Politics & Policy

We All Avoid Taxes

(Dreamstime image: Imagepixel)
What Trump did is not particularly sinister, but also not particularly genius.

Give Donald Trump credit for going big. When he wanted to declare a $915,729,293 loss on his 1995 tax returns, the software used by his accountant couldn’t accommodate anything higher than a seven-figure loss. The accountant had to add the first two digits, “91,” with a typewriter.

The improvisation gets to what is most noteworthy about Trump’s tax gambit, which is the sheer scale of it.

As reported by the New York Times from leaked Trump tax documents, the businessman declared the enormous loss to avoid paying federal income taxes in future years, perhaps for almost the next two decades. The report was quickly deemed a bombshell, but it didn’t reveal anything illegal or — besides the jaw-dropping number — even unusual.

The so-called net operating loss carryforward that Trump took advantage of is not an exotic loophole in the tax code. Many industrialized countries have similar provisions. In 2014, more than a million taxpayers declared net operating losses. The provision simply reflects that if you, say, lose $100,000 setting up a business and earn $50,000 the next year, it makes no sense for the government to tax the $50,000 as if it were the only part of the equation; the loss should be accounted for, too.

Whenever there is a story like this in the political news, liberals trot out the old chestnut from Supreme Court Justice Oliver Wendell Holmes Jr., “Taxes are what we pay for civilized society.” Never mind that civilized society existed on this continent long before the institution of the federal income tax as we know it in 1913. The rejoinder to those congratulating themselves on paying taxes is, Do you take deductions? Do you employ an accountant? Or, Do you pay taxes that you don’t technically owe?

Almost no one does the latter, of course, at least not intentionally. We all operate in keeping with another chestnut from another jurist, Judge Learned Hand. He wrote in a 1935 case: “Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.”

Hillary Clinton may rend her garments over Trump’s minimization of his tax liability, yet the Clintons surely aren’t maximizing their own. As tax expert Ryan Ellis points out in a Forbes column, the Clintons realized a capital loss of $700,000 in 2015, which they can use to offset future capital gains.

The damage to Trump of the Times story is probably not his tax strategy. The candidate had all but admitted to it during the first debate, when he called avoiding taxes “smart.” Rather, the vulnerability for Trump is the fact — stated in black and white in his own filings — that he lost nearly a billion dollars by recklessly overextending himself in the 1990s. This will be thrown back at him every time he touts his business acumen. In other words, all the time.

Trump is also done no favors by his overzealous surrogates, Rudy Giuliani and Chris Christie. They were out on the Sunday shows calling him a “genius” for his tax avoidance. This is not only over-the-top (were “shrewd” and “canny” deemed insufficient descriptors?), it implies that there was some complex manipulation at work. It would have been much better to emphasize the pedestrian nature of Trump’s tax maneuver, rather than blowing it up into an unsurpassed triumph of a master at gaming the tax code.

If Trump had released his taxes or even some of them, he wouldn’t have been vulnerable to a leak that, coincidentally, hit the news as the campaign enters the homestretch. He has enough enemies that he could be certain that information about his taxes would get out, and there may be yet more to come. He teed up this October Surprise.

— Rich Lowry is the editor of National Review. He can be reached via e-mail: comments.lowry@nationalreview.com.

Rich Lowry — Rich Lowry is the editor of National Review. He can be reached via email: comments.lowry@nationalreview.com. 

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