Mitt Romney's Tax Returns, Part II

In Part I, we discussed how the issue of Mitt Romney's tax returns affected Romney's campaign during the Republican primary. Though there were no "bombshells" in the returns Romney eventually released during the primary, his prior refusal to release any returns created a cloud of suspicion that (temporarily) hurt his campaign. After Romney released some returns, the issue disappeared from the Republican primary. It would have remained a dead issue, but Barack Obama's campaign has been calling on Romney to release additional returns; Obama himself has released his tax returns dating back to the year 2000. For now, Romney refuses to release tax returns earlier than 2010.

How might this issue play out during the general election? An issue like this requires a "driver"--something to keep it in the news or bring it back into the news once it fades. Until Romney releases more returns, there is no "hook" for a story; there's no new information to report on. The Obama campaign can attempt to keep it in the news by repeatedly calling on Romney to release his returns, but that's all. Unless this causes a big change in public opinion, the issue will fade from the headlines, because the repeated calls for disclosure will grow stale in their repetition. For the moment, public opinion is unlikely to change very much because most voters are not yet paying attention to the race.

However, the tax return issue can harm Romney even if it is not kept in the spotlight for a long period of time. Recall the way it played out during the Republican primary: No one mentioned Romney's returns during 2011, and the subject wasn't brought up until January 2012. When the matter was raised by Romney's opponents, it had immediate impact. Romney lost South Carolina by a wide margin and polls showed Romney well behind in Florida. This loss of support wasn't reversed until Romney released some returns. Thus, it's possible for the Obama campaign to set the issue aside for now and still raise it again, closer to the election--in October, for instance.

Rival campaigns aren't the only potential "drivers" for a story like this. Once again, the Republican primary is instructive. It wasn't merely the calls from Romney's opponents that put the issue in the spotlight. Rather, the most serious heat Romney took was when the issue was raised during a Republican primary debate. The debate moderator acted as the driver. The moderator reminded Romney of the fact that Romney's own father, Michigan governor George Romney, was a loud proponent of candidates releasing many years of tax returns. The moderator then asked Romney if he would follow his father's example, and Romney gave a painfully evasive answer.

While it would be awkward for Obama himself to inject "Well Mitt, why don't you release more tax returns?" into a debate, it's easy for a debate moderator to do so. If the moderator is a particularly ardent supporter of Obama's, he might ask repeated follow-up questions to pin down exactly what Romney feels needs to be kept secret. Romney is unlikely to give an answer as weak as the one he gave when this question was raised during the primary debate, but it's difficult for him to give even a well-prepared answer without appearing evasive.

Later in the campaign season, when more people are paying attention, it will be easier for Obama to push the mystery of Romney's tax returns into the spotlight. As we saw with the "birther" controversy, something can remain dormant for awhile and suddenly, unpredictably flare up later if it's unresolved.

In summary, it will be very difficult for Romney to make it to November without releasing his tax returns. The issue can temporarily disappear or grow stale, but reappear more harmfully closer to Election Day. Even if the Obama campaign fails to get voters excited about the issue, an Obama-friendly debate moderator can bring the matter to center stage during one of the crucial debates.

Mitt Romney's Tax Returns, Part I

In keeping with the class warfare strategy that sparked an additional round of Bain attacks, Barack Obama's campaign has been calling on Mitt Romney to release his tax returns for the last ten years. So far, Romney has refused, releasing returns for the last two years only. Romney argues that he has released all of the information that's legally required, and that Obama would merely use any additional disclosure as the subject of distortions, distractions, and attacks. However, even some prominent Republicans (albeit including Republicans who arguably never supported Romney in the first place) have called on Romney to release the returns now so that the matter can be put to rest.

Those who followed the Republican primary will recall that Romney's tax returns became an issue back in January of this year. Just prior to the South Carolina primary, some of Romney's rivals demanded that Romney release his tax returns. At the time, Romney had not released any returns; he also had not released any during his run for governor of Massachusetts. Romney's answer was that he was not planning to release any tax returns, but that he might consider doing so later.

The tax return issue hurt Romney badly in South Carolina. Romney appeared evasive, and voters wondered what he was hiding. Granted, such issues are more important in a primary than a general election. In a primary, voters are chiefly concerned with electability--the ability of a candidate to compete in a general election. They don't want any hidden skeletons that will knock their party's nominee out of the race. In a general election, electability is no longer a campaign issue, because voters are choosing a president rather than a candidate. In other words, voters are choosing someone to run the country, not someone to win future votes. Character issues play a role, but they are weighed according to their substance rather than their appearance.

The Romney tax return issue was resolved before the Florida primary. Romney understood his image of electability had taken a beating, so he quickly and quietly released two years of tax returns--the same as other candidates were doing. Contrary to expectation, there were no bombshells. Romney could be criticized for paying a low rate and for using tax shelters, but there was no evidence of anything illegal. The matter was dropped, and Romney went on to win Florida, knocking rival Newt Gingrich out of the race.

Why did anyone care about Romney's tax returns in the first place? Because voters were curious why Romney wasn't releasing them, and their imaginations took flight. The tax return issue is reminiscent of the "birther" controversy that came to a head in the spring of 2011. For more than two years, Obama refused to release his long-form birth certificate. Because the birther issue existed in the realm of conspiracy "kooks," few paid it much attention. It's likely that Obama's refusal to release his birth certificate was a political ploy intended to string along the kooks and trap any unwary Republicans who allowed themselves to be dragged in.

But in 2011, Donald Trump began openly questioning Obama's status as a natural-born citizen. The issue found its way into the mainstream. Obama persisted in his refusal to release his birth certificate, and Obama supporters struggled to explain why. Voters also became curious, because they couldn't think of any logical reason why it shouldn't be released. Their imaginations ran wild, and polls began to show a large percentage of Americans unsure about Obama's birthplace. Obama was therefore forced to release his birth certificate--leaving observers wondering what the big deal was.

Now that Obama has resurrected the tax return issue, how will it affect the general election? We will discuss that in Part II.

Mitt Romney's Positive Campaign?

Romney

Since Elephant Watcher switched over to general election coverage, we have written numerous posts about potential campaign strategies for both Barack Obama and Mitt Romney. Obama's campaign strategy--both his optimal one and the ones he's tried out so far--revolve around being negative. Since voters are dissatisfied with Obama's presidency, and since it's not possible to make them become satisfied with his presidency by November, Obama's only hope is to destroy Romney and leave voters with no alternative. Obama's potential strategies, therefore, differ only in the methods by which he attacks Romney.

Romney's situation is almost the mirror opposite. Because voters have already decided they disapprove of Obama's handling of the economy, Romney doesn't want to change voters' minds about Obama--and he probably couldn't if he tried. And since Obama is already president, the baseline questions of what kind of president he would be are moot, leaving Romney little incentive to attack Obama's character. Voters are unlikely to shift their opinions about Obama too much in either direction. They have already decided they want change; they just need a credible alternative.

If Romney's task is to present himself as a credible alternative to Obama, how should he go about doing it? First, Romney needs to avoid pitfalls and unforced errors that would disqualify him. Second, Romney needs a positive campaign about himself.

Every campaign involves both positive ads and negative ads. Negative ads are the mudslinging attack ads that can become famous or infamous each election year. Positive ads are the "feel good" ads that a candidate runs about himself to advertise his credentials and positive qualities. It should be no surprise that Obama will focus on creating negative ads about Romney. Romney will to use negative ads too, but he'll also need to put a focus on positive ads.

At present, most voters know little about Romney. His national profile consists of his 2008 and 2012 runs in the Republican presidential primary. But not too many voters actually pay much attention to primary campaigns. They'll note the results of the contests, perhaps, but unless they're in the political party of the primary and their state is hotly contested, they won't see much of the primary campaign itself. For example, only a small percentage of the general election voters casting ballots this November will have watched Romney's performances in the Republican primary debates.

If voters don't know much about Romney, how can they see him as a credible alternative to Obama? They can't. That's what positive ads are for. Note that the big-spending SuperPACs tend to run negative ads rather than positive ones. This means Romney's campaign itself will need to flood the airwaves with positive ads; they can't rely on outside sources. So far they haven't done this. By contrast, both the Obama campaign and his SuperPACs will be able to make an impact with negative ads against Romney. This disparity may be one of the reasons Romney has not achieved a real breakthrough in the national polls thus far.

But there's some good news for Romney. Voters begin paying close attention to the general election campaign beginning with the parties' national conventions, which will start in late August. The Republican national convention will be, in essence, a very big, expensive, highly-watched positive ad for Mitt Romney (and his VP nominee). At the national convention, the opponent will come under some attack, but the conventions tend to be positive. They tell the life story of the candidate and showcase the reasons why he should be president.

Thus, only after the Republican convention will we be able to say that most voters are familiar with Romney. That's when poll numbers will become more telling. In addition, the presidential debates held in October have the potential to serve as positive ads of a sort for the challenger. (If a candidate does poorly, they become like very effective negative ads.) If the challenger is put on the same stage as the incumbent president and he does well, the challenger is basically given free, positive advertising that says "this man is a credible alternative."

It's ironic that an incumbent president would need to go on the offensive, while the challenger is on the defensive in the sense that he needs to build himself up. This isn't always the case, but when the economy is in unusually bad shape and voters want change, that's the position they're in. With the convention and the debates, Romney has two big opportunities to make gains. Since Obama lacks equivalent opportunities, Romney is in better shape than the polls will suggest--until the conventions.

Intrade's Obama vs. Romney, Holding Steady

Despite the heat taken by Mitt Romney from all the Bain Capital attacks, the Intrade market on the 2012 race is holding steady, almost unchanged over the last two weeks. The market gives Barack Obama a 56.2% chance of winning reelection, with Romney at 43% to win. This margin of 13.2 points is actually narrower than the 14.9 point lead enjoyed by Obama when we last checked in, at the beginning of July.

How can we explain the Intrade investors' behavior? The numbers appear to confirm the hypothesis that this particular Intrade market reacts almost exclusively to the polls, specifically, the RealClearPolitics average of national polls. The RCP average is similar to what it was earlier this month--perhaps even showing a slightly closer race. This shouldn't imply that the Bain narratives will have no effect, however: Little polling has been done since the latest Bain attacks captured the headlines.

The power of the RCP average rests in the fact that it is widely read and very simple: It's just an average of the most recent national polls. RCP does nothing to account for the difference between registered voter and likely voter polls, though it does limit its use of daily tracking polls.

If the RCP hypothesis is correct, we can expect that big campaign stories will have minimal impact until they are reflected in the poll average--and poll averages necessarily lag behind events. Only a truly obvious shift in the campaign should be able to overcome this, such as a clear win in the debates or a massive scandal.

Meanwhile, the Intrade market on the Republican VP nominee has changed in the past two weeks. Rob Portman still has the lead at 29.1%, but Tim Pawlenty has made a comeback to 23.8%. Pawlenty's comeback appears to have been triggered in part by an item on The Drudge Report about Romney having already made his VP decision; the headline linked to a story about Pawlenty.

Minor players in the VP market have also shifted. Marco Rubio is down to 9.1%, while Bobby Jindal and Paul Ryan are up to 7.2% and 6.9%. Condoleezza Rice has jumped from almost nothing up to 6.0%. It's likely that Rubio's fall was the result of the gain by the latter three contenders, who may be viewed as sort of "risky" picks, like Rubio.

As with Pawlenty, the Rice gain was driven by an unsourced item in Drudge suggesting that Rice was a surprise frontrunner among the potential VPs. The Rice market went to 15% before the storm died down. The Intrade market remains skeptical about Rice because she has so many weaknesses: She is associated with the George W. Bush administration, especially its most unpopular policies (the war in Iraq, torture, etc.).

Chris Christie, who once had been one of the frontrunners on the Intrade VP market, has completely collapsed to 1.8%. In part, that may be due to the fact that others have been speculated about in the media more than Christie has of late. The most recent crash was probably also precipitated by yet another item in Drudge, which showed Christie in an angry altercation with a random passerby on the New Jersey boardwalk. Christie's chief weakness, particularly from a "Romney perspective" has always been his perceived volatility.

Return of the Bain Attacks

Last month, Barack Obama's campaign essentially abandoned its attack line against Bain Capital, the private equity firm founded by Mitt Romney. The attacks against Bain had fizzled because they were delivered as attacks against private equity firms in general. Prominent Democrats rejected the idea of attacking private equity and, as in the Republican primary, Romney was able to defend himself by trumpeting Bain's successes.

Now the attacks against Bain have returned in a new, more complicated form. The new attacks turned out to be part clever, part foolish, and partially accelerated by an unforced error on Romney's part. Obama's new angle of attack focuses on when precisely Romney "left" Bain. The basic facts are not in dispute; independent fact-checkers and Bain leaders present at the time (including some current Obama supporters) all confirm Romney's timeline: In early 1999, Romney stopped working at Bain and started working full-time to organize the 2002 Olympics. Although Romney's responsibilities at Bain were transferred to other managers, Romney maintained his ownership of the company for a few more years--including the title of CEO. Thus, while Romney was no longer physically present or making managerial decisions, his name continued to appear on SEC filings for the company.

On its own, this timeline has little relevance to anything--and that is where the "clever" portion of the Obama campaign's attacks comes in. Romney's political opponents have always attacked Bain by focusing on Bain's failures, and Romney defended himself by pointing to its greater successes. But Romney has also occasionally defended himself by absolving himself from any bad decisions made by Bain after his departure in early 1999. Now, the Obama campaign points out that Romney was still owner and CEO of the company, and was thus responsible for everything that occurred there.

It is difficult for voters to relate to the idea that someone owns a company but is no longer present. As Obama pointed out, voters think that an owner-CEO must still be responsible for the decisions made by the company. When Romney says he "left" Bain in early 1999, voters expect a more complete break.

The "foolish" part of Obama's attacks came in the form of an overreach: They suggested that if Romney was not the owner and CEO of the company as reported in SEC filings, it would be a felony to falsely report such. No one, including Romney himself, ever disputed that he held onto his ownership interest in Bain for a few years after he went to work for the Olympics in early 1999. Therefore, no one actually believes Romney committed a felony. The charge is extreme to the point of absurdity, and were the Romney campaign ever to suggest that Obama is a felon, they would undoubtedly be accused of racism.

If the Romney campaign released a cogent, convincing written statement explaining this, perhaps the new Bain attacks would have fizzled as well. This is where the "unforced error" portion comes into play. With the facts on their side, the Romney campaign sensed that Obama overreached. They probably felt it was important to hit back hard to show that they are tough--and Romney himself was probably quite offended by the accusations made against him. On Friday, Romney responded by participating in as many TV news interviews as he could, to address the situation.

By jumping directly into the fray, Romney made the new Bain attacks even more prominent in the media than they were before. Since he had not previously participated in many interviews this campaign season, he also appeared to endorse the idea that the timing of his Bain departure is important in some way. The forum was also wrong: By participating in interviews with Obama-supporting journalists, rather than releasing a written statement (or simply appearing for a public statement), he allowed the dynamic to shift: Instead of Romney attacking Obama for his overreach, he allowed the journalists to put him on the defensive as they cross-examined him about Bain.

While the Bain timeline is occasionally used by Romney as a defense to bad Bain decisions made after early 1999, Romney's primary interest in defending the timeline is that it's the truth. However, in the context of Obama's attacks, defending the timeline appears to observers as a way to disassociate himself from Bain. That reinforces Obama's premise that Bain is a weakness rather than an asset. In the past, Romney would defend Bain with a counter-punch focusing on Bain's successes. Defense of a timeline can't involve such a counter-punch; instead, it can only involve the facts about Romney leaving a company but still owning it and having the title of CEO. Again, these are facts to which voters will have great difficulty relating.

Given the lack of controversy about the facts surrounding Romney's timeline, Obama's attacks had little substance. Obama erred by overreaching, but Romney played into Obama's hand through the unforced error of lending weight to the attacks' importance. This may be considered the first time Romney's campaign has made a serious blunder during the general election campaign.

Is the 2012 Race a Stalemate?

Several days ago, Barack Obama took the lead in the polls. The trend was in Obama's favor, but after a brief time, the national general election polls swung back in Mitt Romney's favor. The two candidates are virtually tied; even when the numbers were at their best for either Romney or Obama, the polls showed a dead heat.

Both candidates can promote spin about how the closeness of the race suggests weakness on the part of the other candidate. Considering how poor the state of the economy is, and considering how unpopular Obama's legislation has been (e.g. Obamacare), one might say the closeness of the race proves Romney is weak. After all, when voters disapprove of the economy, it should make things easy for the challenger.

On the other hand, Obama is an incumbent. His challenger went through a bruising primary campaign in which the Republican Party eagerly sought an "Anti-Romney" wherever they could find one. Romney lacks charisma, his own party doesn't like him much, he hasn't chosen a vice presidential nominee yet, and he has been subject to attacks by the media and his opponents in both parties. By that measure, the closeness of the polls suggests weakness on Obama's part.

As is usually the case, the spin on both sides contains elements of truth: The economy is weak and voters are ambivalent at best about Obama; Romney is a weak challenger and has so far been unable to unite or excite his party. Perhaps the reason why the polls continue to gravitate toward a tie is that the two candidates' weaknesses cancel each other out.

But is the race destined to be a stalemate? Not necessarily. As we wrote earlier, the general election won't really begin for awhile. Voters will begin to pay some attention when Romney selects his VP, and they'll tune in once the parties' conventions take place beginning August 27th. Until then, the race won't fully take shape. Voters' attitudes toward Romney will be particularly difficult to register, since they won't see him in action or even know much about him before the Republican convention.

After both conventions finish in early September, polling data will become more useful. The race may still be deadlocked, but it may not. If voters continue to be unhappy with Obama, and if they are convinced that Romney is a decent alternative, the polls could swing in Romney's favor. Even after the race takes shape in early September, the October debates between the candidates will have the potential to swing the race in either direction; we have seen that historically, the debates matter. Even so, the "starting point" also matters. Each candidate's starting point won't become clear until the conventions.

Obama Takes the Lead in Poll Average

On July 1st, Barack Obama took the lead for the first time in the Elephant Watcher average of national general election polls. The average is comprised of the ten most recent polls, adjusted for the difference between registered and likely voter polls, and with daily tracking polls added once every three days instead of daily. The polling data and (including the older polls) used to create the chart below may be found on the Polls page.

The poll average chart enables us to track the movement of the race at a glance, beginning from the end of May 2012. Note that the race has remained very tight: The poll average has always been within a range of about three points, from half a point in Obama's favor to a little over two and a half points in Mitt Romney's favor.

Romney began with a slight lead, which slowly built up to a peak of 2.7 points on June 22nd. During the ten days after that, his lead fell fairly swiftly. Obama now holds a lead of half a point. It's the first time Romney has lost the lead, though the two candidates were tied briefly in early June. For much of June, Romney appeared to have the momentum. What accounts for the shift? Let's start by ruling out some possible explanations.

The most salient political event that occurred recently was the Supreme Court's ruling on Obamacare, which upheld the law. However, it's unlikely that the ruling helped Obama in the polls--at least, not yet. Romney's peak was June 22nd, and the numbers started moving in Obama's favor before the ruling, which was announced on June 28th. Obama's best polls were conducted just prior to the 28th, or finished on the 28th. The three polls released after the ruling suggest a tied race; they're similar to those just prior to the ruling, or are slightly better for Romney. Obama has only just taken the lead in the average because, as with all moving averages, it takes a few days for the older polls (which were better for Romney) to fall out of the "ten most recent" list and be replaced by newer polls.

Another possible explanation that can be ruled out is the influence of different pollsters. When pollsters are compared to each other, some tend to show more favorable results for Obama and some more favorable for Romney. This unintentional, but persistent, bias is known as a "house effect." A house effect only refers to the bias of a poll compared with other polls; until the election, one cannot know which is the "correct" number. Some poll analysts suggest that Rasmussen and Gallup, which release daily tracking polls, have tended to have a right-leaning house effect this cycle (or to put it another way, other pollsters have a left-leaning house effect). If so, it suggests that a poll average may be tilted if other pollsters aren't releasing enough polls.

While it's true that non-Rasmussen/Gallup pollsters released more polls toward the end of June, which could have been to Obama's advantage, that can't be the full explanation: Obama started doing better even when comparing Gallup polls to earlier Gallup polls, and Rasmussen to Rasmussen. Adjusting for the fact that it's a registered voter poll, Gallup in mid-June showed Romney leading by 4, 5, and 3 points (June 16th, 19th, and 22nd). The two most recent Gallup polls had Obama leading by 2 points (June 28th and July 1st). The Rasmussen polls for the same days have R+3, R+2, and R+5 in mid-June and D+1 and R+2 most recently. Thus, Gallup had a 6-point shift toward Obama, and Rasmussen had a shift of two and a third points. Indeed, the change in these tracking polls accounts for much of the movement.

So if the pro-Obama shift can't be explained by the type of poll or by the Obamacare ruling, what can explain it? Unfortunately, in this case, there isn't any obvious explanation. One possibility is "statistical noise," which refers to the natural up-and-down blips that can be found in any set of data. Using an average of many polls helps reduce the effect of "noise," but it can still be present, particularly in a close, three-point race such as this one. The only way to be certain is to continue following the polls to see if the trend continues or reverses itself.

Intrade Odds: Barack Obama Rebounds

The Intrade market for the presidential election gives Barack Obama a 57.2% chance of winning reelection, while Mitt Romney has a 42.3% chance of victory. This suggests a relatively close race at the moment, but Obama's edge in the Intrade odds has widened since our last review a few weeks ago. Obama now has a lead of 14.9 points; that's almost double the 8.1 point lead he enjoyed in mid-June. Obama's lead had been narrowing until recently.

The shift likely reflects the attitude that the Obamacare ruling will affect the election, and that Obama benefits from his signature program being upheld. Before the ruling, most Intrade investors had assumed the individual mandate would be ruled unconstitutional.

In addition, there has been some slight movement toward Obama in the national polls. That shift is more apparent in the Elephant Watcher average of general election polls, which takes into account the difference between registered voter and likely voter polls. The poll average had shown Romney with a nearly 3-point lead in late June; Obama now has a slight lead for the first time.

The Republican VP Intrade market has also seen some movement since the aftermath of the rumors about Tim Pawlenty for VP. Rob Portman is back on top at 25.3%. Pawlenty is still in second, but has dropped to 14.5%, just ahead of Marco Rubio at 13.7%. Some new players have risen: John Thune, a U.S. Senator from South Dakota is at 7.5%, and Paul Ryan, a U.S. Representative from Wisconsin is at 6.2%. Louisiana Governor Bobby Jindal is tied with Chris Christie at 5.0%.

The VP shuffle suggests Intrade investors have soured a bit on the Pawlenty rumors. Apparently, they perceive that the news about Pawlenty was not met with much enthusiasm, so Romney's campaign is looking for another "safe white guy" to pick. Like Pawlenty, John Thune could fit the bill. Paul Ryan is less "safe," but Pawlenty's loss is presumably Ryan's gain. The same could be said for Bobby Jindal, another of the "young guns" of the party. Rubio has recovered somewhat from the news report that he wasn't being vetted for the position, but it's unlikely he'll rise to his former heights without assistance from another news report.

2012 Election in Review: June 2012

Each month, Elephant Watcher recaps the activity that occurred in the general election during the previous month. Follow these links to read recaps from the Republican primary: May 2011, June, July, August, September, October, November, December, January 2012, February, March, April.

Generally speaking, the presidential campaign was quiet during the month of June. Each candidate toured the country, raised money, and plotted out his strategy. Mitt Romney's strategy, essentially unchanged since the Republican primary, was to attack Barack Obama's handling of the economy. Throughout the month, Romney gave few hints that he would pursue a different direction. With no economic news indicating a robust recovery in the works, Romney had little incentive to abandon his original plan.

In the absence of real campaign news, much speculation swirled about concerning Romney's choice of vice presidential running-mate. U.S. Senators Rob Portman and Marco Rubio remained favorites on Intrade, but Tim Pawlenty stepped into focus amidst rumors that Rubio was not even being vetted. Romney later denied the report, claiming Rubio was, in fact, being vetted for the position. But at the end of the month, the identity of the VP was either securely under wraps or still undetermined.

Obama, for his part, skirmished with Romney by criticizing Romney's actions while head of Bain Capital. These attacks backfired after prominent Democrats--including an Obama surrogate--defended private equity firms in general. Though Obama experimented with accusing Romney of wanting to return to Bush-era policies, he tended to favor the "class warfare" line. By June's end, the Obama team's strategy did not yet appear to be fixed.

On June 28th, the Supreme Court ruled Obamacare constitutional--by declaring it a tax. Romney responded by attacking Obamacare, repeating his calls for "repeal and replace." For the first time, Romney was able to say that only by voting Romney could America avoid Obamacare. In the days following the decision, it became apparent that the country could become engaged in a lengthy debate over Obamacare for a second time. Polls suggested that the healthcare plan had not become any more popular since it was passed in 2010.