The Morning Jolt

Politics & Policy

Taxing Times

President Donald Trump holds an event to announce his nominee, Judge Amy Coney Barrett, to fill the Supreme Court seat left vacant at the White House in Washington, D.C., September 26, 2020. (Carlos Barria/Reuters)

On the menu today: What really ought to bother us about the revelations concerning Donald Trump’s tax returns is not the low tax rate, but how Trump used the same arguments against other groups of rich people in the last presidential election;

‘They Make a Fortune. They Pay No Tax. It’s Ridiculous, Okay?’

“The hedge fund guys didn’t build this country. These are guys that shift paper around and they get lucky. They are energetic. They are very smart. But a lot of them — they are paper-pushers. They make a fortune. They pay no tax. It’s ridiculous, ok?” — Donald Trump, August 23, 2015.

“Jeb Bush and Hillary Clinton will continue to let Wall Street and the ‘hedge fund guys’ rip off the people by paying no or very little in taxes.” — Donald Trump, September 14, 2015.

“The hedge fund guys won’t like me as much as they like me right now. I know them all, but they’ll pay more. I know people that are making a tremendous amount of money and paying virtually no tax, and I think it’s unfair.”– Donald Trump, September 17, 2015.

“I think we have good reason to believe that there’s a bombshell in Donald Trump’s taxes. Either he’s not anywhere near as wealthy as he says he is, or he hasn’t been paying the kind of taxes we would expect him to pay.” — Mitt Romney, February 26, 2016.

Playing with populist politics on taxes is like playing with fire. The wind shifts, and suddenly you’re the one who gets burned.

Late Sunday, the New York Times revealed a major exposé of President Trump’s tax returns, based upon “thousands of individual and business tax returns for 2000 through 2017, along with additional tax information from other years.” The newspaper’s biggest conclusions were that the president paid $750 in federal income taxes in 2016 and the same amount the following year, and that Trump “paid no income taxes at all in 10 of the previous 15 years — largely because he reported losing much more money than he made.”

Whoever leaked Trump’s tax returns without his consent almost certainly violated the law, despite the Times’ assertion that “all of the information The Times obtained was provided by sources with legal access to it.” The sources may have had legal access to these records, but that’s not the same as legal authority to release it to the press or public. It is a violation of federal law to release someone’s tax return:

Any violation of this paragraph shall be a felony punishable upon conviction by a fine in any amount not exceeding $5,000, or imprisonment of not more than 5 years, or both, together with the costs of prosecution, and if such offense is committed by any officer or employee of the United States, he shall, in addition to any other punishment, be dismissed from office or discharged from employment upon conviction for such offense.

Most people drew their conclusions about Trump a long time ago, and these revelations won’t change many minds. Anyone who was paying attention knew that Trump was not the spectacularly successful businessman that he contended he was. Besides his well-documented troubles with his Atlantic City casinos, Trump Airlines, the New Jersey Generals in the USFL, etc., Trump enhanced the public perception of his wealth by leasing the use of his name to buildings that other people owned. As of 2015, 17 New York City buildings had the name “Trump” on them, but Trump owned only a handful. Owners of properties believe the building will be worth more, and that others will pay more in rent, if the building is perceived to be part of the Trump empire. Meanwhile, Trump gets paid money for the use of his name and the widespread perception that he is owner of the building. It’s like a celebrity endorsement for real estate; there is a bit of genius to that.

I suspect a lot of people believe rich people should pay “a lot” in taxes every year, whether or not they actually made much money that year. But if you think about it, that approach doesn’t make much sense. The U.S. government taxes income and investment profits. A man who starts a year with $10 million and who loses $5 million over the course of the year doesn’t have money coming in. Because a financial loss in a particularly bad year can often exceed the taxes owed, taxpayers are often allowed to carry their loss forward into future years — and apply the deduction for their losses against future tax bills.

That’s what Trump has done, apparently, over and over and over again. Back in 2016, the New York Times obtained Trump’s tax return for 1995, and found Trump had lost $916 million. That was such a huge loss, that tax experts calculated that loss could have offset any taxes Trump would owe on $50 million a year in taxable income over 18 years.

Now we have more recent numbers that reveal the same pattern. “In 2018, for example, Mr. Trump announced in his disclosure that he had made at least $434.9 million. The tax records deliver a very different portrait of his bottom line: $47.4 million in losses.”

With that in mind, the Times article point to a few situations where one wonders if the losses are deliberate maneuvering to take advantage of the tax code’s allowance for using losses to offset taxes owed:

Rather, there appears to be a closer-to-home explanation for at least some of the fees: Mr. Trump reduced his taxable income by treating a family member as a consultant, and then deducting the fee as a cost of doing business.

The “consultants” are not identified in the tax records. But evidence of this arrangement was gleaned by comparing the confidential tax records to the financial disclosures Ivanka Trump filed when she joined the White House staff in 2017. Ms. Trump reported receiving payments from a consulting company she co-owned, totaling $747,622, that exactly matched consulting fees claimed as tax deductions by the Trump Organization for hotel projects in Vancouver and Hawaii.

If you give someone a significant amount of money — in 2020, more than $15,000 — under the tax code, you are obligated to pay the gift tax; the tax is usually paid for by the giver and the rates vary from 18 percent to 40 percent, depending upon the amount of money. If the president wanted to simply give Ivanka Trump $747,000, he would have to pay a tax rate of 37 percent — an extra $276,000 in taxes or so.

You’re going to see Biden commercials pointing out that “Donald Trump probably paid less than you did in federal income taxes in 2016 and 2017.” Biden’s campaign is already selling buttons saying, “I paid more in income taxes than Donald Trump.” The president’s defenders will insist that everything Trump did was legal — and as far as we know, and as far as the IRS can tell, everything was legal.

But when Trump complained about the hedge-fund managers in 2015, he didn’t argue that those other rich guys were violating the law. He contended that their low tax bills were morally objectionable and fundamentally unjust. He argued that because of their wealth, the “hedge fund guys” were obligated to pay more. That’s where Trump can fairly be metaphorically knocked around; he contended that the hedge-fund guys were getting away with something undeserved and excessive by following the tax code as it was written — when Trump’s accountants and lawyers applied the exact same approach to his own tax returns.

One other important sentence in the Times article: “Nor do the [tax returns] reveal any previously unreported connections to Russia.”

Why Does Saturday’s Announcement of ACB Feel Like a Decade Ago?

The NR Editors on Amy Coney Barrett: “Judge Amy Coney Barrett, President Trump’s nominee to fill the Supreme Court vacancy left by Ruth Bader Ginsburg’s death, is an intelligent and thoughtful conservative who has demonstrated a career-long commitment to the rule of law. Judging from the criticisms she has been receiving from Democrats, there is no compelling case against her.”

As I wrote Saturday, we have already seen criticism of Barrett’s adoption of minority children, the number of children she has, questions about whether she could adequately raise her children while being on the Court, and whether her Catholic faith is incompatible with a role on the Supreme Court. A wiser and calmer Democratic Party would recognize that with the Senate controlled by Republicans and no chance of that changing before January 3, they can’t stop the Barrett nomination, and that the potential damage of looking like intolerant maniacs right before a high-stakes election outweighs the likelihood of derailing Barrett. Take the loss on Barrett and set yourself up for big wins starting in 2021.

(A Biden administration could end up replacing Stephen Breyer, Clarence Thomas, and Samuel Alito.)

What Will We Learn? What Are We Willing to Learn?

Over on the home page this weekend, questions about what we will choose to learn from the coronavirus pandemic — about the Chinese government, about illegal animal smuggling, about lab safety and wet markets, about our society’s ability to evaluate information, about how we respond to a crisis, and how we can cultivate social trust: “The coronavirus pandemic is a test, and so far we haven’t scored nearly as well as we’d like. The question is, ‘What do we learn when things go wrong? Do we figure out a way to make them turn out right?’”

ADDENDUM: The show must go on! Please join us for an historic event: National Review Institute’s William F. Buckley Jr. Prize Dinner “Gala at Home” on October 5 honoring James L. Buckley and Virginia James. Guests will be invited to put on their tuxedos and ballgowns, grab a glass of champagne, and join us for a virtual experience. The program will include opportunities to connect with NR writers and dinner guests and tune in to a mix of live remarks and videos from our honorees and dinner co-chairs. Your ticket or sponsorship will be fully tax-deductible and go to support NRI’s educational and outreach programs that advance the NR mission during this critical time in our nation’s history. Don’t wait. RSVP today.

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