Republicans defended Mitt Romney against criticism from Democrats that he avoided taxes by keeping money stashed overseas. Those roles are now reversed with the disclosure that President Barack Obama’s pick to run the Commerce Department does the same thing.
The nomination of Chicago billionaire Penny Pritzker marks the second time this year that Obama has put forth a cabinet nominee with offshore accounts -- months after he castigated Romney, the Republican presidential candidate, for utilizing them. In a financial disclosure released last week, Pritzker said she received $53.6 million in income last year from a trust in the Bahamas.
Republicans say Pritzker, 54, should expect tough questions, just as Treasury Secretary Jack Lew was called to account for an investment in the Cayman Islands during his confirmation hearings.
“It isn’t just about her or the offshore stuff, it’s about the fact that the president made a big deal out of Romney’s offshore accounts,” Senator Charles Grassley, an Iowa Republican, said in an interview. “You’d think if that’s a big deal for his opponent, then the president of the United States wouldn’t be appointing people who make use of that in his own cabinet. If it’s wrong, it’s wrong.”
In February, Grassley grilled Lew over a $56,000 Cayman Islands investment. He said the president is duplicitous on tax havens and he may oppose Pritzker over it.
Other senators are also on the attack.
“There are members on our side who think there’s a good amount of hypocrisy in the arguments the president made last year, and then he keeps sending up nominees that have these offshore investments and tax shelters,” said Senator John Thune of South Dakota, the top Republican on the Senate Commerce panel that will consider her nomination, beginning with a hearing May 23.
Whether the issue threatens Pritzker’s approval remains to be seen. Charges of hypocrisy could be leveled at both parties, said Bruce Buchanan, a professor of government at the University of Texas at Austin.
“The demerits on each side may cancel out,” he said. “The credibility of the issue used as a weapon is mitigated by the weakness of the critic. The Republicans will have to decide whether they really want to hammer this issue and have their own complicity in these activities aired.”
Pritzker’s family founded the Hyatt Hotels Corp. (H:US) and she has vast experience in business -- including top jobs in the real estate, credit reporting and hospitality industry -- which engenders good will among some Republicans.
“I’m certainly leaning toward supporting her,” said Senator Roy Blunt, a Missouri Republican. “I think she brings a background to the job that fits the job well. I believe she understands this department as well as anyone the president would likely nominate, and I think they need a permanent leader.”
Still, Pritzker faces risks in a political environment that has become more toxic since Lew eschewed criticism over his offshore account and was confirmed Feb. 27 on a 71-26 vote.
Republicans are bearing down on the administration, seeking more probes into September’s attack on the diplomatic outpost in Benghazi, Libya, and investigating the IRS’s singling out of Tea Party groups for extra scrutiny. They have delayed approval of his picks for Labor Secretary and head of the U.S. Environmental Protection Agency.
“We’re in a different mood in Washington,” said Clint Stretch, senior tax policy counsel for Tax Analysts, a publishing company in Falls Church, Virginia. “Somebody is going to pay a price for all this.”
Pritzker, nominated May 2, said if confirmed she would divest 221 separate financial holdings and resign from 158 entities -- including her board position with the hotel company.
All told, she reported assets that range between $400 million to $2.2 billion, excluding the value of more than $50 million in Hyatt Hotels stock. The Bloomberg Billionaires Index says her net worth is more than $1.5 billion.
The income last year from the Bahamas trust, administered by CIBC Trust Co. Ltd., is described as for consulting services.
The White House referred requests for comment to Pritzker’s office. Susan Anderson, a spokeswoman for Pritzker, said offshore trusts in which the heiress and her family are beneficiaries were created when Pritzker was a young girl, and that she does not control them and has not received distributions from them. Anderson said that after a restructuring of Pritzker family business interests that ended in November 2012, she has requested that a U.S. trustee be established who could relocate the trusts benefiting her and her immediate family to the U.S.
“She has no control over this legal process, its timing or outcome,” Anderson said in an e-mail.
Pritzker and her family have dealt with questions over their finances for decades.
The Internal Revenue Service sued her family to collect taxes from the estate of Abram Pritzker, Penny’s grandfather, after his 1986 death when heirs claimed an estate worth $25,000. The case centered on hundreds of trust funds he’d set up in the Caribbean with the assistance of Chicago attorney Burton W. Kanter, to avoid taxes. The IRS sought $53 million in taxes, before the two sides settled in 1994 for $9.5 million.
In the 2012 White House contest, Romney released tax returns that showed blind trusts invested in an array of funds in tax-favored jurisdictions, including the Caymans, Ireland and Luxembourg. The Obama campaign aired TV ads accusing Romney, the co-founder of Bain Capital LLC, of stashing his money in overseas accounts.
Democrats in Congress joined in. Representative Sander Levin, a Michigan Democrat, introduced a bill that would require presidential candidates to release 10 years of tax returns and disclose overseas investments. In the Senate, Senator Richard Durbin of Illinois, the No. 2 Democratic leader, and Senator Carl Levin, a Michigan Democrat, proposed requiring disclosure of overseas investments, including Swiss bank accounts.
Republicans defended their candidate, with Senator Lindsey Graham of South Carolina saying last July that Romney didn’t deserve the criticism because “it’s really American to avoid paying taxes, legally.”
The Pritzker pick puts Democrats in the position of defending her use of offshore investments. Durbin said in an interview that Pritzker had little say in the decision to make them in the first place.
“There were investments made by her family, I think even before she was old enough to have any voice in the process,” Durbin.
Asked whether Republicans can effectively make it an issue, he laughed. “I wouldn’t say it’s a double standard, I’ll just let people draw their own conclusions.”
Senator Jay Rockefeller of West Virginia, who chairs the Senate Commerce committee, predicted Pritzker will be confirmed, and he scoffed at Republican criticisms. “They probably all have the accounts themselves,” Rockefeller said.
Grassley serves on the Finance Committee that considered Lew’s confirmation and which makes it a practice to probe tax returns of executive-branch nominees. He said the Commerce panel typically does not, and he’s urging panel members to do that with Pritzker. If the committee doesn’t, he said he’ll find a way to keep Pritzker’s investments in the spotlight.
Senator John McCain of Arizona, the 2008 Republican presidential nominee, said the bigger issue for Pritzker could be her role in the collapse of Superior Bank, a pioneer in the securitization of subprime mortgages. The Pritzker family once owned half of the bank, and she was chairman of the Hinsdale, Illinois-based bank from 1991 to 1994 and later was a director of a holding company before its 2001 failure.
“Obviously, she was involved in an institution that failed, and appropriate questions will be asked,” he said.
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