TPM follows-up on the emails they got from reader MB (my coverage here) by discussing Romney's taxes and reader MB's theories with Ed Kleinbard, a tax law professor at the USC School of Law and NYU tax expert Daniel Shaviro.
The long and short of it is that it's plausible but unlikely that Mitt could have zeroed out his federal income tax liability. Aside from his buyout at Bain, he must have had other income during those years like dividends, interest income, speaking fees, etc. Romney refused a salary as the Governor of Massachusetts.
The more likely scenario is that Romney sheltered $100+ million of his Bain buyout in his IRA and thus payed no taxes on that money*. It's very possible Reid has a source "familiar" with the terms of Romney's buyout who accurately leaked this aspect of Romney's tax planing.
Through various tax strategies, Romney reduced his effective tax rate on his remaining income to a very low number, i.e. 10% or less. "We know Romney harvested losses because he carried forward a substantial capital loss in 2010. “[H]aving less capital gains to begin with via the Bain strategy from the TPM blog post would obviously make it easier to get to zero RE the capital gains,” Shaviro adds."
This takes us back to the brutal political genius of Harry Reid's attack: It's a fight Romney can't win. If Romney releases more tax returns, the headlines won't be about Harry Reid's error or Romney's vindication.
* Like any IRA, any money Romney removes from his IRA will be taxed as ordinary income. If Romney does not take any money out of the IRA (and why would he?), it will be passed to his sons without him having ever paid any taxes on that money. And remember, Romney has pledged to end the estate tax. Without the estate tax, this $100+ million dollars will go to his sons without it having ever been taxed. How? Romney has no plans to repeal the provision of the tax code that permits assets to be passed to heirs with a step-up basis, meaning upon his death, the capital gains are wiped out and the son's take the assets tax free.
It's good to be rich.