Why Romney Won't Reveal His Taxes

(A reader of mine informed me that my blog of Aug 17^th, as it regarded taxes, was confusing.  I thought about it and concluded that writing a clarification was in order.  When a person is reasonably knowledgeable of a particular discipline or field  they can have difficulty in seeing the complexity of that which to them appears simplistic.  I don’t consider myself an expert in the tax field.  In the 31 years I worked either directly or indirectly with taxes I learned to respect, if nothing else, the vast amount tax information I would never have the chance to know.  Still, there are some things I’m comfortable in sharing and will try to do it better here.)

As much as he would like to tout it, the fact is that Mitt Romney was not a business man in the traditional sense.  He was a financier.  There is a difference.  Even the Bible differentiates the money lenders from the merchants and carpenters. The fact that he used the structure of a corporation to profit from his labors and that he and the other principals of Bain Capital employed staff to help him does not change anything.  He and his breed used an extraordinarily complex set of laws that enable “investors” to acquire, manipulate, and dispose of vulnerable businesses with very little downside risk to themselves.  Romney himself became a recognized master at it. In a simple Ron Paul-ian world of free enterprise I’m not sure a Bain Capital could have succeeded. My logical contention is that Mitt Romney has handled his own private finances in the same way, at least up until this run for the Presidency. The little he has revealed about his personal finances also supports that conclusion.

The complexity of US (and State) tax law is born of the fact that tax legislation alone cannot deal with the detail.  Certainly the legislation is voluminous and complex on its own, especially as it has been used for a century as a means of economic and social engineering.  It is the detail though that really makes one’s eyes roll.  The tax laws cannot address every type of human activity that involves money, not even close. The net result is the volumes and volumes and volumes of subsequent regulations and rulings that try to bring specificity to the tax laws.  It is a moving target and targets like Mitt Romney move pretty darn fast.

This complexity only benefits the wealthy who aggressively seek to minimize their tax liability. It is because our system is an honor system and the taxpayer is the first one to determine what is or isn’t taxable under the law. The wealthy (or wealthy corporations) have the resources to hire armies of tax attorneys whose sole jobs are to figure out ways of interpreting tax law for the benefit of their clients.  In doing so they weigh risk vs. tax benefit, and because the risk more often is just the tax that would have been owed and interest (plus a pitifully low tax penalty which is often waved) financiers like Mitt more often go aggressive. Why wouldn’t they?  It is a benefit that is available to everyone, yet exclusively theirs – the perfect paradox.

The only way aggressive tax interpretations by the taxpayer can be reigned in is through an IRS (or state) audit and, possibly, the subsequent fighting it out in Tax Court.  The IRS (and most states) must do that audit within 3 years of the date of filing. After that the taxpayer (barring negligence or criminality) is home free.  Given the nature of his value structure as demonstrated through Bain Capital, Mitt is likely to be one of those super rich who has interpreted tax law to his benefit and has done so aggressively. 

He is not overly worried about his effective tax rate, that embarrassment would be temporary, as it already has been for the one year he did publish.  No, he’s worried that Brian Williams will be interviewing respected tax authorities who will point out that Romney’s tax interpretations would have failed under an IRS audit.  What the public would take away is that he more than dodged taxes, he benefited by the vagaries of our laws at the expense of the American Taxpayer.  Not particularly Presidential or even laudable, except to the select few of the super rich who chuckle at sticking it to the “Government” (aka the American People or as Ann Romney puts it: "you people").  I have personally seen this, and it is not pretty.