Experts say Trump’s tax report shows aggressive tax avoidance and unusually persistent losses


A recent New York Times report that President Donald Trump has suffered huge business losses and paid little or no federal income tax for many years has prompted a challenge from some of the allies of the president in the media, who said the model is typical of wealthy people.

Trump paid just $ 750 in federal income taxes in 2016 and 2017, and no tax at all in 10 of the previous 15 years, according to the Times, which obtained nearly two decades of tax return data income from Trump and his companies. .

The report also details the huge losses to the business empire that Trump cited as proof of his insight. These losses, along with other tax deductions and maneuvering – like a $ 72.9 million tax refund that is being reviewed by the Internal Revenue Service and a Congressional tax committee – allowed the president to avoid paying a lot of federal income taxes while maintaining his lavish lifestyle.

During a September 27 briefing at the White House, Trump dismissed the report. The next morning, one of his media advocates suggested the report was making a lot of noise.

“I saw an accountant there last night,” radio host Hugh Hewitt said on his show. “That’s what the tax story of any rich person is, if you can believe it – it’s good years and bad years, years of huge taxes and years of almost no tax at all because you carry losses. “

How does Trump’s tax history compare to that of other wealthy people? We asked eight tax professionals if the low tax bills and aggressive tax avoidance documented by The Times were typical of the rich.

Without access to tax returns from Trump and others, they said, it’s hard to make comparisons. Everyone pays taxes according to their own circumstances, and the wealthy can resort to various legal maneuvers to lower their tax bill.

But experts have generally agreed that at least two aspects of Trump’s tax history, as described in the Times report, stand out against other wealthy people who may also try to legally lower their tax bills. tax: the severity of its losses and the extent of its tax evasion. .

“Trump’s tax returns look very unusual compared to typical wealthy taxpayers,” said Kimberly Clausing, professor of economics at Reed College. “Its losses are more persistent, its tax avoidance is more aggressive, and there are signs of tax evasion. The audit itself is a big red flag, and many of the deductions described appear borderline at best.”

“I don’t see anyone who has been as aggressive as Trump over such a long period of time,” added Steven Rosenthal, senior researcher at the Tax Policy Center. He called Hewitt’s claim “ridiculous.”

Hewitt did not respond to a request for comment.

Trump avoided taxes and oversaw large business losses

Trump has filed the required annual financial disclosure forms of executive employees, listing his sources of income and assets. But citing a pending audit, he refused to release his tax returns, breaking a long-standing precedent for US presidents.

The New York Times report provided the most in-depth examination of Trump’s finances to date.

An attorney for the Trump Organization, the umbrella company for the Trump family’s business interests, told The Times that most of the facts in the report appeared to be inaccurate. The lawyer said Trump paid millions of dollars in federal taxes, but provided no details or documentation.

The Times reported that Trump has paid little or no federal income taxes for many years, in large part because his businesses – including major properties like his resort in Doral, Florida – often have reported losses he used to clear income taxes for his income. of the TV show “The Apprentice”, brand deals and investments.

“Trump uses large tax losses from some businesses to offset his active income from wages or other businesses,” said Edward McCaffery, professor of law, economics and political science at the University of Southern California .

The Times reported that Trump’s losses of nearly $ 1 billion in the early 1990s generated tax deductions that he was able to use until 2005. After new income from “The Apprentice” brought his tax bills down to millions, he went shopping spree. , buying new golf courses and other properties that have since suffered similar losses.

Wealthy businessmen sometimes experience volatile incomes, or bad years followed by good years, experts said. Real estate investors often benefit from generous tax rules that also cover the depreciation expense deduction, according to the Associated Press.

But that doesn’t mean that Trump’s model of big business losses and low income taxes looks like “the tax history of any rich person,” as Hewitt claimed.

“It’s very atypical to have lost so many, so regularly, businesses that he personally operates,” said Daniel Shaviro, professor of taxation at New York University School of Law.

“Carry-forward losses and deductions for real estate are obviously legal,” added Omri Marian, professor of law at the University of California, Irvine. “However, it is certainly surprising that people who keep themselves billionaires pay so little tax for so long.”

In another report, The Times wrote that Trump’s tax evasion “sets him apart from most other affluent Americans,” many of whom profit from loopholes in the tax code.

The average federal tax rate for the top 0.001% of earners in 2017 was 24.1%, according to the IRS. Over the past two decades, Trump “has paid about $ 400 million less in combined federal income taxes than a very wealthy person who paid the average for this group each year,” according to the Times.

Other The data show similar deviations. Brian Galle of Georgetown Law, a tax expert, pointed to non-partisan Congressional Budget Office data that shows the richest 1% of households pay more than $ 400,000 in federal income tax on average in recent years.

“A typical billionaire, contrary to popular belief, pays tens of millions of dollars in taxes every year,” said Joseph Bishop-Henchman, vice president of tax policy and litigation at the National Taxpayers Union Foundation. “A billionaire consistently paying zero or near zero is not common.”

Questionable tax deductions

The Times report also details numerous conflicts of interest created by Trump’s refusal to part with his companies as president, as well as the financial stress looming as millions of dollars in loans personally guaranteed by Trump arrive. due.

Trump is still fighting the IRS over the 2010 $ 72.9 million tax refund, which was sparked by significant business losses and helped erase several years of tax liabilities. If the IRS decides the refund was illegitimate, it could owe the government more than $ 100 million.

The refund and other questionable tax deductions Trump has claimed are signs Trump may have been more aggressive in avoiding taxes than other wealthy people, experts said, though they warned more facts would be necessary to show evidence of illegality.

The Times reported, for example, that President Ivanka Trump’s daughter, while working as an employee of the Trump Organization, appeared to have received “consulting fees” which were then claimed as business expenses, which reduced the family’s tax bill.

More information is needed to confirm whether Ivanka Trump was the recipient of these charges and whether there had been any wrongdoing, Georgetown Law’s Galle said. But such an approach is unusual for a person involved in the operations of a company as an executive.

“It’s common to hire consultants,” Galle said. “It is not common to hire your child as a consultant and pay her seven figures when she is not providing any real service in return.”

Other experts have raised questions about the various tax deductions described by The Times, such as Trump’s classification of a New York estate as an investment property, rather than a personal residence, which allowed him to claim a tax deduction for charity. The classification also allowed Trump to claim millions of dollars in property taxes as business expenses.

The Times said Trump also classified personal expenses as business expenses – for example, over $ 70,000 he spent on hairdressing during “The Apprentice.” Trump’s stance on the spending was “more aggressive” than many wealthy people, said Joseph Bankman, professor of law and business at Stanford Law School.

Charitable deductions and deductions for business expenses are “widely used without abuse,” Bishop-Henchman said. They are governed by an increasing number of rules.

But McCaffery, the USC expert, said that while the deductions Trump is claiming are somewhat standard, they appear to have been “taken to the extreme” by the president: “An actor can deduct hairstyling costs. . But $ 70,000?

Our decision

Hewitt said Trump’s tax returns show “what the tax history of any rich person is, if you can believe it – it’s good years and bad years, years of huge taxes and years of almost no tax at all because you carry losses “.

Wealthy business people sometimes have a mix of good and bad years, with fluctuating tax obligations, and they deploy similar strategies to lower their tax bill.

But a key difference is the scale. Trump’s tax avoidance, as documented by The Times, is exceptionally aggressive, experts said, and the losses he used to cut his income taxes are larger and more persistent than is typical.

We assess Hewitt’s statement primarily as false.

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