Mr. Romney said he was determined to reduce taxes in a state long derided for its high costs: in the corridors of finance, “Taxachusetts” had become a casual epithet.
But his campaign promise never to raise taxes left him with few options once in office: the state’s budget deficit had reached $3 billion, a gap that could not be eliminated by cutting spending and reducing the state work force.
Inside the Romney administration, Alan LeBovidge, a recently retired corporate tax adviser at PricewaterhouseCoopers and the state’s commissioner of revenue, stumbled on a potential trove of cash. He found that dozens of Massachusetts banks had reduced their taxes by transferring billions of dollars in assets, like mortgages, into real estate investment trusts. The trusts, by design, were subject to virtually no taxes. Mr. LeBovidge wanted to ban the practice and force the banks to pay outstanding taxes on the assets.
Would the new governor sign on? Mr. Romney, after all, had spent decades trying to wring profits out of companies as a founder of Bain Capital, a Boston private equity firm, and had deep ties to the state’s banking industry.
During a lengthy discussion in Mr. Romney’s office in early 2003, Mr. LeBovidge made his case. “This is costing us a ton of money, Governor,” he recalled telling Mr. Romney.
The governor seemed just as offended as Mr. LeBovidge. “It’s not right,” Mr. Romney said, according to the tax chief. It was a refrain Mr. Romney would repeat to aides and anybody else who asked. Banks are not real estate companies, they are banks, he would say.
Mr. Romney instructed Mr. LeBovidge to pursue the matter. “Go do it,” Mr. LeBovidge recalled the governor saying.
The governor’s support extended well beyond signing a law that outlawed the tax arrangement. With Mr. Romney’s encouragement, Mr. LeBovidge pursued several years’ worth of outstanding payments from the banks, reaching a major settlement that netted the state $110 million in 2003.
Will this hurt the former governor with Republican primary voters? “You went after big banks that were exploiting a huge tax loophole!” Well, maybe, but it’s not obvious to me that this will work. Will it work in a general election? Picture the attack advertisements from labor-backed 527s: “Mitt Romney tried to soak the good-hearted bankers who were just trying to save hundreds of millions from the taxman, all so he could pursue his ‘good-government’ agenda of protecting Massachusetts residents and non-financial business from tax hikes. Isn’t that just awful?”
Leaving aside the substance of Romney’s corporate tax overhaul, which may or may not have been wise, this hardly seems like fatal news. Unless, that is, Republican primary voters are far fonder of large financial institutions, and far more solicitous of their interest in avoiding tax increases, than I’ve come to understand.