s IRA is worth $100,000,000 on December 31, 2017, his first distribution from this account on or before April 1, 2018 must be $3,650,000. Assuming that Mitt Romney made only tax deductible contributions to the account, all of this distribution will be taxed as ordinary income, at whatever tax rate then prevails.
What about subsequent years?
Each year, as the IRA holder ages, the required distribution (and thus taxable income) increases as a percentage of the current account balance. For example, when Mitt Romney is 75, his required IRA distribution will be 4.37% of the account as it then exists. When Mitt Romney is 80 years old,
By Elvin Lim
Mitt Romney must be the happiest Republican in the world. His political rivals for the Republican presidential nomination, Herman Cain and Rick Perry, seem to be trying to out-do the other in terms of whose campaign can implode faster.
Let’s start with Rick Perry’s campaign. Now we know why his campaign advisors were telling him to skip upcoming debates. Perry’s “oops” moment in Wednesday’s debate will enter into the political hall of infamy because that was the moment when his sponsors will realize that he is just a bad investment. If Perry cannot think just one sentence faster than he can talk, he will be demolished by a law professor when they debate next year.
Perry’s gaffe’s was probably a godsend to Herman Cain, but it would be little relief in the worst week of his campaign yet. It doesn’t matter if the accusations of sexual harassment are true because they are now distractions to Cain’s message, which he was already struggling to explain. And then he had to go call former Speaker Pelosi “Princess Nancy.”
Sarah Palin wasn’t an aberration in a line of competent Republican candidates from Eisenhower to Nixon. She is the new rule. The thing about modern conservatism is that it has become so anti-establishment that it now happily accepts any political outsider as a potential candidate for the highest office in the land. Political outsiders aren’t tainted by politics, by Washington, so we are told. But, by the same token, they can therefore also make terrible candidates.
The irony, of course, is that the slew of debates being held this year was meant to give voters greater choice and knowledge of the candidates’ positions. But all this is doing is reinforcing the front-runner status of the establishment candidate. There is a reason why Mitt Romney and his perfect haircut has coasted through the debate without any oops moments. He’s a professional politician! Tea Partiers are going to have to come to the uncomfortable realization that it takes one professional politician to beat another.
One relatively unmentioned reason why Mitt Romney is still hovering at 25 per cent is because in 2010 the Republican party changed the nomination rules away from winner-takes-all so that states (except the first four) would allocate their delegates proportionately to the candidates at the national convention. This has the effect of giving less-known candidates more of a chance of lasting longer in the race than they normally would, but the unintended consequence is that Republican voters will have to watch their candidates battle it out, and even suffer the potentially demoralizing conclusion that in choosing their candidate, they must follow their mind, not their hearts.
It is far from clear, then, that 2012 will be a Republican year. Conservatives have yet to explain away a fundamental puzzle: if government is so unnecessary, so inefficient, and so corrupt, why seek an office in it? This is possibly why the very brightest and savviest would-be candidates are in Wall Street, and can’t be bothered with an address change to Pennsylvania Avenue. Except Rick Perry and Herman Cain, of course.
Elvin Lim is Associate Professor of Government at Wesleyan University and author of The Anti-intellectual
By Elvin Lim
The Republican party has traditionally been a more ordered, hierarchical organization, one in which the norm of waiting for one’s turn has been entrenched through the decades. When there is no consensus on the available candidates in the field, the runner-up to the last nomination contest becomes, by default, the front-runner. Today, Palin, Pawlenty, Thune, Huckabee, Gingerich, and Santorum are all names being mentioned. Yet no name stands out the way Mitt Romney’s does.
This weekend, Romney topped a straw poll of New Hampshire Republican Party Committee members for the party’s nomination. He was the runner-up in 2008’s straw poll in New Hampshire, and won 32 percent of the actual primary vote, just behind John McCain’s 37 percent. Now, the poll may not tell us much; New Hampshire is a Romney stronghold because he is from neighboring Massachusetts and owns a home in the state. But history and the Republican primary calendar appear to be moving in Romney’s favor.
This is because by the time the South begins to vote to give victories to Romney’s rivals, he would have had three chances to set up a delegate-grabbing momentum. Romney is the front-runner to beat in New Hampshire’s first-in-the-nation primary on or around February 14, 2012. On February 18, he is likely to win again in the Nevada caucuses because of his Mormon base there. On February 28, Michigan, where Romney was born and remains a favorite son, holds its primary. As we know of the law of momentum in primary contests, the early bird catches the nomination. Fortune’s arrows are certainly unpredictable, but she has bequeathed to Romney three shots toward the Republican nomination in the first two weeks of the primary cycle in 2012.
The Tea Party movement is inadvertently helping Romney out too. While everyone else is actively courting the Tea Party, Romney isn’t (and some say, he couldn’t even if he tried, because of his hand in healthcare reform as Governor of Massachusetts). This sets Romney apart to win the more moderate Republicans voting in states like New Hampshire, which happens to have a semi-open primary, which means Independents who are not registered with either party can vote in the Republican primary. Romney’s less than cozy relationship with the Tea Party may actually help him because while Palin and Huckabee et al split the Tea Party vote, Romney would be on his way to a delegate lead.
Republican donors appear to be concurring. Almost every economic index other than unemployment is likely to favor an Obama re-election in 2012, so the Republican party could do well to put someone with Romney’s credentials as a former businessman and CEO at the top of their ticket. With 9/11 a decade behind us (the only reason why Rudy Giuliani was the front-runner at this time in the 2008 cycle), American politics will likely regress to the mean so that 2012, like 2010, will be about the economy. Accordingly, Romney’s PAC (Free and Strong America) has raised more money than that of any other contender, including Sarah Palin, whose PAC raised $5.4 million in 2010, compared to Romney’s $8.8 million. Palin gets the crowds out, but Romney gets their checkbooks out. Big difference; and we aren’t even yet talking about Romney’s personal wealth.
Obama’s approval numbers have gone up for now. But one thing he has always been weak on – and watch him try to address this weakness on Tuesday’s State of the Union address – is that likeable as he appears to be, he is al
