At 3 pm on Friday, Mitt Romney released his tax returns. But as of 2 pm, the campaign has already released its favorable spin on them, saying he paid a 14.1% effective rate, gave 30% to charity, and paid an average of 20% over the last 20 years (without showing us those returns or telling us the rates over these 20 years). So what can we already glean about the release?
1. Playing with Timing: Designed for Maximum Spin & Minimum Information
As any political analyst knows, dropping news late on Friday guarantees the least possible coverage because it is too late for a weekday, because Saturday newspapers and television have the smallest viewing numbers, and because Sunday news shows often consider Friday to be "old news." By dropping these complicated returns so late on Friday, the Romney Campaign hopes the initial story (he released his returns!) hits the evening news, but the real details (what's in the complicated returns that will take some time to figure out) come out too late to give any meaningful reporting on them.
2. Playing with Averages: Why 20 Years, Instead of 10?
Why an Average and Not Individual Rates?
While refusing to release more than two years of tax returns or the tax rates for any year prior to 2010, Romney has released a statement from an accounting firm that his tax return average rate over twenty years (which no one had asked for) was at 20%. Why would he release an average rather than individual years? And why twenty years rather than the ten requested by the media that is typical for candidates? Probably because very high tax rates for five years in the 1990's can cover up for very low tax rates over the last decade. Recall that twenty years ago were the first years of the Clinton Presidency when Clinton raised the top marginal rate to 39.6%. Also recall that under a Democratic Congress, from the second term of the Reagan Presidency through Clinton's first term, the maximum capital gains rate was 28-33%. It wasn't halved to a top rate of 15% until the Republicans took Congress and George W. Bush became President.
Simply put, under Democratic rule, rich people like Mitt Romney paid more in taxes. (In fact, it's the primary reason we had a massive budget surplus under Bill Clinton.) As Clinton would say, it's arithmetic. Do the math. For example, five years of 39.6%, averaged with fifteen years of 13.5% gives an average tax rate of just over 20%. No doubt this is closer to the truth of Romney's returns. But he almost certainly releases a 20-year average, rather than the rates for individual years. Why? Because the latter would show that in the early 90's, he was paying more than 30% in taxes. And in the Bush Jr. years, he was consistently paying under 15%. So Romney releases a twenty-year average, rather than a 10-year average or individual years, to hide this inconvenient truth.
3. Making 2011 Look Good
Romney's aides have bragged he gave 30% of his wealth to charity. While that is certainly generous, it happened in the one year he knew would be released during his Presidential Campaign. The real question is what did he give in past years. Here, giving a 20-year average would be useful. But Romney is not disclosing that.
4. Hiding Tax-Dodging Schemes in Earlier Tax Returns.
Did Romney Take Advantage of the 2009 IRS Swiss-Bank Tax Amnesty?
No winning Presidential candidate in the past 40 years has released fewer years of tax returns than Mitt Romney. So why can't he release the minimum of 5 years that, by custom and convention, has been deemed sufficient for other candidates in the past? Romney's been running for President since 2007. He's had time to manufacture his returns to clean up his act. Why not just disclose them? My guess is it all has to do with those secret Swiss bank accounts.
Prior to 2009, the Swiss Government refused to disclose to the United States bank accounts held there by Americans seeking to avoid payment of U.S. Taxes. But that all changed in 2009, when following a dramatic whistleblower disclosure at Swiss bank UBS, the Swiss Government handed over to the IRS the names of thousands of wealthy American tax scofflaws. The IRS then gave these Americans illegally hiding their money from U.S. taxation a one-time amnesty from criminal prosecution if the bank accounts were disclosed on the 2009 tax returns and all back taxes were paid.
I believe Romney took advantage of this amnesty -- as I suspect we will learn in a tell-all book a few months after he loses the election. That would mean that Romney was absolved from criminal prosecution in 2009. However, he would never want to show the American People that he cheated on his taxes prior to the 2009 disclosure. I would love to see one reporter ask Romney if he took advantage of the Swiss-bank tax amnesty of 2009.
And two additional comments I can make after examining the returns:
5. Romney's Real Rate is 10.5%, not 14.1%, because His Voluntary Excess Payments Can Be Easily Refunded to Him Once He Loses the Election
The Washington Post headline published on the day Romney released his tax returns was exactly what Romney wanted it to be: "Mitt Romney releases tax return for 2011, showing he paid 14.1 percent tax rate." It is also, for all real intents and purposes, deeply misleading. As Romney's tax return shows, his real tax rate was going to be 10.5% until he voluntarily increased his taxes by more than one third to bump up the rate temporarily to 14.1%. Why he would do this is obvious. He promised Harry Reid that he had paid at least 13% every year. And his tax return, without this artificial voluntary increase, would be closer to 10% than 13%.
So Mitt appears a bit more generous than most super-rich people. Unlike in any other tax year (which he refuses to release), in the year he's running for President, Mitt just happens to decide to voluntarily pay a lot more taxes. It looks good for Mitt politically, and the U.S. Government collects another half million dollars in revenue. Win-win, right? Wrong. Tax law provides Romney an easy out. Following an election loss in November (or even following a win, although it would get far less scrutiny following a loss), Romney need simply amend his 2011 tax return to get a fat refund check of about $500,000 from the IRS, consisting of a return to him of every excess penny he paid in taxes. And when he does this, it won't be reported -- as he's under no legal obligation to disclose this amendment to his tax return. The only way it would be discovered is in the unlikely case some IRS employee is willing to go to jail to violate tax privacy laws.
Because Romney can revoke his election to pay more taxes at any time in the next three years -- and because he almost certainly will do so -- it is important that Mitt Romney's 2011 tax return be describe at its accurate rate of 10.5% rather than the non-binding, misleading rate of 14.1%, at least unless Romney makes a binding pledge not to amend his tax return to get that money back. (Not that I know how he could make such a binding pledge. But perhaps a tax attorney can help me here.)
6. Romney's Return Proves Obama Has Better Tax Policy.
Romney's return also proves that Obama has the better tax policy. It shows super-rich people like himself can voluntarily up their taxes by more than a third without any real cost or trouble to them. His one-third voluntary increased payments in taxes, far less than the increases Democrats are requesting, did not even cost Ann Romney's horse Rafalca a trip to the Olympics, much less cause Romney to scrimp and save on any of his many homes or his car elevator.
It also shows that Romney's tax policy of further reducing tax rates (from his current 10% to what...7%?) would be an entirely unnecessary $5 trillion deficit budget-buster. How many more jobs would Romney create if his taxes were lower? None. According to his tax return, he is officially unemployed. He made no wages in 2011. All of his money was made on investments. Lowering his taxes further would not create a single job for anyone, not even his crafty accountants.