When it comes to paying his taxes, Mitt Romney may not have broken the rules; he just plays by a different set of them. His sub-15 percent effective tax rate revealed that Romney used his carried interest exemption, not-so-blind trusts, Cayman Islands investments and Swiss Bank accounts to his full advantage. But largely overlooked in the discussion of the $42 million Romney earned in 2010 and 2011 is the $45 million of his own money Mitt spent on his failed 2008 campaign. As Chris Kelly first suggested, that gold-plated quest for the White House may have enabled Mitt Romney to reduce to his 2008 and 2009 tax bills to zero - or something very close to it.
The night before Mitt Romney made public his 2010 and estimated 2011 tax returns, debate moderator Brian Williams highlighted what the Governor was willing to share only in private. Williams recalled, "You said during the McCain vetting process," Williams recalled of Romney's failed effort to secure the GOP VP spot in 2008, "you turned over 23 years which you had at the ready because, to quote you, you`re something of a packrat." But the American people have learned nothing about either those 23 years or the two (in 2008 and 2009) that came after them.
Nothing, that is, until now. As TPM's Brain Beutler explained, Mitt Romney net-net may have earned no income from capital gains, dividends or carried interest income in 2008 and 2009:

It turns out that in 2009, in the wake of the financial crisis, Romney very likely managed to get his effective tax rate much lower than 13.9 percent. In 2010, Romney carried over $4.9 million in capital losses from 2009. This is a consequence of the tax code's leniency toward investors who take hits in bad years. But as tax lawyer Ed Kleinbard told reporters during a Tuesday conference call organized by the DNC, "that means he paid no tax on any of his capital gains in 2009, including tax on his carried interest in 2009." That's not necessarily because Romney actually lost money in 2009, either. As Kleinbard explained, a common tactic for Americans with capital gains is to "harvest" -- by selling off certain investments that lose value investors can count the losses against gains elsewhere in their portfolios. If those losses exceed the gains by more than a certain amount, they roll over into the following tax cycle. Unless Romney had significant sources of non-investment income, that suggests his effective tax rate in 2009 was much lower than 13.9 percent. And remember, he jokes he's been unemployed for years.

Now, many Americans suffered large losses on their investments in 2008 and 2009, losses they spread out across three years of their IRS filings. Mitt Romney may very well have been no different. But then again, in 2008 Romney had a powerful motivation to "harvest" some of his investments to offset gains elsewhere in his portfolio. He was running for President of the United States, a campaign into which he injected $45 million of his own money. As Chris Kelly pondered in the Huffington Post:

Between February 2007 and February 2008, Mitt Romney made a huge financial blunder. He lent Mitt Romney $45 million to run for president. (In July 2008, he wrote a letter to the FEC, informing them that Mitt Romney was "forgiving the outstanding loans" to Mitt Romney and that the loans should be "reclassified as contributions.") Where did successful businessman Mitt Romney get the $45 million to lend politician Mitt Romney, loser and clod? If he got the cash by liquidating stock, he did at least some of it during the Dow's 200-point decline in the winter of 2007/2008.
I'm not saying that's what he did -- and it's impossible to know without his returns -- but if he did, isn't possible that he took a substantial loss?

An alternative, though not mutually exclusive, explanation is that Mitt Romney decided to use that $45 million for a different investment: securing the number two slot on John McCain's 2008 ticket. As the Boston Globe reported on July 16, 2008, Romney "will not seek donations to repay $45 million in personal loans he made to his failed presidential bid -- the biggest ever made by a candidate in a primary campaign." The Globe explained the importance of that write-off for the $250 million man who this year declared himself part of the "80 to 90 percent of us" who are middle class:

The move could clear away the last remnants of a divisive primary race, insuring that he and his financial supporters are focused on helping McCain...Still, Romney's investment in his own campaign and the donor network he built may have helped his vice presidential stock go up. The $45 million helped win widespread name recognition for Romney, who also raised more than $65 million from donors. Since McCain clinched the nomination in March, Romney has asked his supporters to contribute to a Republican National Committee fund that will be used to help McCain's candidacy and he has urged his campaign finance team to work for McCain.

For most Americans, volunteering to give up 20 percent of their net worth is simply beyond their ability to imagine. But for Mitt Romney, the loss would have been much bearable if it wiped out his capital gains tax bill owed to Uncle Sam over a period of years. Luckily for Mitt, a friendly tax code and a supportive family make burning through $45 million almost painless. As his son Matt Romney explained in January 2008:

"I don't ever expect to see any of that anyways. I don't think any of us kids are counting on that money. If my dad decides to use the money he's made, than we support him."

As it turns out, if Mitt Romney becomes the 45th President of the United States, Matt, his four brother and their 16 children can expect to see all of their father's millions. With President Romney zeroing out the estate tax, their payday courtesy of all other American taxpayers could reach an estimated $84,000,000.
Not a bad return on a $45 million investment.