10 Pages Posted: 7 Aug 2012
Date Written: July 30, 2012
Mitt Romney accumulated his wealth as managing director of Bain Capital, a leveraged buyout fund (LBO). LBOs are driven by tax savings. Tax savings are transfers from other people to LBOs without any increase in GDP or national wealth. An LBO replaces the stock of established companies with debt. Johnson argues that because interest is deductible, the replacement can increase the value of the surviving stock by two to six times without any improvement in operating income. The increase in debt harms the private economy because the companies become very fragile and the leverage encourages the owner to bet the company.
Suggested Citation: Suggested Citation
Johnson, Calvin H., The Tax Explanation for the Romney Leveraged Buyouts (July 30, 2012). Tax Notes, p. 579, July 2012; U of Texas Law, Law and Econ Research Paper No. 230; U of Texas Law, Public Law Research Paper No. 237. Available at SSRN: https://ssrn.com/abstract=2125210