Human Events Blog

Obama picks up Harry Reid’s smears

The Obama campaign, far from denouncing the most disgusting attacks launched by its surrogates, has been embracing them.  A possibly illegal degree of coordination by the Obama campaign in the Priorities USA “Romney killed my wife” ad has already been uncovered.  Now a new ad from the Obama campaign – not a Super PAC, and officially endorsed by Barack Obama personally – picks up Senate Majority Leader Harry Reid’s scurrilous smear, in which Reid quoted a shifting number of imaginary “sources” to claim Obama’s presidential rival, Mitt Romney, paid no taxes for ten years:

Notice how cute and clever this little huddle with Harry Reid is.  Obama doesn’t expose himself to legal liability by repeating all the details of Reid’s wild slander, which effectively accuses Romney of being a felony tax evader.  Instead, Obama runs an extension cord from Reid’s much-discussed antics to power his latest attack.  It’s a classic example of a nasty little political game:

1. Invent a lot of wild allegations and throw them around with reckless abandon, ignoring the swarm of Pinocchios pouring out of fact checkers.

2. Begin describing the target as “controversial” and note that a lot of “questions” are being asked about him.  Hopefully by this point, the critical mass of made-up garbage has been reached, and voters have forgotten that your own smear operation is inventing and asking all those “questions.”

Conservative bloggers have been having a grand time illustrating this tactic by quoting “anonymous sources” who accused Harry Reid of pederasty, and describing Reid’s refusal to address the charges and prove himself innocent as troubling evidence of his guilt.

As for this whole “Son of Boss” deal, the CNN article prominently touted in Obama’s ad spends a great deal of time editorializing about how notorious and awful it was, and dishing out plenty of opinions about the “insight into Romney’s professional ethics and attitude toward tax compliance obligations” that it offers… but makes no real effort to explain what actually happened.

In one grimly amusing bit of hyperbole, the authors claim the company involved, Mariott, “was in the vanguard of a then-emerging corporate tax shelter bubble that substantially undermined the entire corporate tax system.”  Really?  And here I thought we had the highest corporate tax rates in the world.

The reader is left with precisely four short factual paragraphs describing the unhappy outcome of the deal:

The Son of Boss transaction was vulnerable to attack on at least two grounds.

First, the transaction’s promoters and consumers relied on a strained technical statutory analysis. Second, the Son of Boss deal violated the fundamental tax principle that the tax law ignores transactions unless they have a motivating business purpose and a substantial nontax economic effect.

In the Marriott case, the IRS raised both arguments and won on the first interpretive issue.

The Court of Claims (affirmed by the Court of Appeals) rejected Marriott’s technical analysis, finding no reliable argument or authority to support it. The court therefore did not need to reach the issue of business purpose and economic substance. In subsequent decisions, involving similar transactions but other parties, the courts have sustained the second line of attack as well, finding the claimed losses to be fictitious.

So, when you cut through all the editorializing, you’re left with a highly complex transaction designed to reduce tax liability, by taking advantage of our incredibly complicated corporate tax laws.  In the end, Marriott’s “technical analysis” of these laws was judged incorrect.   How’s that stack up to the thousands of straight-up tax cheats Obama gave $1.4 billion of your money to, in his “stimulus” disaster?

CNN says “Son of Boss and its related shelters represented perhaps the largest tax avoidance scheme in history,” which is a nifty way of tying a whole lot of other corporate actions into a bundle with Marriott, and leave the reader thinking that Mitt Romney is somehow personally responsible for “the largest tax avoidance scheme in history.”  Also, “tax avoidance” is not inherently wrong; every sensible individual and company does their best to legally avoid as many taxes as possible.

And at any rate, I’d have to throw the bailout of General Motors into the ring as a serious contender for “the largest tax avoidance scheme in history.”  Did you know part of the bailout deal exempted $13 billion in GM profits from taxation?  How’s that measure up to whatever Mariott was trying to accomplish?

For an actual description of what transpired in this scandal, don’t waste your time with CNN.  Instead, read the “Son of Boss For Dummies” article at Forbes, in which Peter J. Reilly lays things out in layman’s terms.  It would be difficult to summarize things any better than Reilly does, but in essence, the deal in question involved shifting ownership of various assets between Mariott and its partners, to increase apparent losses and minimize tax exposure.  The corporate tax system frowns on such paper-shuffling when it serves no other arguable business purpose.

Shouldn’t we direct some of our ire at the system that makes this kind of paper-shuffling fiscally advantageous, instead of encouraging more productive uses for corporate resources?  Corporations spend a huge amount of money on tax compliance.  A great deal of that expense is, naturally, dedicated to minimizing tax exposure.  Are we supposed to criticize Mariott’s effort to take advantage of hyper-complex tax laws, while meekly accepting that those laws must grow ever more complicated, and riddled with penalties?

As for where Mitt Romney fits into all of this, a major component of his platform involves lowering corporate tax rates and eliminating deductions, which would represent movement toward a system in which “Son of Boss” deals were neither possible, nor desirable.  Feel free to criticize him for not going far enough, but there’s no question that Barack Obama is headed in the exact opposite direction.  And in the end, those “corporate taxes” all come out of consumers’ hides anyway.  Every product and service we purchase includes hidden costs for corporate tax compliance that we never see.  If consumers are feeling grouchy about the price of the product, it never occurs to them to blame the cost of government regulations, or the tax burden on private enterprise.  This is very much by design.

Obama’s new campaign ad illustrates that Harry Reid is practicing, on an individual basis, what the tax code allows Big Government to do on a national scale: make “criminals” of everyone, by trapping us in a massively complicated system, in which every effort to retain our earnings from the government can be characterized as unscrupulous, or immoral.  Tax laws that even professional analysts have difficulty interpreting can easily be used to portray highly successful private citizens in the worst possible light.  Meanwhile, the likes of Harry Reid don’t seem terribly concerned about Barack Obama blatantly violating painfully clear laws passed by Congress, such as the welfare work requirements his Administration has gutted.

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