happened in that tax return. let's go "outfront." good evening. i'm erin burnett, "outfront" tonight, mitt's taxes. now, romney is caving in to the mounting pressure. >> i think both president obama and hillary clinton released their taxes in 2008. just strikes me that governor romney ought to step and follow the same procedure. >> i don't know what my effective rate of tax is, but i'm fairly confidence it's a lot higher than 15%. >> mitt, we need for you to release your income tax so the people can see how you made your money. >> we know why releasing is so hard for mitt. rom nay pays a tax rate closer to 15%, and part of the reason why it's a loophole. not only legal, but pretty standard, but it doesn't feel fair and square. here's the bottom line. he was the founder and partner in bain capital. when you're a partner in a private equity firm, you get a cut of the profits you make. usually, 20%. now, stay with me because what happens here adds up to tens of billions of dollars in lost tax revenue for america. say my buddy, will, you've probably heard me talk about him. works at cnn. say he invests $5 million in bain capital. and mitt romney, as he has done, does a really good job. he invests will's money well. so a year later, will's investment doubles in value to $10 million. ding, ding, ding, ding, ding. mitt's cut, $1 million. and that money is taxed at 15%. now, the reason this is unfair is that it wasn't mitt romney's money he put at risk, which is the justification for a lower tax rate on things like dividends an capital gains. it was will's money and he put it at risk. now, this loophole, which is legal and like i said, standard, is ridiculous. but it adds up to a lot of money. if this money which is called carried interest, was taxed at the regular rate of 35%, the white house estimates it would raise about $20 billion in ten years, and hoppestly, when i looked at the numbers, i think you're going to get a whole lute of more money than that. look at the net worth of three of the richest investment titans in the united states. all of whom benefit from this loophole. steve schwartzman, $4.7 billion. henry kravitz from kkr. another private equity firm. net worth, $3.7 billion and john dofer, net worth, $2.3 billion. now, mitt romney's worth is $202 million, so compared to those guy, he's a relative pauper. now, we may never know exactly how much of mitt romney's fortune came from this loophole, but there's a problem here. james carville, steven moor with "the wall street journal. kwaelts james, let me start with you. how damning will it be for mitt romney when these tax returns are fully put out, and i want to emphasis that when his father ran for president, he put out 12 years of tax returns. barack obama put out multiple years. you can make one year look okay, but this kind of stuff is going to show up with a big tax return like that. >> apparently, mitt romney's thinks it's going to be damning. he's gone to great lengths to not do it and hasn't done it. newt gingrich tomorrow night is going to say that we need to see these returns. not that we care as republicans if you pay 15%, which everybody did, but barack obama will make something about this. before we vote and you put us in jeopardy in a general election, we need to see these returns now in south carolina. gingrich will make that point tomorrow night. >> let me ask you, steven, you believe strongly when people put their money at risk, they get a lower rate, but what about loopholes like this one which a very very few wealthy benefit benefit from. a lot, and they lobby in washington. this has been up several times in the last few years. the likes of chuck schumer, eric cantor and nancy pelosi have all conspired to not get rid of this loophole. >> it's a tough call. i'll admit. i want the lowest taxes possible in terms of the ratest, in terms of investment, but there's some real debate whether it's labor income or investment income. you made a persuasive case that this is probably labor income and should be taxed at the same rate that wages and salaries are, but i think the thing people should realize when you talk about these low tax rates on investment, capital gain dividends. let's not a key point that a lot of people are forgetting. not all of mitt romney's income comes from private equity. a lot of it is just owning stocks and having a return from that and those are corporations normally and those corporations as you know, pay a 35% corporate rate and then the investors only get money after that corporate rate was levied, so the real effective rate on investment income isn't 15%. it's closer to 40% to 45%. that's, by the way, the reason we impose a lower tax rate on capital gains and dividends because it's a second tier of tax. >> and a lot of that is fair points. there's a lot of conversation you could have. all of it, james carville, argues for a simpler, fair system. however you want to get there. >> a progressive system, it's ludicrous that mitt romney is paying 15% and you know, school teacher or somebody woo works at a dry cleaner is paying 25% or 30%. it's absurd. i don't think he's doing anything illegal, but the question is, was that offshore money involved? did he bet against the housing market? is he profiting from the misery of the middle class? we don't know that until we see these returns. it's not going to get by with one year. he's got to release five, six-year returns and gingrich and those are going to put enormous heat on him to do that. >> james, let's give him credit, at least he pays his taxes unlike half of the obama cabinet. >> please. >> but i do believe james and erin, you just kind of repeated the line we made in our editorial this morning that maybe this really does argue for a fundamental restructuring of the tax system. in a way that's fair. james, i want to correct you on one thing. when you said people like mitt romney are paying lower tax rates than a plumber or secretary, which is what warren buffett said, the evidence doesn't confirm that. congressional budget office report came out a couple of months ago that shows the average effective rate of the top 1%, the richest 1 persh in america, is about twice as high as the effective federal tax rate that is imposed on a secretary or plumbar. >> let's go back to 39.6 when we created 22 million jobs. i don't understand how these people with the straight face argue that cutting taxes on the rich creates jobs. we have living proof that 39.6 is right in the wheel house and that would be a great idea and then romney wouldn't have to be embarrassed. and could release his tax returns and everything would be fine. >> but james, don't forget, it was the president you worked for who did cut the capital gains tax. >> the top rate was 39.6%, and that's been something that the public insists and there's no evidence that cutting the capital gains tax -- fact, it created 22 million jobs. >> but he also -- >> and now -- bush created one million. end the argument. >> i'm not here to defend the the current tax system or bush, but i think there's on old saying in tax policy. if you tax something, you get less of it. if we're going to impose higher taxes, as president obama wants to on businesses and investment, that's not a very good strategy for creating jobs. >> if you let the bush tax cuts go away for just the 250s -- for everybody, 2.8 trillion. that is a lot of money. if the rates went back to the clinton years for everyone. >> i don't think -- i'm pretty sure mitt romney is not a tax cheat. i mean, he pays his taxes. >> i think we need to emphasize that. this is a standard rate. >> plus, until he does it, the minds will speculate about any number of things, and he's going to have to do this, and everybody knows it. and gingrich is going to put heat on him tomorrow night. he doesn't need this going into the debate. going into a tightening race in south carolina. >> and even though it's legal and fair, before we go, you have firms including bain capital all of which lobbied the likes of nancy pelosi every time this comes up, four times since 2007, to get rid of the loophole, they all lobbied to keep it. they fight hard for this. >> and one of the ironies here is guess what? most of the big billionaires you talk about who are owners of private equity firm, they're democrats. >> i didn't know steve was a democrat. he would have knocked me over. but go ahead. i think he could -- not going to mention the word. you would know better than i do. i don't think he is though. i would be surprised if he is, honestly. >> gets the loophole and you know, hey. thanks to both of you. we appreciate it. everyone, let us know what you think of this. next, did rick santorum actually beat mitt romney in ohio? john avalon has been obsessed, passionate, i don't know what word to use, ever since the day after iowa. an exclusive interview with the person exposing this and iran versus the west. leon panetta says military action is on the table tonight and a story we've been out front of for weeks. wikipedia, dark today. we'll be back. 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customers didn't like it. so why do banks do it ? hello ? hello ?! if your bank doesn't let you talk to a real person 24/7, you need an ally. hello ? ally bank. no nonsense. just people sense. so did rick santorum beat mitt romney in the iowa caucuses? the iowa republican party is going to announce tomorrow morning the official winner. john avalon has been reporting mitt romney's victory over santorum may not be a win. he said to me in the break, come on, why are you saying i'm obsessed? you are, and in a good way. you said the day after iowa, i think this isn't going to be this simple. tell me what you mean. what have you found? >> everyone remembers the eight-vote win, mitt romney over rick santorum. that led to this directly to the inevitability, that he's the only candidate to win iowa and new hampshire. not so fast. tomorrow, the certification comes in. in a county iowa -- apinoose county, southeastern county of iowa, a young guy named edward true attended the caucus and found that mitt romney was given 20 more votes than he actually received. he was tallied with 20 in the official total. initially, there were all sorts of attempts to deny and dismiss, saying don't worry about it. now, nobody is dismissing that fact. so if that number alone holds, that would give rick santorum a 12-point edge. >> i'm sorry, just have to take a pause to remind everyone. we're talking about 8, 12 people. it's amazing in the united states of america. >> but every vote counts and this is what matters. spend six months paying attention to the iowa caucus. it can make or break presidential candidates, so this matters. it's really an amazing story. it could be that there are so many mistakes, mitt romney comes out ahead. we won't know until tomorrow morning. but we know in this one county, there's a real cause for question. >> i'm going to bring edward true in a moment who is with us exclusively, but i want to ask you one more follow up on that. i get intellectually, there's a difference in being the winner. ron paul came in third and got seven, so this 12-vote win wouldn't change the count, but it changes the headline. >> that's right. >> how much does that matter. >> you can't unring that bell. it matters a lot. the truth matters. part of the pride of iowa is money, momentum, and that matters enormously. the truth matters, the vote matters. >> let's bring in edward true now, the voter we were talking about in the iowa caucus who noticed some discrepe nlsys in the voting and reported them. you went to the caucus us. you were a ron paul supporter. when did you realize there was a problem, that the tally you walked out with did not match the tally reported? >> i first found it, it would have been the afternoon after the caucus. i started checking things and i seen the numbers reported by the county and then went on to check it by the precincts, and when i seen it, i actually thad to do double take on it because first i questioned my ownself, then after seeing it again, i noti d noticed, there's something wrong here. >> and you called the chairman and you kept calling, right? been going all the way to the top. >> the precinct chairman was the first person i spoke with. he confirmed my numbers as well with me over the phone. after speaking with him, i spoke to the county chairperson. he confirmed my numbers as well and then i also contacted the iowa gop, but it took them more than 24 hours to respond to me. >> what does this mean, john, in terms of how -- the frustration, shall i say, that we all feel that we don't know. that this can still happen. that there can be this sort of discrepancies. if indeed this is the case. >> the whole world's watching iowa. we think there's an eight-vote win. that may not be the case. there's one documented case where the votes are dramatically off and the person is is dismissed. he's not allowed to talk about the votes. here's the big picture. in our age of the social media, an organization can't deny accountability and transparency. tomorrow, we'll know the final vote. maybe it won't have an impact on the final count, but this is a big deal that we know from at least one county, mitt romney got 20 votes less. >> john, thank you very much. and thank you very much, edward. we appreciate you taking the time. iran versus the united states. two u.s. officials tell cnn today that the obama administration has sent a letter to iran saying that the blocking of the strait of hormuz through which 40% of the world's oil goes a day would be quote a red line for the u.s. now, the administration also suggests the two countries establish direct channels of communication. now, it may amaze you these don't exist, but maybe they need to at a time when tensions are at an all-time high. today, leon panetta said america is ready militarily. >> we've always made clear that in terms of any threats to the region, in terms of some of the behavior that they've conducted in the region, we'll also be prepared to respond militarily if we have to. >> those are strong words. just how close are we to a confrontation with iran? joining us now, james reuben. >> assistant. >> assistant secretary of state. >> that's a good promotion. >> i just gave you a promotion. you should have taken it and run with it. we're about truth and transparency. but let's start with this letter, this red line we've been hearing about now leon panetta weighing in. why the frenzy of activity? right now? >> there's a lot happening at once. number one, the united states is imposing new sanctions. iran responded by threatening to close the strait of hormuz, and finally, an iranian scientist was assassinated. this has happened within a week or so and that has raised the threshold and led as you reported to an important communication between washington and tehran. >> so, we have no direct line of communication and there's some video, it's been amazing, that the pentagon just released. of iranian speedboats coming up to our big navy ships. the bull horns are blazing, go away, go away. the speedboats ignore. that could have turned into -- here they are, how close they det gfr you blow them out of the water, then you have samilitary confrontation. what's a direct line of communication entail? >> there are several issues. one is diplomacy. there has always been a way to communicate with iran, the through the ambassadors, through the swiss, who represent us in tehran. but what we're talking about here is if military activities begin to take place and signalling begins to take place, iran taking a step, these speedboats get in an accident, they can't turn at the last minute. they crash into the u.s. boat and military officials need to be able to talk to each other. this has happened between the united states and soviet union. it happens between north and south koreans. if military officials can't talk to each other, you have this incidents at sea could really escalate out of control. >> yesterday, we used the star wars drone. i don't know what it was. sorry, everyone, it looked like the drone that is missing and iran said it's going to send a little toy drone, we will trample you in pink, on the bottom, to obama. it is so funny, except for it's not funny. what do you make of that, propensity for sand box language? >> it's childish on iran's part, what you have to remember, for iran, the united states looms so very, very large. it was the american presidency that fell, that led to the revolution in iran. all of these things, for the iranians, america has loomed so large, that every stip we take, you have to multiply it by ten for them because it's a big deal for them. >> it's like i remember my high school. that was our tower hill. the school that always beat, you wait and wait and care so much about the game. >> but the problem is in just a minute, a second or two, we really got to make sure that mistakes aren't made, miscalculation, that one side thinks the other is doing something different and that's why talking, there's nothing wrong with talking with your enemies. we've been doing it for hurricanes of years. we've got to be able to communicate clearly. >> would we know if there were -- when would we know? military confrontation. it seems like it could happen an get swept under the rug because the united states is so desperate to not have a full out confrontation. >> i think if there was a closing of the strait of hormuz and leon panetta said we will respond, the world would know that quickly because there are many countries in that area, the oil tankers would stop flowing. the oil companies would let us know. i think that couldn't happen quietly. i think you know, if these low level covert activities like the presumed assassination by some countries of iranian scientists, those kinds of things can happen without us knowing. >> a flight from dubai into iran. you look down and see the tanker traffic. it's pretty amazing. thanks very much. amazing and important. appreciate it. good to see you. >> nice to see you. barack obama declared january as national slavery and human trafficking prevention month. this is an issue important to our show, and if you look at the state department's annual report about this issue, the details are disturbing. according to this report, last year, 27 million men, women and children were exploited through human trafficking worldwide. 2 million children forced into the sex trade and this is not a problem just outside the united states. get ready for this. the state department reports that every year, between 14,500 and 18,000 victims are trafficked into this cou