Senate Majority Leader Harry Reid’s allegation that Mitt Romney went a decade without paying federal taxes has outraged the Republican’s supporters. But is it even possible? Tax experts say maybe.
Talking Points Memo
decided to consult tax experts after a reader pointed out that Romney’s severance from Bain Capital could have been routed directly into a tax-exempt IRA. That would have shielded it from taxes for years, and lowered Romney’s tax rate dramatically, the reader said.
Ed Kleinbard, a tax law professor at the University of Southern California School of Law, told the website it’s highly unlikely that Romney paid absolutely nothing to the Internal Revenue Service. But if Bain bought company shares back from Romney’s IRA, that money wouldn’t show up anywhere.
“What’s in the IRA is invisible on the return,” Kleinbard told TPM.
To owe no federal taxes, Romney would have had to avoided other income sources or have found ways to erase the tax rate on that income.
“We know that by 2010, he had lots of other income,” Kleinbard said. “[H]e had something like $20 million in other income…. What [the TPM reader] wrote may be true but it has nothing to do with the $20 million on the return in 2010.”
Daniel Shaviro, a tax expert at New York University, said it’s possible that Romney could have used his IRA to avoid realizing capital gains on his Bain shares. This could have helped him accomplish what is known as loss harvesting – when investors sell off financial losers to cancel out capital gains elsewhere in their portfolio.
“[I]t struck me as plausible,” Shaviro told TPM. “The reason people have been saying he must have paid something is that they’ve figured he must have (as in 2010) had some dividend and interest income plus other ordinary (rather than capital gains) stuff such as speaker fees. Zeroing all that out, if he had such income every year, would have required tax shelter losses that would very likely be deemed (by the IRS and many legal experts) as abusive.”
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