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Here's How Romney Might Have Paid No Taxes': Read How U.S. News Just Tried to Defend Reid's Claim


"Did he or didn't he?"

Sen. Harry "They’re Putting Mercury in the Water" Reid (D-NV) last Tuesday accused Republican presidential hopeful Mitt Romney of dodging his taxes for 10 years.

As mentioned yesterday on TheBlaze, the shocked reaction to Reid’s unfounded accusation has been somewhat bipartisan, with members on both sides of the aisle suggesting the Nevada senator to offer up something a bit more substantial than "the word’s out." However, just because we said the reaction has been relatively bipartisan, it doesn’t mean some people aren't rushing to Reid's defense. And by "rushing to Reid's defense,” we mean "willing to make his accusation seem plausible.”

From U.S. News and World Report, we bring you this: "Here's How Mitt Romney Might Have Paid No Taxes.” Wait, really? Shouldn’t we wait until either a) Romney releases his taxes or b) Reid elaborates on his super-secret anonymous source?

“Did he or didn't he? This is the oddly intriguing question swirling around Mitt Romney as critics contend that he may have paid no income tax for some portion of the last 10 years,” writes U.S. News’ Rick Newman.

And by “critics,” he means Senators Chuck Schumer (D-NY), Reid, and former adviser to President Bill Clinton Paul Begala.

“If Romney has paid taxes, as he insists, he could clear up the whole controversy by simply releasing several years' worth of tax returns, beyond the 2010 return and the 2011 estimate he's already released. But he has refused, and there may be good reason for that,” Newman adds.

If Romney has nothing to hide, as the insinuation goes, then he wouldn’t mind releasing his returns. But Romney refuses. Therefore, he must be guilty of something.

"I wouldn't be surprised if he paid nearly zero taxes in 2008 and 2009," Brad Badertscher, an accounting professor at the University of Notre Dame, told U.S. News. "It's going to look bad no matter what he does."

The report goes on to speculate how Romney might have used totally legal means to avoid a higher tax burden.

“Theories about Romney's tax strategy tend to focus on offshore investment vehicles and secretive accounts, but basic investing and accounting scenarios could easily explain a low tax bill,” Newman writes.

“The clue comes in Schedule D of his 2010 return, in which he claimed a $4.8 million loss carried over from prior years. That helped reduce his tax bill for 2010, in which he paid $3 million in taxes on $21.7 million of income, for an effective tax rate of 13.9 percent,” he adds.

It continues:

The carryover means that Romney probably claimed a much bigger loss a year or two earlier, which could easily have pushed his tax rate for 2008 or 2009 down to the low single digits.


During bad years, wealthy investors often use a legal strategy called "tax harvesting" in which they sell weak investments at a loss, which they can use to offset the tax they'd need to pay on gains from better-performing investments. The loss can be carried forward, to help lower the tax bill in later years when investments might have done better.


In 2010, all of Romney's income came from investments as capital gains, dividends and interest. He claimed no income from wages or salaries. So his maximum tax rate would have topped out at around 15 percent—the rate that applies to most investment income. The loss carryover, sizeable charitable donations and other deductions helped shave his effective rate to 13.9 percent.

About half of Romney's income in 2010 came from capital gains. If that were zeroed out in 2008, say, on account of the crumbling economy, it could have cut his income for that year to $10 million or less, with a huge deduction for a capital loss. Combined with the same sorts of charitable donations and other deductions he claimed in 2010, that could have pushed his tax burden close to zero. If Romney's losses were big enough in 2008, he could have carried a portion of the loss forward into 2009, helping lower his taxes then, too. The fact that the loss carryover appeared on his 2010 return suggests that may well have happened.

If you're confused, you're not the only one. Wasn't it the point of the article to explain how Romney might have dodged taxes, not how clever investors lower their tax burden? The article seems to have done the latter, not the former.

So low tax rate or not, we’re not entirely sure how this translates into not paying taxes for 10 years. See, when a guy says someone hasn't paid taxes for 10 years, we assume he means he has not paid taxes for 10 years. Where is the communication breakdown coming from?

Follow Becket Adams (@BecketAdams) on Twitter

This story has been updated.

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