On the issue of Mitt Romney's tax returns, my colleague George Will put it simply: “The cost of not releasing the returns are clear. Therefore, he must have calculated that there are higher costs in releasing them.”
The question is what could be in them that would be so damaging to the Romney campaign. Right now, the most popular theory is that Romney simply didn't pay any federal taxes at all in 2009. As Joshua Green wrote, " It’s possible that he suffered a large enough capital loss that, carried forward and coupled with his various offshore tax havens, he wound up paying no U.S. federal taxes at all in 2009."
But the tax experts I've spoken to are skeptical. "Romney had a $4.8 million capital loss carryover coming into 2010," says Edward Kleinbard, a professor of tax law at the University of Southern California. "So that means no capital gain income in 2009. If you look on the first page [of his 2010 tax return], though, he had lots of ordinary income (interest mostly), and dividends, which are taxed at the same rate as capital gains but which cannot be sheltered from tax by capital losses. So presumably he had some positive income tax in 2009."
Roberton Williams, a senior fellow at the Tax Policy Center, agrees. "It’s unlikely that his taxable income was zero or even close enough to zero that his credits would zero out his tax liability completely," he says.
But Daniel Shaviro, a tax professor at New York University, isn't so sure. "I think there's an excellent chance that [Romney] didn't pay any taxes in 2008 or 2009," he says. But to get from a small federal tax liability to no federal tax liability, Romney would have needed to engage in incredibly aggressive tax planning. Shaviro mentions picking loser investments to get some benefits from "loss harvesting," unusual tax shelters, and a bevy of other stuff that, frankly, I don't totally understand.
The overriding question, though, is why would Romney do any of this. As Shaviro says, "If you were running for president and in his position, wouldn't you think of telling your transaction people not to take you down too low in 2008 and 2009?"
When I asked whether these kinds of structures were simply too difficult to cleanly unwind over a couple of years, Shaviro was skeptical. "The Caymans structures might take some time to unwind, and there might be tax planning issues about not screwing up the unwind too badly, but come on, the guy has been in public life since 2002 and was aiming for the White House from the start. Plus, suppose he had tax shelters in 2009 that created losses. It's not complex not to do these deals - all you have to do is...not do them."
For what it's worth -- and, since I haven't see Romney's 2009 tax return, it's not worth much -- my guess is he paid some federal taxes in 2009. The sort of tax sheltering he would have needed to get to zero would be quasi-suicidal for a presidential aspirant. But his effective federal tax rate may only have been 3 or 4 or 5 percent, which would be nearly as bad as zero. Add in a couple of shelters that Romney fears would look particularly bad, and it's probably enough to persuade him that enduring a bit of bad press for tax decisions people think he might have made is preferable to a media feeding frenzy over tax decisions he definitely made.
The question none of this answers is why Romney didn't clean up his taxes in 2008 and 2009. But it's always worth remembering that the people running for office are human beings who procrastinate and make bad decisions and get distracted by other things. And given that Romney moves in a world where aggressive tax planning is the norm rather than the exception, he might simply have failed to recognize what a priority simplifying his taxes really was. My hunch is that the person spending the most time wondering why Romney didn't get his taxes in order in 2008 is...Mitt Romney.