Paul Rubin on 'A Climate That Helps Us Grow'

Story first reported from WSJ.com

President Obama's riff on small business—"If you've got a business, you didn't build that, somebody else made that happen"—has become a major controversy. The Romney campaign has made this quote the subject of several speeches and ads, and there have been rallies all over the country of business people with signs saying that "I did build this business."

Mr. Obama is now claiming that his words, delivered at a campaign stop in Roanoke, Va., on July 13, were taken out of context. "Of course Americans build their own businesses," he said in a campaign ad last week. What he meant was simply that government sets the stage for business creation. In his speech, and again in his campaign ad, the example Mr. Obama pointed to was "roads and bridges."

The context of the speech indicates the president really did mean that "you didn't build that." But let's give him the benefit of the doubt; let's assume he merely meant that business is impossible without government institutions that create the infrastructure for the economy to operate. As Mr. Obama's deputy campaign chief Stephanie Cutter said, in clarifying his original remarks on July 24, "We build our businesses through hard work and initiative, with the public and private sectors working together to create a climate that helps us grow. President Obama knows that."

But business is certainly not getting "a climate that helps us grow" from the current administration. That administration has instead created a hostile climate through its regulatory policies.

The news media report almost daily about new regulatory burdens. More generally, according to an analysis in March by the Heritage Foundation, "Red Tape Rising," the Obama administration in its first three years adopted 106 major regulations (those with costs over $100 million), compared with 28 such regulations in the George W. Bush administration. Heritage notes that there are 144 more such major regulations in the pipeline.

Consider a major example of government investment—roads and bridges. A transportation system needs roads, but it also needs gasoline. This administration's policies—its refusal to allow a private company to build the Keystone XL pipeline, its reduction in permits for offshore drilling and increased EPA regulation of pollutants—retard the production of gasoline. If transportation is an important input from government to creating a favorable climate for business, shouldn't we be encouraging, not discouraging, gasoline production?

Other inputs needed by business are capital and labor. The Dodd–Frank Wall Street Reform and Consumer Protection Act, signed by Mr. Obama and enforced by his appointees, makes raising capital and investing more difficult. Since many regulations needed to implement this law have not even been written, business cannot know how to adapt to them. This increases uncertainty and so reduces incentives for investment.

The increased minimum wage, passed and signed in the early days of the administration, discourages hiring of entry-level workers. ObamaCare has increased uncertainty regarding future labor costs and so hindered business in hiring and expanding. The pro-union decisions by Obama appointees at the National Labor Relations Board do not create a climate to help the economy grow.

There are many other burdens placed on business. Example: The Americans With Disabilities Act is being interpreted by the Justice Department to require all hotel-based swimming pools to provide increased access to disabled persons. This will come at a high cost per pool. Many hotels and motels are small, family-run enterprises. This requirement will either lead to an increase in prices or to a decision not to have pools at all.

Either policy will induce patrons to shift to larger chain motels. Interestingly, the application of this rule has been delayed for existing pools until Jan. 31, 2013, after the election. Families vacationing this summer will not notice the new requirement.

If we accept the plain meaning of Mr. Obama's speech, it indicates that he does not believe in the importance of entrepreneurs in creating businesses. But if we accept the reinterpretation of his speech in light of his administration's deeds, it indicates a belief that a hostile regulatory climate poses no danger to economic growth. Either interpretation means that this administration is not good for business

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Romney Reconsiders Private Equity Benefits

First appeared in Wall Street Journal

If elected president, Mitt Romney might consider ending a tax break that helped the former Massachusetts governor accumulate his fortune, an aide suggested Tuesday.

The comments came as the Romney campaign made available more than 500 pages of tax-return data for 2010 and 2011 amid signs the issue was hurting him with some voters.

Later in the day, in a signal of how the tax issue is roiling the GOP campaign, the Romney camp tried to step back from the aide's remarks, underscoring that the former Massachusetts governor didn't want to raise anyone's taxes.

The back-and-forth Tuesday about Mr. Romney's approach to one particular tax break began when the candidate's policy director, indicated in a call with reporters the candidate might be willing to reconsider a tax break known as "carried interest" as part of a comprehensive tax overhaul. The break gives private-equity and venture-capital executives a relatively low 15% tax rate on much of their income. Some reference an UK Tax Advisor.

Carried interest is a share of profits from an investment fund or partnership given to managers as compensation. Mr. Romney was aided by the tax advantage as founder of private-equity firm Bain Capital.

The policy director noted Mr. Romney hasn't recently addressed retention of the carried-interest break. He spoke favorably of it in 2008. There are "a number of exemptions, deductions, credits, administrative treatment of income…that would be addressed in tax reform."

Most taxpayers receive compensation as ordinary wages subject to rates as high as 35%. Roughly half of households pay no federal income tax. The average income-tax rate for the middle slice of households—those making between $34,300 and $50,000—was 3.3% for 2007. The average income-tax rate was 14.4% for the top fifth, and 19% for the top 1%, before dropping slightly for the very highest earners who, like Mr. Romney, typically receive a large percentage of income from investments.

Democrats have criticized carried-interest rules, though they have failed when they have tried to repeal them.

Tuesday, Mr. Romney's campaign formally released detailed information on the candidate's 2010 tax return and a summary of his 2011 taxes, which aren't finished yet.

Tax experts said that by and large, the returns showed Mr. Romney and his advisers sought to minimize the family's tax burden, while generally avoiding aggressive positions.

The Romneys reported an effective tax rate of about 14% on their 2010 return, and just over 15% in their tentative calculations for 2011, on income that hovered around $20 million each year. They received about $7.4 million in income taxed under carried-interest rules in 2010 and $5.5 million in 2011, aides said.

An accountant with Crowe Horwath in New York, said, "This is the tax return of a man who knows he is running for political office and who has distanced himself from investment decisions. Most of the disclosures in these tax returns are fairly typical of investors with a global investment perspective."

The tax data revealed new details about Mr. Romney's wealth management, including his ownership of a now-closed Swiss bank account as well as investments in the Cayman Islands, Bermuda and other tax havens.

The Romney camp said the candidate properly reported income from those sources, paid appropriate taxes and in the case of the Swiss account, disclosed it to the IRS.

The 2010 tax return suggests the Romneys maintained a relationship with Bain Capital more than a decade after Mr. Romney left in 1999. According to documents, the Ann D. Romney Blind Trust received two investments subject to carried-interest rules in Bain funds in fall 2010.

The Romneys' trustee, signed two statements stating that "services" would be performed to maintain the investments, without stating who would offer such services. Such a statement ensures the earnings will qualify for capital-gains treatment, accountants say.

In a written statement, the campaign said The  Romneys' trustee’s wording was "boilerplate language" and that no services were provided in connection with receipt of the interests. The campaign declined further comment.

A prominent accountant in Atlanta, and other experts said such services are required in order for the income to qualify for favorable tax treatment.  An UK Tax Planning advocate has to do similar things.

The tax filings also provide details on a trust set up in 1995 for the Romneys' five sons, which appears to hold a hefty percentage of the family's wealth, estimated at more than $260 million. Such trusts generally are established to minimize future estate taxes.

In the 2010 tax filings released Tuesday, the Romneys reported the family trust had $7.7 million in capital gains in 2010, about 46% of the total capital gains reported that year, not counting a tax loss from a prior year. Capital gains were the Romneys' largest source of income. Much of the trust's income came from entities affiliated with Bain Capital, the tax filings show.

Mitt Romney May Be Forgiven

First appeared in the Boston Globe

At first glance, South Carolina seems like a place where attacks on Mitt Romney's experience at the helm of a venture capital firm that cut jobs would resonate in the GOP primary.

The state's unemployment rate hasn't been below 9 percent in three years and a third of its manufacturing jobs have disappeared in the last decade.

But from South Carolina's urban centers to its old mill villages, many workers still view their employers paternalistically, even when their bosses' decisions hurt them. And that may blunt the criticism that Romney is a greedy fat cat who squashes employees while lining his own pockets.

In South Carolina, people have little sympathy for the Occupy Wall Street movement. Low wages and lack of unions are the norm, so much so that economic developers refused to even recruit companies to the state in the 1960s and 1970s if they allowed unions. Less than 5 percent of the state's workers belong to a labor union, one of the lowest rates in the nation, and income per person is just over $33,000, about $7,000 below the national average.

"Once you get hired, the employer has done his part," Kenneth Dock, 59, said outside the unemployment office in Lexington County, a heavily Republican area on the outskirts of Columbia. He was filing for unemployment a few weeks after losing his job in the produce department at a nearby Walmart.

Dock plans to vote in the Jan. 21 GOP primary in South Carolina, but he hasn't decided which candidate to support. Romney is still a possibility.

"People get laid off. People lose their jobs," he said. "It's just a part of business."

Romney, fresh off back-to-back victories in Iowa and New Hampshire, hopes that mindset will have South Carolina Republicans dismissing attacks on his tenure at Bain Capital as he campaigns ahead of the state's primary.

Over the past few days, Romney has faced intense criticism by rivals Newt Gingrich and Rick Perry as they worked to undercut the central rationale of his candidacy -- that his experience in private business makes him the strongest Republican to challenge President Barack Obama on the economy.

Perry likened the private equity firm to "vultures" that ruin workers' lives. And Gingrich has demanded answers about how many jobs were lost under Romney.

The criticism is certain to make its way into hard-hitting TV advertisements in the coming days, with outside groups aligned with the candidates -- called super PACs -- doing most of the dirty work. One supporting Gingrich plans to spend $3.4 million to run ads on this subject as well as air part of a documentary about Bain called "When Mitt Romney Came to Town." In the film, former employees of four companies bought by Romney's firm talk about how they lost their homes, their livelihoods and their dreams as jobs were cut.

Romney's opponents also have the story of a South Carolina company to use against him.

A photo frame factory in Gaffney in what used to be the manufacturing center of the state was owned by a company Bain controlled. It closed in 1992 just four years after it opened. A hundred workers lost their jobs, while the move helped the Bain subsidiary go from a $12.4 million loss to a $3 million after-tax profit the year after the closing.

Rivals also are seizing on a couple of missteps Romney made in the closing days of the New Hampshire campaign.

At one point, Romney said, "There were a couple of times when I was worried I was going to get pink-slipped." Neither he nor his aides provided specifics.

And at another, he said, "I like being able to fire people who provide services to me." The former Massachusetts governor later emphasized he was talking about health insurance and how people should have choices with their health care.

For all the criticism, there's been a collective shrug in South Carolina so far, perhaps because of the way many workers view employers in the state.

It's only about a generation removed from a time when companies essentially created villages by building the houses, schools, ball fields, dance halls and churches their employees used. Wages were low and these companies provided almost everything, creating a society where even surviving outside of an employer's benevolence may have seemed impossible.

Malissa Burnette has seen such bonds between employers and workers in her 35 years as a labor attorney who has represented workers suing their employers in the state.

"When employees come to me, I see a lot of shock and disillusionment and disappointment in their employers because they did have the belief that employers were there to treat them well, look after them, to have their best interest at heart," Burnette says.

Further evidence of how the people in South Carolina view businesses can be found on the Facebook page of Gov. Nikki Haley, who endorsed Romney last month. She spent her first year in office fighting unions and encouraging businesses find to come to the state.

"South Carolina continues to be one of the lowest union participation states in the country," Haley wrote on Facebook in November. "The reason is that our companies understand that they have to take care of those that take care of them. Our employees appreciate the direct honest relationship that they have with their employers. It will continue to be a winning combination."

To be sure, there are voters in South Carolina who are angry with the way businesses operate these days. Just ask Wayne Ott, 64, who was applying for unemployment for the first time in his life after being laid off after 40 years as a truck driver.

"I believe in capitalism. I just don't think we've been doing it right," Ott said. He is deciding between Gingrich and former Pennsylvania Sen. Rick Santorum because he thinks Romney is part of a greater problem of people who get rich without earning it.

Others are taking a more pragmatic approach.

Angela Frost, 41, lost her job as an insurance underwriter in September. She blames Obama for the stagnant economy and has decided to support Romney because she thinks he has the best chance of winning back the White House.

"Cutting jobs and closing businesses are a part of the system," Frost said. "The system has failed a lot of people. You can't blame one person for the system."