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Harry Reid's infamous charge, according to the Huffington Post:

"According a Bain investor, Reid charged, Romney didn't pay any taxes for 10 years."
“The word's out that he [Romney] hasn't paid any taxes for 10 years.”

— Senate Majority Leader Harry Reid (D-Nev.), on the floor of the U.S. Senate, Aug 2,

"I was told by an extremely credible source that Romney has not paid taxes for 10 years. People who make as much money as Mitt Romney have many tricks at their disposal to avoid paying taxes,” Reid said Thursday
And what does Mitt Romney say to this?
Mitt Romney strongly denied Sen. Harry Reid's repeated, insistent claims that he did not pay taxes for a decade during a press conference in the Senate Majority Leader's home state of Nevada on Friday.

"I have paid taxes every year, and a lot of taxes, so Harry is wrong," Romney told reporters.

"Harry Reid has to put up or shut up," he said. "Who are your sources?"

Read more:

But isn't Romney's response an odd one? Because, if he has in fact paid taxes, he also knows that nobody could tell Harry Reid that he hadn't. So wouldn't the normal person say "Well, since each year I've paid taxes, so there can't be anybody who "knows" that I haven't, so either Harry Reid is lying, or somebody is lying to Harry Reid."

Instead he says "I've have paid taxes every year, and a lot of taxes, so Harry is wrong".

It's a subtle distinction, the difference between saying "Harry is lying, or the person who talked to him is lying" and "Harry is wrong".

Because, my bet is, Harry Reid's source was talking about income taxes, and Romney is talking about taxes aside from income taxes.

Because there are a lot of different kinds of taxes. Assume, for the moment, that Harry Reid is telling the truth (and I think he is). Almost certainly, the taxes he was told about by the anonymous Bain investor were Federal Income Taxes. But of course there are a lot of other taxes, state sales taxes and property taxes and excise taxes and social security taxes and medicare taxes, et cetera. So Romney could say "I paid taxes" and be not lying, and Harry Reid's source could say "Romney hasn't paid taxes for ten years" and also be not lying. But to me, the subtext in Romney's reply to the charge is less full-throated than it would be if the charge were not, in essence, true. So my belief is that Romney did, in fact go ten years without paying Federal Income Taxes. He made a lot of money and paid about as little tax as one can pay on it (via the capital gains tax versus the ordinary income tax), and he also had the opportunity, through Bain Capital, to arrange things so that he was able to deduct business losses to offset the already-low taxes on those gains.

Romney falls into the Scrooge McDuck archetype...too much just doesn't seem to be enough for him. If the system is there, he seems to have to game it. An IRA, designed for low and middle class persons to shelter income tax free so that they can have a little to supplement their social security after they retire? Romney takes that and turns that into a huge boondoggle. A generation-skipping trust for the kids, designed to subvert the inheritance tax? Yup, got that one, too. And I bet there has been a lot of give and take between various trusts over the years, as securities that would be more attractive to be out of the trust were swapped out, or in, or verse vice-a.

So you know what? I bet it's true.

I bet Romney didn't pay a penny in Federal Income Taxes for ten years. I bet he bragged about it too.

And I bet that's why instead of saying,

"Harry Reid is either lying or somebody is lying to him, because there is no source that could tell him, truthfully, that I've not paid income taxes, because I have paid income taxes"

He's saying "I want to know who this guy is" presumably, so he'll never darken Romney's towels again.

That's what I think. I think Bain Capital was a huge, delicious tax shelter, Romney's own private Idaho, and I think he was in a position to manipulate losses and gains so that the former balanced the latter. And I think, given that opportunity, Romney couldn't have resisted taking it. It's his nature.

Here is an amusing explanation of a tax shelter known as "Son of BOSS"

Tax Shelters in a Nutshell

Here is the basic pattern contained in the son of Boss type tax shelters. These transactions reduce or eliminate capital gains by creating artificial capital losses. Although the pattern is simple, it is obfuscated with mounds of paperwork, intricate financial instruments and virtually incomprehensible tax code provisions.

    Tax shelter promoter sets up two companies, Company A and Company B and funds each company with $50. Company A buys a briefcase for the $50.
    Client comes to promoter and says, "I have a $1.0 million capital gain." Promoter says, "No problem, I can eliminate that gain for you by generating a $1.0 million loss to offset your gain."
    Promoter devises the following plan:

    Client purchases the $50 briefcase from Company A by paying Company A $1,000,050!
    Client pays $50 in cash. In addition (here's the tax shelter part), Client "pays" another $1.0 million by signing a promissory note (a promise to pay) payable to Company A for $1.0 million in 30 years . For tax purposes, Client purchased the briefcase for the cash payment and the promissory note, so the tax cost for Client's briefcase is $1,000,050.
    Client then sells the briefcase to Company B for $50. Thus, economically, Client is made whole; Client paid $50 for the briefcase and sold the briefcase for $50. However, Client's tax basis in the briefcase was $1,000,050 and by selling the briefcase for $50, Client incurred a $1.0 million loss! That loss will then be used to offset Client's $1.0 million capital gain, effectively zeroing out his tax liability.
    Assume that Company B then sold the briefcase back to Company A for $50. Promoter is ready for his next client now that Company A has the briefcase and Company B has $50, and the pattern can be repeated.

The foregoing example illustrates the core principles of how tax shelters work. The transaction is legal and fits within the literal rules of the tax code. Millions of taxpayers offset capital gains with capital losses. But does the transaction work? Of course, the answer is clearly no; otherwise, no one would ever pay a dime in capital gains taxes. This is an example of an "artificial basis step-up transaction," the cornerstone of many tax shelter schemes. The promoter, through an sham transaction designed solely for the purpose of manipulating the tax code, creates a purported tax loss where there was no corresponding economic loss.

Son of BOSS was one of the most "notoriously abusive" tax shelters conceived, implemented by Marriott International in the 1990's, and Marriott eventually ended up losing in tax court and paying a 29 million dollar fine as the result of this loss. And who was chairman of the Board of the Audit Committee at the time? None other than Willard (named after chain founder J. Willard Marriott) Mitt Romney.
Son of Boss and its related shelters represented perhaps the largest tax avoidance scheme in history, costing the U.S. many billions in lost corporate tax revenues. In response, the government initiated legal challenges that resulted in complete disallowance of the losses claimed by Marriott and other corporations.
In his key role as chairman of the Marriott board's audit committee, Romney approved the firm's reporting of fictional tax losses exceeding $70 million generated by its Son of Boss transaction. His endorsement of this stratagem provides insight into Romney's professional ethics and attitude toward tax compliance obligations.
So, do I think Romney avoided paying Federal Income Taxes for ten years?

You bet I do.

5:20 PM PT: An excellent point from hungrycoyote "...what Reid said was just Phase I of an overall larger plan". Great point from ontheleftcoast ..."someone who actively used that scheme in a business he ran would have a hard time not using it on his own finances." And a really great link by denig to a clip of John McCain curiously not just saying "hey, I've seen those returns...Mitt Romney definitely paid federal income taxes every year"

5:38 PM PT:

(sorry, my updating skills are not good). Another great comment: from grover, is that when Mitt Romney says "I paid taxes" he may be confusing his corporate self with his individual self (not a stretch for Romney, since ipso facto, they are the same thing)

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