American writer John Steinbeck allegedly said: “Socialism never took root in America because the poor see themselves not as an exploited proletariat, but as temporarily embarrassed millionaires.”
A Gallup poll last May suggested that theory may be true; 63% of Americans think the US benefits from having a rich class, and the same number say they would like to be wealthy.
Republican candidate Mitt Romney’s personal fortune should therefore not be a stumbling block in his presidential run. The former Massachusetts governor and ex-CEO of private equity firm Bain Capital is worth roughly a quarter billion dollars, not counting a $100-million trust for his five sons. He owns several lavish properties, including a sprawling, Spanish-style beach house in San Diego. According to Forbes, Romney would be the richest president in US history.
But with many Americans struggling to stay afloat during a painfully slow economic recovery, Romney’s riches – as well as his reluctance to address the more shadowy zones of his financial history – could be the biggest obstacle standing between him and the White House.
Boating in New Hampshire, schmoozing in the Hamptons
The candidate has largely hinged his presidential bid on the argument that his considerable achievements in the private sector qualify him to do what President Obama has been unable to: accelerate job creation and stimulate significant growth.
Polls suggest that despite persistent unemployment and Obama’s so-so approval ratings, voters are not yet on board. “There are times when great wealth seems unseemly,” noted Karlyn Bowman, an analyst at right-leaning think tank American Enterprise Institute. “That has been true since the financial crisis of 2008. When times are tough, wealth may be a potent political weapon [used against a candidate].”
Recent surveys in crucial swing states indeed indicate that Obama’s expensive attack ad campaign targeting Romney’s wealth and business career has been effective. And this week has seen the president continue to try to shift the spotlight from another weak economic report to questions about how much money Romney has, how he made it, and whether American workers have been casualties of his success.
Romney himself already did some of the Obama campaign’s work for them during Republican primary season: a reference to his possession of “a couple of Cadillacs”, an offer to bet a rival $10,000, and an offhand comment defending corporations as “people” deepened his image as a candidate who, as Thomas Mann of think tank the Brookings Institution puts it, “has lived and worked in a rarified atmosphere and has little connection with or empathy for people of very different economic means”.
Obama is striving to keep Romney in that box – and to create a contrast. The president canceled his annual Martha’s Vineyard holiday, made an expertly choreographed weekend stop for burgers and chit-chat with locals (and reporters) at a blue-collar Ohio diner, and has been talking up his tax proposal (an extension of cuts for all but the wealthiest Americans). Romney, meanwhile, was spotted relaxing on a boat near his lakefront New Hampshire estate before heading to the Hamptons on Sunday to wine and dine with big-wig donors. Wary of appearing to enjoy a life of excessive leisure, Romney told reporters, “I hope that more Americans are able to take vacations”.
An unusual path to wealth?
Obama, too, is wealthy (with an estimated net worth of $7.3 million, due mostly to royalties on books he has written) and has courted glamorous donors like actress Sarah Jessica Parker and Vogue editor Anna Wintour. His team has therefore been careful to insist that attacks on Romney are not attacks on success in general.
They, along with other critics of the Republican candidate, have also insisted that Romney’s path to wealth was not exactly the stuff of the American dream. “His vulnerability is not wealth, since most Americans aspire to that,” Mann said. “Rather, it is the ethics of his actions to build wealth.”
In The New York Times this week, left-wing Nobel prize-winning economist Paul Krugman juxtaposed Romney with his father George, a former governor and auto executive. “Unlike his father…[Mitt] Romney didn’t get rich by producing things people wanted to buy; he made his fortune through financial engineering that seems in many cases to have left workers worse off, and in some cases driven companies into bankruptcy.”
That “engineering” was done at Bain Capital, where Romney says he created tens of thousands of jobs by buying companies and upgrading and reforming their operations. Some who have taken a closer look at Romney’s tenure at Bain tell a different story. A New York Times article in June reported that Bain executives sometimes lined their pockets while companies they had bought faced bankruptcy – often because of debts owed to Bain investors or incurred by implementing Bain strategies – and laid off employees.
Certain private equity insiders have leapt to Romney’s defence, arguing that risk is part of business and sometimes things simply don’t work out. According to Paul Levy, founder of midsize private equity firm JLL Partners, attacks against Romney’s work at Bain are unjust. “Nobody in private equity wants to end a business, to buy a company for the purpose of tearing it apart,” said Levy, who voted for Obama in 2008 but now supports Romney. “Bain is a high-quality, reputable firm, known for being thorough. And like all companies, it has had deals that haven’t worked out.”
Still, accounts of Romney’s practices at the company have continued to raise eyebrows. A recent article in magazine Vanity Fair quotes a former employee of Romney’s who says Romney pressured him to lie in order to obtain confidential information on rival clients. The article also points out that though he left Bain in 1999, Romney still receives large sums of money from the company – more than $2 million in new Bain income just months ago.
Lack of transparency
Romney’s unwillingness to discuss his finances has drawn criticism from across the political spectrum. During the primaries earlier this year, the candidate brushed off calls from Republican rivals to disclose detailed records of his assets. When he finally complied, Romney released just one year’s tax forms, revealing that he paid only 13.9% in taxes on a $42.5-million income - a lower rate than most middle-class Americans – because he was able to declare Bain payments as investment, rather than wages that would have been taxed at 35%.
As Alex Raskolnikov, a Columbia University professor specialising in tax law, noted: “Presidential candidates usually release three years of tax returns. Romney’s clearly reluctant to do so, because he knows his low tax rate will be a subject of conversation.”
Another subject of conversation has been the revelation that Romney has held $30 million in accounts in tax havens like Switzerland, the Cayman Islands, and Bermuda – a fact that prompted Newt Gingrich, a former rival for the Republican presidential nomination, to quip, “I don’t know of any American president who has had a Swiss bank account”.
A lesser known fact flagged by various economists and journalists is that Romney has millions of dollars in an “individual retirement account”, a type of account typically used by middle-class earners and legally limited to an annual contribution of a few thousand dollars. “That is a pretty shocking amount to have in an individual retirement account, and I don’t think we know how it happened,” said Raskolnikov.
The Obama camp is hoping Romney’s aura of privilege, excess, and evasiveness clings to him right up until the election in November. Romney, meanwhile, will continue trying to convince Americans that his ability to make money and manage a big company have prepared him to give the economy a much-needed kick start.
Some people are already convinced. “Unlike Obama, Romney knows business and believes in profit generating good results not only for investors, but also workers and society at large,” Levy said.
Then he added: “I’m writing a lot of checks for Mitt Romney.”