Over the past few weeks, Sheldon Adelson made headlines for his outsized gifts to Newt Gingrich, which have quickly turned him into the biggest individual spender in the 2012 election cycle. But while the casino mogul's huge donations have elevated Gingrich's chances in the Republican primaries, they've also raised quite a few eyebrows.
Thanks to the Supreme Court's Citizens United ruling and the rise of super PACs, billionaires and corporations are able to make almost unlimited political donations, leading an growing number of pundits to wonder aloud if the U.S. presidency is now for sale. And if Adelson is the highest bidder, who will end up running the game?
A Self-Made Man
Adelson is pretty much the definition of a self-made man. The son of Ukrainian Jewish immigrants, he dropped out of City College of New York before starting several businesses, including a chartered bus tour company, a business selling toiletry kits to hotels, and an investment firm. In 1979, he hit pay dirt when he helped create COMDEX, which became the premier computer trade show. A few years later, he purchased the Las Vegas' Sands hotel and casino. It became the first property in a resort empire that stretches now around the globe. A former Democrat, he switched parties when he became wealthy and wanted to reduce his taxes. As The New Yorkerreported in 2008, he allegedly told an associate, "Why is it fair that I should be paying a higher percentage of taxes than anyone else?"
With a personal fortune of $21.5 billion -- he's the eighth-richest person in America -- Adelson can bring a seemingly-unlimited war chest to bear for a candidate who captures his interest. Right now, that's Newt Gingrich, whose low-tax, pro-Israel stances appeal to Adelson. And the casino owner has shown his approval in the form of fat checks: He and his wife have given $10 million to "Winning the Future," a pro-Gingrich super PAC.
Enough Money to Pay a Small Town
It's hard to put these donations into the context of an average American household: To begin with, most Americans don't contribute to political candidates, and, when they do, their gifts are modest. According to the Center for Responsive Politics, only 0.12% of the adult American population has given more than $200 in this election cycle -- that's 12 in 10,000 of us -- and a mere 0.03% -- fewer than 71,000 people overall -- gave more than $2,500. Forget the 1%: Adelson and his wife are the 0.00000001% who stand at the pinnacle of the 0.03%.
To put it another way, the Adelson's $10 million contribution to the Gingrich campaign equals the yearly salary of more than 200 average American households. Yes, Adelson and his wife gave the yearly income of a small town in order to help Gingrich win the South Carolina primary and keep his head above water in Florida. The average political donor -- or voter -- can hardly hope to keep up.
On the surface, at least, there are restrictions in place to keep the rich from controlling the political conversation. Officially, individuals are only allowed to donate $5,000 to a presidential candidate -- $2,500 in the primary, and $2,500 in the general election. However, super PACs -- political action committees that are, allegedly, not connected to specific candidates -- are allowed to collect unlimited amounts of money.
Until a few years ago, such groups weren't allowed to specifically endorse candidates: They had to limit themselves to "issue advocacy," in which they ostensibly educated voters on a specific issue. This, for example, is why a group called Swift Boat Veterans for Truth was able to attack John Kerry's military record, but was not allowed to specifically endorse his opponent, George W. Bush.
But that carefully drawn line disappeared in 2010 with the Supreme Court's Citizens United ruling, which allowed nonprofit groups like Swift Boat Veterans for Truth -- or Gingrich's Winning the Future -- to directly endorse candidates. The only catch is, the super PAC can't have a direct relationship with the candidate. In other words, "Winning the Future" can run unlimited ads endorsing Gingrich, but its leaders can't take their marching orders directly from the candidate. Allegedly, they draw their ideas from his speeches and from the topics of the day.
Separated ... Like the Corsican Twins
Yet this separation is hard to prove -- and harder to believe. Winning the Future takes its name from Gingrich's book of the same title, and the super PAC's president, Becky Burkett, was previously the head of fundraising at American Secrets for Winning the Future, a Gingrich-owned PAC. A senior adviser, Rick Tyler, was previously Gingrich's press secretary. In other words, while Winning the Future's leaders may not be talking directly to Gingrich or his campaign, at least two of them are very used to figuring out what Newt is thinking. To get an only slightly exaggerated idea of how this works, one need look no further than the recent super PAC storyline on The Daily Show.
Gingrich's Winning the Future and Colbert's Americans for a Better Tomorrow aren't the only super PACs whose relationships to candidates are somewhat questionable. Priorities USA, a pro-Obama super PAC that plans to raise $100 million, is run by two former Obama aides, while the treasurer of pro-Romney super PAC Restore Our Future was legal counsel on the candidate's 2008 presidential bid.
So while Adelson is currently the big man on campus when it comes to bloated super PACs, it's likely that he is only the harbinger of things to come. As the liberal magazine Mother Jones recently reported, several individuals have already donated more than $1 million in the current election cycle, and with wealthy donors like the progressive George Soros and the ultra-conservative Koch brothers waiting in the wings, this should be an exciting election -- unless you're a middle class voter who wants your voice to be heard too.
Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at firstname.lastname@example.org, or follow him on Twitter at @bruce1971.
Thanks Mitt and Newt: A Dozen Tax Tips for the Rest of Us
Who's Buying Your Next President? Sheldon Adelson Makes His Bid
If you think Romney and Gingrich disagree about undocumented immigrants, their tax returns suggest that they're polar opposites when it comes to investing in municipal bonds to earn tax-free interest.
The former speaker's 2010 return shows he earned $10,754 of tax-free interest, compared to $26,655 of the taxable variety. Romney's forms show just $557 of tax-free interest and $3,295,727 of taxable interest income.
Remember, to figure the taxable-equivalent yield of a tax-free bond, divide the tax-free yield by 1 minus your marginal tax rate. Since Gingrich's marginal rate is 35%, a 3.5% tax-free yield is worth the same as a 5.38% taxable yield (3.5/0.65). Romney was hit by the alternative minimum tax in 2010, so his marginal rate was 28%. Avoiding a 28% tax makes a 3.5% tax-free rate equal to a 4.86% taxable yield (3.5/0.72).
When you buy your principal residence, points you pay to get your mortgage are fully deductible on your tax return for the year you close. When it comes to a second home (or a rental property or a refinancing), however, that cost must be amortized over the life of the loan -- 1/30th a year if you have a 30-year mortgage, for example. That can lead to relatively small -- and relatively easy-to-forget -- write offs.
But if you follow Gingrich's example, you won't miss this tax break. His return shows a $19 deduction for a portion of the $2,261 it cost him to refinance the mortgage on a rental property he owns in Whitehall, Wisc. Since the refi was in October, 2010, he got to write off one-fourth of 1/30th of the cost on that year's return.
Anyone planning a substantial charitable gift this year should take a page from Romney's playbook and consider donating appreciated securities rather than cash.
As long as you have owned the asset for more than a year, you get to deduct the full fair market value of the gift, not what you paid for it. (And neither you nor the charity ever has to pay tax on the appreciation that accrued while you owned the stock.)
Romney's 2010 return shows that he and his wife, Ann, donated $1,525,167 in cash and another $1,458,807 in non-cash gifts -- much of it appreciated stock in Domino's Pizza.
Even if you don't itemize deductions, you can write off alimony paid to an ex-spouse ... as long as you also include the ex's Social Security number so the IRScan make sure he or she reports the amount as taxable income. Gingrich fulfilled that requirement and deducted the $19,800 he paid his ex-wife in 2010.
Tax law allows you to deduct the loss on a stock that becomes worthless, treating it as though you sold it for $0 at the end of the year in which it lost all value. That appears to have happened to at least one of Mitt Romney's investments. His return shows a $63,511 loss on shares in an investment fund that were disposed of for $0.
The stock market meltdown of 2007-2009 was not kind to Mitt Romney. He suffered losses so serious that, even after wiping out all of his capital gains, he carried $4,844,089 of long-term losses over to his 2010 tax return.
Remember, losses are used to offset gains dollar for dollar, but then only $3,000 of excess loss can be deducted against other kinds of income such as salary or interest income. Any excess is carried over to the next year. On his 2010 return, Romney used nearly $5 million of such losses to offset gains that would have otherwise been taxed at 15%, saving him $726,613.
If you had carryover losses on your 2010 return (as the Gingriches did), be sure to revive them when you complete your Schedule D this spring.
Congress has created special rules for what it calls "passive activities," a group that includes most investments in real estate and limited-partnerships.
Basically, losses from such investments can only be deducted against gains from similar activities. There's an exception that allows up to $25,000 of loss from rental real estate to be deducted if you are "actively" involved in the rental.
We don't know if Gingrich is actively involved in the rental in Wisconsin, but even if he was, he would not have been permitted to deduct the $4,646 loss he reported. The $25,000 allowance gradually disappears as adjusted gross income moves between $100,000 and $150,000. With AGIof $3,142,066, Gingrich is out of luck. (He can stockpile the disallowed loss and deduct it when he sells the property.) By the way, the Romneys return shows that the passive loss rule blocked the deduction of over $2 million in losses from limited partnerships.
Plenty of politicians have gotten in trouble in the past for failing to pay Social Security taxes for their child-care providers and household help. For 2012, if you pay household help more than $1,800, you are required to file a Schedule H with your return and pay Social Security and Medicare taxes for your employee.
Both Romney and Gingrich included the form and paid the piper for their household help in 2010. Ann Romney reported that she paid four household employees a total of $20,603 in 2010 and paid $3,152 in taxes for them. Gingrich reported that he paid household help $14,774 and paid $2,260 in Social Security and Medicare tax.
The federal income tax is on a pay-as-you-earn system. If you don't pay in enough during the year -- via withholding from paychecks or estimated tax payments -- the IRSwill slap on an underpayment penalty. Generally, you avoid the penalty if your payments during the year are at least 90% of what you owe. Gingrich owed an extra $382,734 when he filed his $2010 return, 38% of his tax bill for the year. That triggered an underpayment penalty of $1,543.
The opposite side of the coin from the underpayment penalty is paying in too much doing the year. About 75% of all taxpayers are in this boat, and get tax refunds every spring. We think that's silly, and have a calculator to help you match withholding from your paychecks to what you'll owe for the year. Our calculator won't help Romney, though, since he has no wages from which to withhold. He overpays via quarterly estimated tax payments, and boy does he overpay! His 2010 return shows that he paid in $1,609,441 more than the $3,009,766 that he owed. He didn't ask for a refund, though. He let the IRSkeep the cash as a down payment on his 2011 tax bill.
For 2010, the 6.2% employee share of the Social Security tax applied to the first $106,800 of wages. (The wage base is $110,100 for 2012; the rate is 4.2% for January and February and will jump back to 6.2% if Congress fails to extend the payroll tax holiday.) If you work more than one job and your combined salary exceeds the wage base, too much tax will be withheld from your pay. That happened to one of the Gingriches in 2010, so they claimed a credit of $367 to reclaim the excess tax withheld.
A special rule allows qualifying self-employed workers to deduct 100% of their medical insurance premiums, even if they don't itemize deductions. That might have helped Romney, who reported that he paid $14,176 in self-employed health insurance premiums in 2010. But he didn't get the tax break. Rather than claim the special deduction, Romney reported the premiums as medical expense on Schedule A, where a deduction is allowed only to the extent such expenses exceed 7.5% of adjusted gross income. Romney's $14,176 of premiums fell well short of $1,623,488 (7.5% of his AGI).