From Fox News, Sep 21, 2012:

Mitt Romney’s campaign, in its latest attempt to respond to calls to release more years of tax returns, announced Friday that the Republican candidate averaged a 20 percent effective tax rate for the previous 20 years and never paid less than 13.66 percent.
Read more: http://www.foxnews.com/politics/2012/09/21/campaign-says-romney-paid-average-effective-tax-rate-20-percent-over-2-decades/#ixzz27AUOU09c

So, why is Romney not releasing his taxes if his tax rates were really so high? Is he lying?

Probably not. Let’s give him the benefit of the doubt. Maybe I am just naive, but I don’t think he is a worse liar than other politicians.

But there is still another good embarrassing reason why he is not releasing his tax returns: My guess is that he simply didn’t have much income in most years, and he doesn’t want the public to learn that his tax rates are misleading. For example, he may have realized capital gains of $100,000 in one year–a nuisance amount, given his wealth. If he paid 20% on this amount, he would have had a high tax rate. What he is not saying is that he also would have had almost no taxable income. In fact, I would be surprised if Romney had realized high income in most years, despite his estimated $200 million wealth.

There are other obvious number games. Say he paid 35% in tax in a year in which he realized $100,000 in capital gains income; and 5% in a tax in a year in which he realized $10 million. He could now legitimately claim that he averaged 20%. The average of 35% and 5% is 20%. Of course, his tax rate would have been just about 5% on his full multi-year income of $10.1 million.

And let’s not forget—Romney has not paid any tax on most of his wealth gains over the years. He has never realized most of his capital gains. And why should he have? What he does is not only smart but perfectly legal. It is a little embarrassing when one runs for President, but it really is not his fault. It is really our tax system’s fault.

Here is another interesting tax question. When an individual gains a high executive position, he can sell all his shares without incurring any capital gains tax. It is a pure tax gift. The famous recipient of this largesse was Hank Paulson, avoiding a tax payment of about $150 million. Would this tax rule-hole also apply to a hypothetical Romney-in-Chief?