I’m not hugely interested in the question of Mitt Romney’s taxes. On the one hand, I think he should release them. On the other hand, there’s no law that requires him to release them, and if he’d prefer to endure continuing criticism over his secrecy, that’s his right. If we want to pass a law saying future presidential aspirants have to release their taxes, that’s our right. But this sort of thing isn’t helping:
“I did go back and look at my taxes, and over the last 10 years, I’ve never paid less than 13 percent,” Romney said today.
To which the obvious answer is: Well, then, why won’t you prove it?
I find it a bit difficult to believe that Romney has paid more than 13 percent every year. What we know about Romney’s taxes is that he paid 13.9 percent in 2010. But Romney’s taxes primarily accrue to income from investments. And the market — along with the global economy — collapsed in 2009. Romney should have had big losses to deduct.
I asked Ed Kleinbard, a professor of tax policy at USC, whether I was missing something. “It is extremely improbable that he paid 13% in 2009, just as it’s extremely improbable that he paid zero for 10 years straight,” he replied.
Kleinbard pointed out something I hadn’t thought of. “He didn’t specify 13% of what. That is, if you look at taxable income, well of course he paid 13% tax on his taxable income, but that’s an absurd base on which to measure an effective tax rate — it’s completely circular. The better base is adjusted gross income, because that gets closer to economic income.”
Daniel Shaviro, a professor of tax policy at NYU, made the same point. “The key question here is 13.9 % of what. We know he paid zero tax at the capital gains rate in 2009, since he had loss carryovers for 2010. So he may have had ridiculously low adjusted gross income (AGI), relative to his economic income for the year.”
Confused? Don’t be. “Adjusted gross income” (AGI) is pretty close to what you think about when you think about income. “Taxable income” is what you’re left with after accounting for deductions like the home mortgage interest deduction.
Here’s how this looks for a guy like Romney. In 2010, Romney’s adjusted gross income was $21,646,507. That’s the number we’re talking about when we say he paid a 13.9 percent tax rate. But, due to various credits and exemptions, his taxable income was $17,127,367. If he’d been using that figure as the denominator, his 2010 tax rate would have been closer to 18 percent.
So one thing he could be doing when he says he paid more than 13 percent every year for the past 10 years is referring to the rate he paid on his taxable income as opposed to his AGI. That would make it easy for him to say that he paid more than 13 percent, but he wouldn’t have paid more than 13 percent by the normal standards of accounting.
Is there any proof he’s doing this? Of course not. But there’s no proof he’s not doing it, either. That’s why people want Romney to actually release the returns: Then we can find out what’s really going on in them. Just having Romney tell us what’s in the returns doesn’t do us any good.
For now, the only thing we actually know about Romney’s tax returns is that he won’t release them from before 2010, which suggests that there’s something he would very much prefer the media and the public doesn’t see. As I said at the top of this post, it’s his right to keep them secret, and the public can decide whether they care that Romney won’t release this information. But he can’t refuse to release the returns — returns that all recent presidential candidates have released — and expect that people will simply trust that there’s nothing weird going on in them.