Harry Reid says anonymous source told him Mitt Romney didn't pay taxes for 10 years

Senate Majority Leader Harry Reid, D-Nev., touched off a firestorm last week after he claimed that an unnamed investor in Mitt Romney’s company, Bain Capital, told him that Romney hadn’t paid any taxes for 10 years.

In a July 31, 2012, interview with the Huffington Post, Reid attacked Romney for refusing to publicly release tax returns prior to 2010. Reid said, "His poor father must be so embarrassed about his son," referring to George Romney's decision to release 12 years of tax returns when he ran for president in the late 1960s.

Reid told the website that about a month earlier, a person who had invested with Bain Capital called his office and said, "Harry, he didn't pay any taxes for 10 years."

Reid continued, "He didn't pay taxes for 10 years! Now, do I know that that's true? Well, I'm not certain," said Reid. "But obviously he can't release those tax returns. How would it look? … You guys have said his wealth is $250 million. Not a chance in the world. It's a lot more than that. I mean, you do pretty well if you don't pay taxes for 10 years when you're making millions and millions of dollars."

On Aug. 2, Reid repeated the allegation on the Senate floor, saying, "As we know, he has refused to release his tax returns. If a person coming before this body wanted to be a Cabinet officer, he couldn't be if he had the same refusal Mitt Romney does about tax returns. So the word is out that he has not paid any taxes for 10 years. Let him prove he has paid taxes, because he has not."

And later that day, Reid tripled down on the accusation, releasing a statement that said in part, "I was told by an extremely credible source that Romney has not paid taxes for 10 years."

Romney and his allies pushed back hard against the accusation, saying it was not only substantively incorrect but also ethically out of bounds.

"Harry Reid really has to put up or shut up," Romney said following a speech in North Las Vegas, Nev., according to CBS News. Romney added, "Let me also say, categorically, I have paid taxes every year -- and a lot of taxes. So Harry is simply wrong. And that is why I am so anxious for him to give us the names of the people who put this forward. I wouldn't be at all surprised to hear the names are people from the White House or the Obama campaign."

Other Republicans leaped to Romney’s defense, including Sen. Lindsey Graham, R-S.C., (who told CNN’s State of the Union that "I think he’s lying") and Republican National Committee chairman Reince Priebus, who called Reid a "dirty liar" on ABC’s This Week.

Outside commentators, including liberals, have slammed Reid as well. The New York Times’ Frank Bruni called Reid’s charges part of an "unbecoming, corrosive game." "Spew first and sweat the details later, or never," Bruni wrote. "Speak loosely and carry a stick-thin collection of backup materials, or none at all. That’s the M.O. of the moment, familiar from the past but in particularly galling and profuse flower of late."

Many readers asked us to put Reid’s claim to the Truth-O-Meter. We conclude that Reid, despite repeating the claim on at least two occasions, has not produced any solid evidence it is true.

An anonymous source?

On Aug. 6, a Reid spokesman confirmed to PolitiFact that the majority leader still maintains the information came from the anonymous Bain investor. Our Truth-O-Meter guidelines say we hold officials accountable to back up their words. By those standards, Reid has not proven his allegation.

Still, we wondered how likely it was that Romney didn’t pay taxes for 10 years.

In an Internal Revenue Service study of nearly 4 million 2009 tax returns of filers reporting more than $200,000 in adjusted gross income, 20,752 of these taxpayers -- or just 0.529 percent -- had no U.S. income tax liability. About half of those did have income tax liability in other countries.

But Romney’s recent income has been substantially higher than $200,000, meaning that the size of his deductions and credits would need to be even larger than for many of those included in this IRS study if his tax liability was going to fall to zero. According to the one full return he’s released, for tax year 2010, he and his wife Ann reported an adjusted gross income of $21.6 million and paid taxes of about $3 million. He's also released an estimate of his 2011 taxes, which showed income of $20.9 million and a tax payment of $3.2 million.

To gauge tax patterns for even higher-income earners, the best we can do is to look at another IRS study detailing the taxes paid by the top 400 earners in the nation in 2008. To make this list, you would have to have earned roughly $109 million that year. Among those 400 top taxpayers, 30 -- or 7.5 percent -- had an effective tax rate of between 0 and 10 percent. Given how the statistics are calculated, it’s impossible to know how many paid no taxes, but it’s safe to assume it’s well below 7.5 percent.

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Neither study directly addresses Romney’s situation -- he falls somewhere in the middle of the two studies -- but the data does show that for earners both below and above him, it's unlikely they paid zero taxes for one year, and it’s even more far-fetched to think they did so for 10 years.

Salon.com -- which is generally considered a liberal media outlet, thus no friend to Romney -- asked two tax experts whether they thought it was likely that Romney paid no taxes for 10 years. They concluded, "probably not."

The article quoted David Miller, a tax attorney with the firm Cadwalader, Wickersham & Taft in New York, saying it’s "highly unlikely" that he paid nothing.

"It would be easier for someone like Steve Jobs to pay zero, as most of his wealth was in company stock, which isn’t taxed until sold and may never be sold," Miller told Salon. The Salon article continued, "But Romney’s arrangement with Bain is different. He would have earned management fees, and when Bain sold the underlying companies that it invested in, Romney would have been subject to tax on his share. 'It’s possible he paid very little in taxes, but I find it hard to believe that he paid none,' Miller said."

Salon also quoted Joshua Kamerman, a lawyer and CPA in New York, who said while it’s theoretically possible, it’s also "preposterous."

"Charitable donations can shield up to only 50 percent of tax liability, while other means can lower the rate," the article said. "But to pay nothing, Romney would have to sustain business operating losses, Kamerman said. The IRS lets people carry over losses for up to 20 years until they make a profit from which to deduct them. But Kamerman said this is almost certainly not the case for Romney."

We asked Lawrence J. White, an economist at the Stern School of Business at New York University, for his view, and he concurred with Miller and Kamerman. "I agree that it's extremely unlikely that Mr. Romney paid no income taxes for 10 years," White said.

Our ruling

Reid has said Romney paid no taxes for 10 years. It was no slip of the tongue. He repeated the claim on at least two more occasions, at one point saying that "the word is out" when in fact it was only Reid who put that "word" out.

Reid has produced no evidence to back up his claim other than attribution to a shadowy anonymous source. Romney has denied the claim, and tax experts back him up, saying that the nature of Romney's investments in Bain make it highly unlikely he would have been able to avoid paying taxes altogether -- especially for 10 years.

Reid has made an extreme claim with nothing solid to back it up. Pants on Fire!