Mitt Romney has a problem.

It's not that public opinion polls show he narrowly but persistently trails President Obama, particularly in key swing states. It's not that he has higher personal unfavorabilities than favorabilites. It's not that a mere 30% of voters think he's more likable than his opponent. And it's not that he just returned from a gaffe-filled overseas trip where he found a way to step on one foreign landmine after another, and got called out by London's Mayor, Boris Johnson, live in front of 60,000 Brits.

Ok, well, actually those are all his problems – big problems, in fact. But, amazingly, Mitt Romney may have an even bigger one. After releasing two abridged years of tax returns, he has steadfastly insisted that he won't release any more. This is an issue that isn't going away – and one that has the potential to haunt him every single day of the 2012 campaign.

On the surface, Romney's unwillingness to release his returns shouldn't necessarily be a major political issue. Four years ago, John McCain released two years of his returns and few Americans – including those who worked for then candidate Barack Obama – batted an eye. McCain's public image was shaped by his years in a Vietnamese POW camp. Even though he had accumulated so much wealth that, at one point, he couldn't remember how many houses he owned, his taxes were not a pressing question.

But Romney's vast $200m fortune and his proclaimed private-sector experience makes his refusal a far more serious problem: one that was highlighted this week by Senate majority leader Harry Reid's accusation that Romney didn't pay taxes for ten straight years. Many a political pundit and partisan Republican have jumped over Reid for his admittedly unsubstantiated allegations. Jon Stewart called him a terrible person; Reince Preibus, the chairman of the RNC, branded Reid a "dirty liar".

None of this has stopped Reid from doubling down on the charge, and even using the incident to make a campaign fundraising pitch. His accusations may not be fair, but lest we forget, politics is a contact sport – and Romney has brought this on himself.

After all, there's an easy way to disprove Reid's charges: Romney could simply release his tax returns.

That he will not – and that Reid knew he will not – is the root of Romney's dilemma. Clearly, there is information in those IRS transcripts that is so toxic and so politically devastating that Romney is unwilling to take the political risk of releasing them. But Romney's refusal to release means that he opens himself to attacks like Reid's. In the absence of contrary evidence, Democrats can spend the next three months speculating or passing along gossip about what Romney is hiding.

A consistent focus on Romney's taxes raises all sorts of questions with the potential to plague the Romney campaign: why did he have overseas accounts in the Cayman Islands and Switzerland; why does he have a tax-deferred individual retirement account (IRA), which could be worth close to $100m, even though the annual contribution limit to an IRA is $6,000; how did he accumulate all of his $200m fortune? To be sure, even if we had Romney's tax records, the Obama campaign could raise these issues. But the absence of Romney's returns – and the obvious inference that he has something to hide – serve to give the speculation real resonance.

Above all, the tax issue goes to the heart of Romney's biography – namely, his business experience. This was always supposed to be the calling card of Romney's presidential campaign: the notion that his years at Bain taught him the lessons he needs in order to turn around the US economy. Considering that Romney has basically run away from his signature accomplishment as Massachusetts governor, healthcare reform, his private-sector business experience is the greatest asset of his political biography.

But what if, instead of looking like a lesson in economic acumen, his Bain years are a lesson in crony capitalism and how to feather one's own nest at the expense of workers? What if Romney's greatest nominal advantage becomes a political liability, and exposes his personal weaknesses as a candidate? This is what makes the tax issue damaging, just as the questions raised about Bain Capital have been harmful to his campaign effort. As Greg Sargent, a blogger at the Washington Post, succinctly noted:

"This is what the assault on Romney's Bain years, tax returns, and offshore accounts is all about. It's about getting voters who are willing to accept that Romney possesses know-how on the economy but won't look out for their interests in fixing it."

Considering that Romney already scores badly in the typical poll question asking whether he can understand the problems of ordinary Americans, the tax issue has the potential to remain a political millstone around his neck. What's more, it becomes a means of tarring Romney with all the negative imagery the Obama campaign wants to apply to him – that he's out-of-touch, that he is solicitous of the 1% at the expense of the 99%; that he doesn't play by the same rules as ordinary Americans.

Above all, it clears the decks for a full-scale assault on Romney's own tax plan, which favors the wealthy, like him, rather than the middle class.

All of this matters for President Obama because he can't exactly run on his own economic record. While Obama can brag about healthcare reform or the auto bailout or killing Osama bin Laden, on the single most important issue of 2012, the economy, he has to resort to a "yes, but …" strategy – as in, "yes, the economy is still underperforming, and yes, unemployment remains high, but things could be worse and, oh, by the way, Republicans don't have an economic plan." All of that might be true, but it's hardly a secure pathway to re-election. Instead, it highlights the missing promise of Obama's presidency.

So, with an underwhelming economic record, Obama has one choice: to make his opponent unelectable by portraying him in the most negative light possible. This has clearly been the Obama strategy for quite some time – and, ironically, mimics the approach taken by George W Bush in 2004 against John Kerry.

The tax returns become the entree for Democrats to hit Romney the hardest because his campaign has no effective rebuff to the attacks. Every day this goes on – and there's little reason to believe that it won't continue – becomes a distraction for the Romney campaign: a rearguard defense they must mount, rather than creating the opportunity to go on the offensive.

In effect, Mitt Romney's tax issues have become a means of projecting onto Romney what the Obama campaign sees as his personal liabilities as a candidate. Unless Romney has a fit of candor and decides to release his tax returns, it's an attack line – and a political problem – that will run and run.