Where Your Treasure Is…at the Heart of the Matter

³³ Sell that ye have, and give alms; provide yourselves bags which wax not old, a treasure in the heavens that faileth not, where no thief approacheth, neither moth corrupteth.

³⁴ For where your treasure is, there will your heart be also.

- The Bible:  Luke 12:33-34

Admonitions concerning wealth hoarding are as old as the wisdom traditions of humanity.  They are rolled out, from time to time, when those who perceive themselves 'wanting' wish to shame those in the Occupite 1% elite.  Ironically, the same wisdom traditions warn of the mortal cancer of envy but timing is everything!  Truth, after all, is in the eye of the beholder.

This week has been a comedy of selective morality.  Sycophants and rabid detractors alike have been enthralled with Presidential candidate Mitt Romney's tax returns.  For a guy who, depending on which of his tax returns for 2011, either made $21 million or $14 million, we somehow concern ourselves with the fact that his tax rate was about 14% - less than half of the tax rate for most Americans.  Let's be clear.  According to former IRS Commissioner Fred Goldberg (asked to be the partisan hack for the Romney campaign), there was, "no indication of aggressive tax planning activities…," and, the Romney's have "fully satisfied their responsibilities as taxpayers."  Apparently, Fred doesn't think that off-shoring assets exclusively for tax purposes constitutes "aggressive tax planning."  After all, the average American has a Cayman Island account or two next to their dressage horse stable!  But, to be clear, Fred's probably technically right.  With a tax code set up for those who have wealth to preserve the same, Mitt Romney has likely played according to the rules.  No harm.  No foul.

And, remember America, Mitt's tax accounting pales in comparison to my personal favorite taxpayer - IRS Employer Identification Number entity 94-2404110.  This company, now allegedly worth $656.27 billion with a price-to-earnings multiple of 16.46, is a great American success story that has seduced millions around the world into it's wormy core.  But, make no mistake, an enormous amount of this fruit's nectar comes from its amazing tax cheat status.  Now in fairness, a several hundred million dollar penalty for tax abuses doesn't necessarily mean that they cheat (after all, at the taxpayer expense, their appealing their fine).  But with an effective tax rate 10% lower than the statutory corporate rate of 35%, this firm off-shores as much money as possible to reduce their tax bill while fully insisting their entitlement to U.S. tax credits (last year exceeding $3.2 billion).

Ah, the fickleness of the electorate.  We want our wealthy to pay their fair share but we complain about it on our way to the glass cube temple of the forbidden fruit texting and tweeting our faux indignation on the artifact of the most egregious abuser! 

Now in fairness I, for one, find the Internal Revenue Service one of the most unsavory arms of the U.S. government's infrastructure for good reason.  On January 10, 2003, I provided the Department of the Treasury's Office of Tax Shelter Analysis a report that led to the closure of the estimated second largest tax loophole at that time.  For over a year, I led our firm's collaboration with the IRS to collect hundreds of millions of dollars from tax cheats - a collaboration for which we were promised significant compensation (under a 'whistle-blower' type provision).  Billions of dollars of closures and collections later, the IRS decided to renege on their contractual obligation (despite prior written agreements) because our payment represented a sum "too large" for payment to an external contractor.  Far from being one that owes the IRS, our known uncollected fee from the IRS is in the nine figures and has never been paid!  But, love it or hate it, tax is the way our government has decided to pay for its operations and, under the current code, the asymmetry of compliance is a function of the discretionary resource one has to plumb the loopholes!  This holds for would-be Presidents (and their donors), Presidents (and their donors), and celebrated companies alike.

Aggressively managing tax liabilities for wealth preservation is commonplace.  Remember that the much heralded success of angel investors and venture capitalists had NOTHING to do with investing in the growth of American business.  It only took off when investors could "harvest" tax losses in the failed enterprises they funded!  At present, one of the most successful wealth managers makes its returns from "tax loss harvesting".   Preserving wealth in havens remote from the long arm of an illogical tax regime is a necessary component of some entire industries.  So I'm not one to jump up and down in incredulity when the would be President has some proclivities for storing up his earthly treasures where moth, rust, and the taxman can't corrupt or defile.  

What I would, however, suggest is that we look a bit deeper.  Article II of the U.S. Constitution - how could you not know it with all of Donald Trump's "birther" complex around the current resident of the White House? - sets forth the eligibility for serving as President of the United States.  What would be seriously cool would be an amendment to Clause 5 which stated that, rather than living as a resident of the United States for fourteen years, you actually had to have your entire wealth domiciled in the Land of the Free and the Home of the Brave for the same period!  And, if we really want a More Perfect Union, how about applying the same rule to any financing flowing into campaigns?  Far fetched?  Not so fast.  Remember that loyalty to foreign sovereigns - evidenced by title and wealth - was perceived to be a threat to the young country and, as a result, residency (including property allegiance) was a CONDITION OF BEING CONSIDERED FOR THE PRESIDENCY! 

"Where your treasure is, there shall your heart be also."   Let's get real.  Whether Mitt or a rotten, worm-invested corporate fruit pays taxes or domiciles wealth in the U.S. or not is NOT the point.  What is the point is knowing the derivative allegiance.  Neither Mitt nor his corporate muse are breaking laws.  They're just evidencing a divided loyalty.  They want the benefit of the America they espouse but they want to keep it as anemic as possible.  Great for a vampire - bad for a country!