Congress should tighten laws to prevent people like Mitt Romney from avoiding higher taxes, say two top Democrats.
Reps. Chris Van Hollen (Md.) and George Miller (Calif.) say Romney and others at Bain Capital might have avoided higher taxes by over-contributing to their individual retirement accounts (IRAs).
Now the two want the Senate Finance and House Ways and Means committees to take action.
"Evasion of contribution limits on tax-preferred retirement plans is a significant problem that should be addressed as Congress looks to close the nearly $400 billion annual tax gap and, if the IRS comes to the conclusion that additional legislation is needed, we believe that Congress should act accordingly," the two lawmakers wrote in a Thursday letter to the panels, which have authority over tax issues.
"This type of tax avoidance, at Bain and elsewhere, can increase the deficit and unfairly shift the tax burden onto already struggling middle-class families, and it undermines the fundamental principle of fair tax treatment for all citizens," wrote Van Hollen, the top Democrat on the Budget panel, and Miller, a close confidant of House Democratic Leader Nancy Pelosi (Calif.).
The Wall Street Journal and The Washington Post reported this year that Bain contributed up to $30,000 a year to its employees' IRAs. But allowing these IRAs to hold stock in companies that Bain owned raises the question of how to value that stock, in particular when the stock was not publicly traded at the time.
Democrats are charging that Bain might have been undervaluing the stock, which would have let Bain employees hold more stock than they should have been allowed. Democrats argue that this would explain the enormous growth in the value of IRAs held by Romney, and would also be an indication that Bain employees were trying to stuff their IRAs as full as possible to avoid paying current-year taxes.
"We are concerned by reports that some shares in these investments, and similar investments at other firms, may have been valued at an other than fair market value, thereby allowing these service partners to engage in tax avoidance by evading the annual contribution limits on IRAs and SEP-IRAs," wrote Miller and Van Hollen.
The two lawmakers noted that the Treasury Department has said it is trying to take action against possible abuses related to the valuation of stock held by IRAs. They also said the IRS is setting up a working group to "study ways of improving compliance and enforcement in this area."
Romney press aides have defended Romney's IRA as legal and in compliance with the tax code, and a House aide acknowledged this week that Democrats do not know for a fact that Romney was undervaluing the stock held in his IRA. But Democrats have said part of the problem is that Romney has only released his 2010 and 2011 tax returns, making it impossible for them to assess how his earlier IRA contributions might have been calculated.