Senate Majority Leader Harry Reid’s (D-NV) statements about Mitt Romney not paying “any taxes for ten years” are well documented. It was a very bold statement by Senator Reid, who in that very speech cited a partial tax return on the Romney campaign website that indicates Romney did in fact pay taxes in 2010. Beyond that, he states that Mitt Romney makes more in one day than the average middle class family does in two years. Where were these statements when Senator John Kerry (D-MA), whose net worth is just as much as Romney’s if not more, ran for president in 2004?
Before we accuse Romney of any wrongdoing, as Reid implied on the senate floor, it is important to clarify the difference between tax avoidance and tax evasion. Tax avoidance is avoiding taxes within the bounds of the law through loopholes, exemptions, deductions and other provisions of the tax code and, to some extent, is also encouraged by the IRS. Tax evasion, on the other hand, is illegally not fulfilling one’s tax obligations. For instance, General Electric’s 2010 tax return showing that it paid nothing in taxes, and this was perfectly legal. Irrespective of one’s views on it, the legality cannot be disputed. To the IRS’s credit, it has launched initiatives to combat “abusive tax shelters.” It is extremely difficult when there are rampant loopholes in the system, which the Romney-Ryan plan aims to close, that allow individuals like Romney to have a low tax rate. Although Reid is quick to point out Romney has accounts in the Cayman Islands and Switzerland, it is completely legal under tax law since foreign income is taxed only when repatriated to the U.S.
The common refrain is that Romney obviously has something to hide if he’s not releasing his tax returns. Hypothetically, let me give Reid the benefit of the doubt, say that Mitt Romney paid no taxes in the last 10 years, and evaluate the two possible scenarios of releasing his tax returns or not.
If Romney releases tax returns, the Democrats will have an official document that has a giant zero next to his tax obligations. This will lead to more attacks by the Obama campaign and supporting Super PACs on Romney and his tenure at Bain Capital, taking the focus off the real issues such as the economy. The Obama campaign can question Romney the politician by virtue of being on opposite ends of the political spectrum, but they cannot take issue with Romney the person. His personal life has no flaws that can be exposed to the public eye. With a scathing tax return, however, the Obama campaign can further distance Romney the person from the average American and use it to further justify the rhetoric of “Romneyhood.” With unemployment at 8.2%, it is substantially easier for President Obama to deride Romney as an individual unfit for the presidency than to campaign on his own economic record. Beyond this, with the difference between tax avoidance and tax evasion not clear enough to the general public, it will be easy to imply that Romney is a felon not paying his taxes, despite the legality of his avoidance. Although the Obama campaign has said it will not criticize Romney if he releases his tax returns, it means that other Democrats, Super PACs, and commentators absolutely will.
If Romney does not release tax returns, the Democrats can create their own narrative in the same manner of Reid, but they will not have any factual basis for their claims. Similarly, the Obama campaign cannot make any direct accusations about Romney’s taxes without substantial evidence. This will simply turn into one question in a presidential debate or in each interview about why he has not released his tax returns, to which Romney has recently clarified by saying he does not want to reveal the privacy of his tithing. The Democrats can consistently bring forth the accusation, but Romney has no obligation to release his tax returns to the American public and can consistently cite his personal privacy for doing so.
Theoretically, this is a lose-lose situation because Romney will be scrutinized on his tax returns either way. By releasing his tax returns, Romney is giving the newfound momentum of the last two months (as evidenced by his fundraising) directly to Obama by opening himself up to a wider range of criticism. Romney has so much more to lose by releasing his tax returns than enduring the rhetoric that comes with keeping them private. We have had presidential races lost on single statements, such as how Bill Clinton capitalized George H.W Bush’s broken “no new taxes” pledge. Likewise, it is in the best interest of Romney to keep the discussion focused on the economy, not on his personal endeavors, by challenging the president on his lackluster record on job creation, and not going on the defensive about his personal, albeit legal, tax avoidance.
It is absolutely a large risk for Romney to not release his tax returns, but as a smart businessman, Romney knows it is one that will pay greater dividends than the alternative in November.