In explaining the growth of his account, Romney campaign officials do not dispute The Post’s analysis but note that he had been eligible to contribute to IRA accounts since he entered the work force in 1975 and that the years since then have often been times of strong economic growth.
That does not mean the size and growth of such IRAs are not controversial. Michael Graetz, who served in the Treasury Department under President George H.W. Bush, said massive IRAs such as Romney’s do not reflect the intent of the laws that created the accounts as a way to help working Americans reach financial security.
“One need not have $100 million in an IRA in order to accomplish retirement security,” said Graetz, who teaches tax and retirement policy at Columbia Law School. “The law deliberately set limits in order to restrict the revenue losses to the Treasury.”
Another tax expert, Edward Kleinbard of the University of Southern California, who reviewed the prices of some A- and L-shares, said Bain may have undervalued the A-shares, providing a benefit to insiders. Kleinbard, a Democrat and former chief of staff of the Congressional Joint Tax Committee, said the valuation of such shares should reflect real market prices.
But Jack Levin, a tax lawyer who has represented Bain, said the share prices at Bain were worked out “by all the investors at arm’s length based on the company’s prospects and economic condition at the time of the investment.”
He said the increase in the value of Romney’s IRA reflected business smarts, not questionable investment practices.
“There is nothing magical about it,” Levin said. In the years that Romney ran Bain, the company earned more than a 50 percent return on investment on average each year. Even a lower rate of return, 26 percent a year, combined with a regular investment of new funds in the account would give Romney “more than $100 million in his IRA account today,” according to Levin, a lawyer at Kirkland & Ellis.
He noted that there was nothing improper about amassing so much wealth. “There is nothing in the tax law that prohibits an IRA from earning as much as the sponsor’s investment acumen allows him or her to earn,” he said.
Another way in which tax rules have favored Romney’s post-Bain financial situation is through the treatment of his severance package from Bain. Again, he benefited from a tax break in a way that is available to very few. His retirement earnings receive what is called the “carried interest” deduction. That’s an accounting classification that treats certain income from private-equity firms and other partnerships as capital gains and taxes it at a rate of 15 percent, rather than as ordinary income at 35 percent.