Posted: 10/22/2012 5:49 pm EDT Updated: 10/23/2012 12:22 am EDT
Bain Capital appears to have benefited from a provision in the U.S. tax code that grants companies tax breaks for costs associated with offshoring American jobs. Bain profited from the closure of a Denver factory in early 2001, when SEC filings list Romney as the sole shareholder and CEO of multiple Bain enterprises.
The tax perk available to Bain while under Romney's leadership conflicts with the Republican candidate's comments at the first presidential debate of 2012.
"You said you get a deduction for getting a plant overseas," Romney said, addressing Obama. "Look, I've been in business for 25 years. I have no idea what you're talking about. I maybe need to get a new accountant." A moment later, Romney added, "The idea that you get a break for shipping jobs overseas is simply not the case."
Bain purchased a major stake in the electronics manufacturer SMTC Corp. in 1998 and remained one of the company's largest shareholders through 2001. Bain had three seats on the company's board of directors -- more than any other shareholder, according to an April 2001 SMTC document filed with the Securities and Exchange Commission.
According to another SEC filing, SMTC laid off 429 workers at its Denver plant in 2001 when it shifted production to Chihuahua, Mexico, and other locations. The company said in May 2001 that it would record $22.7 million in upfront losses from the factory's closure, all of which would have been deductible from SMTC's U.S. federal income tax bill. The company's annual report for 2002 details a longer list of charges related to the closing of the Denver plant, including $25.4 million in direct costs and an additional $23.9 million in miscellaneous costs that derive in part from closing the Denver plant and costs from other locations.
Romney's remarks on the offshoring tax break during the debate appear to be true in a narrow, technical sense: There is no tax deduction expressly for shipping jobs overseas. But as HuffPost and Politifact have noted, companies can deduct costs associated with relocation whether they're moving down the street or halfway around the world: Section 162 of the Internal Revenue Code allows corporations to deduct any "ordinary and necessary" business expenses from their tax bill, including costs associated with offshoring jobs.
It is impossible to determine whether SMTC actually recognized the deduction without viewing their confidential IRS tax filing, but any competent accountant would have listed the offshoring charges as a deduction.
"The company deducted these costs at some point," said Rebecca Wilkins, senior counsel for federal tax policy at the nonprofit Citizens for Tax Justice. "Or they need a new accountant."
The Romney campaign has long disputed the candidate's precise departure date from Bain. "As we’ve said many times before, Mitt Romney left Bain Capital in 1999 to turn around the Salt Lake Olympics," Romney campaign spokesperson Michelle Davis told HuffPost. "He had no role in operational or investment decisions at Bain Capital after 1999."
A February 13, 2001 SEC filing from SMTC, however, asserts that "Mr. W. Mitt Romney is the sole shareholder, sole director, Chief Executive Officer and President of Bain Capital."
Other SEC documents list him as Bain Capital's CEO as late as 2002, The Boston Globe has reported.
The deduction likely pales in comparison to the savings that a multinational company might receive from actually storing profits overseas. But Scott Paul, director of the Alliance for American Manufacturing, said any rational business would consider the relocation tax break when weighing whether or not to move a plant to another country, particularly smaller and mid-size firms to whom the deduction might mean more.
"It's indisputable: that's a tax break for shipping jobs overseas and it definitely reduces the tax burden," Paul said. "This specific business deduction is something that has a bigger effect for mid-size manufacturers that may not be Fortune 500 companies but are the heart of manufacturing."
Several Democratic politicians have been trying to strip that benefit from companies that are moving jobs to other countries, most recently President Barack Obama and Sen. Debbie Stabenow (D-Mich.). Obama has discussed the issue regularly since his State of the Union address earlier this year, when he started pushing an economic plan heavy on manufacturing, and Stabenow has introduced a bill, the Bring Jobs Home Act, that would eliminate the deduction and award tax breaks to companies that "insource" jobs back to the U.S. It failed to overcome a GOP filibuster in July.
Bain Capital and SMTC Corp. declined to comment for this story.
The Huffington Post: Mitt Romney Benefited From Offshoring Tax Break In 2001 While Listed As Bain CEO