Mitt Romney is right that the Democrats’ attack on him for not releasing his tax returns is a diversion from real policy issues that should determine who the next president is, but he’s not going to win this battle and it’s painful to watch it play out in slow motion.
I don’t know why Gov. Romney released fewer tax returns than previous candidates. Possibly he believes that he’s entitled to something like the privacy of ordinary citizens, whose tax returns are completely confidential. But that would be incredibly naive. Candidates’ lives become an open book when they decide to run for president and anyone not willing to tolerate that shouldn’t run.
Possibly, he has something to hide. The White House is peddling that line. Washington Post blogger Greg Sargent talked to tax lawyers and economists who said it’s possible that he could have sheltered much of his income from tax using offshore tax havens or other techniques. University of Virginia law professor George Yin said that you’d expect somebody with a lot of wealth to hire good advisors to minimize taxes, all presumably in compliance with the law. Would it shock and appall the American public to see how that’s done?
It’s remotely possible that Governor Romney avoided US income tax entirely in some years. The IRS periodically looks at the returns of high-income filers who pay no income tax. Some returns are nontaxable in the US, but have foreign income that is taxed abroad at rates at least as high as would apply in the US. That’s unlikely to be Gov. Romney’s situation.
Among tax returns with no net tax liability anywhere, the most common tax shelter is tax-exempt bonds. That was the prime factor explaining tax avoidance in 2009 according to the IRS. (See chart.) But it’s hard to imagine that the former CEO of Bain Capital would be happy with returns of 3 or 4 percent, even if they were tax free, and extremely unlikely that all the various sources of income on the governor’s 2011 return would have been absent in prior years. Although much has been made of Romney’s lightly taxed capital gains, he had $10 million of income from interest, dividends, and partnerships.
Taxpayers can reduce tax liability through charitable contributions, but they can’t eliminate it. If Romney avoided income tax altogether, my guess is that his partnership holdings generated large losses. That was the most important factor on 5.7% of nontaxable returns in 2009.
There might be a hint on the governor’s 2010 return. In that year, the Romneys reported a $280,000 partnership loss. In 2011, the partnerships produced income of over $2 million. Was this the end of a process where the partnerships were converted from tax shelters into income generators–possibly in anticipation of the scrutiny that would accompany the Romney tax returns when he became a candidate? Who knows?
Of course, there’s also the $10 million of capital gains on the Romneys’ 2011 return ($5 million in 2010). It is fairly easy to avoid paying tax on capital gains if you are wealthy. Don’t sell assets with gains. When you have to sell assets with gains, also sell some with losses so your net gain is close to zero. It’s possible that the capital gains that played so prominently on the Romneys’ released returns are largely absent in earlier years.
It’s also possible–even likely–that seeing the returns would not tell us that much. If much of the income is parked in offshore entities, it might not be reported at all on US income tax returns until those entities pay a dividend.
But assuming that whatever the Romneys did was legal, it’s hard to imagine that his tax returns could be more damning than the speculation surrounding their suppression. Mr. Romney is rich and he doesn’t pay much tax. We already know that.
Is it possible that the earlier returns would reveal some real chicanery? That seems extremely unlikely. As Romney supporter Michael Gersonpointed out, “Romney — though he has his weaknesses as a candidate — does not fit the part of a sleazy businessman or a Nixonian liar.”
When your supporters are saying that you’re not a Nixonian liar (great bumper sticker), it is time to change the narrative. Release the returns and let’s move on to the real debate.
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