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Experts say Trump tax report shows aggressive tax avoidance, unusually persistent losses
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The New York Times reported that it obtained copies of Trump’s tax returns and that Trump paid just $750 in federal income taxes in both 2016 and 2017, and no taxes at all in 10 of the 15 years before that.
According to the Times, Trump has used carried-over business losses and other tax write-offs and maneuvers to sustain his billionaire lifestyle while avoiding paying much in federal income taxes. Experts said his losses seem exceptionally persistent, and his tax avoidance aggressive.
Wealthy businesspeople can experience a mix of good and bad years, but Trump’s complex tax history as depicted by the Times is not an archetypal example of what happens with rich people.
A recent New York Times report that President Donald Trump has incurred staggering business losses and paid little to no federal income taxes in many years drew a challenge from some of the president’s allies in the media, who said the pattern is typical for wealthy people.
Trump paid just $750 in federal income taxes in both 2016 and 2017, and no taxes at all in 10 of the 15 years before that, according to the Times, which obtained nearly two decades’ worth of tax-return data for Trump and his businesses.
The report also detailed huge losses incurred by the business empire Trump has cited as proof of his acumen. Those losses, along with other tax write-offs and maneuvers — such as a $72.9 million tax refund that’s being scrutinized by the Internal Revenue Service and a congressional tax committee — have enabled the president to avoid paying much in federal income taxes while sustaining his lavish lifestyle.
In a Sept. 27 briefing at the White House, Trump dismissed the report. The next morning, one of his media defenders suggested that the report is much ado about nothing.
"I had an accountant look at it last night," radio host Hugh Hewitt said on his show. "It's what any wealthy person's tax history is, if you can believe it — which is good years and bad years, years of immense taxes and years of almost no taxes at all because you carry over losses."
How does Trump’s tax history compare with other wealthy people? We asked eight tax experts if the low tax bills and aggressive tax avoidance documented by the Times are typical of the rich.
Without access to the tax returns for Trump and others, they said, it’s hard to draw comparisons. Everyone pays taxes according to their own unique circumstances, and wealthy people can use a variety of legal maneuvers to reduce their tax bills.
But the experts generally agreed that at least two aspects of Trump’s tax history as described in the Times report stand out compared with other wealthy people who may also try to legally reduce their tax bills: the severity of his losses and the extent of his tax avoidance.
"The Trump tax returns appear highly unusual compared to typical wealthy taxpayers," said Kimberly Clausing, a professor of economics at Reed College. "His losses are more persistent, his tax avoidance is more aggressive, and there are signs of tax evasion. The audit itself is a big red flag, and many of the described deductions sound borderline at best."
"I can't think of anyone who was as aggressive as Trump over such a sustained period," added Steven Rosenthal, a senior fellow at the Tax Policy Center. He called Hewitt’s claim "ridiculous."
Hewitt did not respond to a request for comment.
Trump has filed the annual financial disclosure forms required of executive branch employees, listing his income sources and assets. But citing a pending audit, he has refused to release his tax returns, breaking from a longstanding precedent for U.S. presidents.
The New York Times report provided the most in-depth look yet at Trump’s finances.
A lawyer for the Trump Organization, the umbrella company for the Trump family’s business interests, told the Times most of the report’s facts appeared to be inaccurate. The lawyer said Trump had paid millions of dollars in federal taxes, but didn’t provide details or documentation.
The Times reported that Trump paid little to no federal income taxes in many years, largely because his businesses — including major properties like his Doral, Fla., resort — have often reported losses that he has used to wipe out income tax liabilities for his earnings from "The Apprentice" TV show, branding deals and investments.
"Trump is using large tax losses from some businesses to offset his active income from wages or other businesses," said Edward McCaffery, a professor of law, economics and political science at the University of Southern California.
The Times reported that the nearly $1 billion in losses Trump experienced in the early 1990s generated tax deductions he was able to use through 2005. After new income from "The Apprentice" brought his tax bills back into the millions, he went on a buying spree, purchasing new golf courses and other properties that have since incurred similar losses.
Wealthy businesspeople do at times experience volatility with their incomes, or bad years followed by good ones, experts said. Real estate investors often benefit from generous tax rules covering the deduction of depreciation expenses, as well, according to the Associated Press.
But that doesn’t mean Trump’s pattern of big business losses and low income taxes resemble "any wealthy person's tax history," as Hewitt claimed.
"It's wildly atypical to have lost so much, so consistently, from businesses that he personally operates," said Daniel Shaviro, a professor of taxation at New York University School of Law.
"Carryover losses and deductions for real estate are obviously legal," added Omri Marian, a professor of law at the University of California, Irvine. "It is certainly surprising, however, for people who maintain themselves as billionaires to pay so little tax for so long."
In a separate report, the Times wrote that Trump’s tax avoidance "sets him apart from most other affluent Americans," many of whom take advantage of loopholes in the tax code.
The average federal income tax rate for the highest .001% of earners in 2017 was 24.1%, the IRS says. 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 that group each year," according to the Times.
Other data show similar discrepancies. Georgetown Law’s Brian Galle, an expert in taxation, pointed to data from the nonpartisan Congressional Budget Office that shows the top 1% of households paying 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 each year," said Joseph Bishop-Henchman, vice president of tax policy and litigation at the National Taxpayers Union Foundation. "A billionaire consistently paying at or near zero is not common."
The Times report also details many conflicts of interest created by Trump’s refusal to divest from his businesses as president, as well as the financial stress that looms as millions of dollars in loans Trump personally guaranteed come due.
Trump is still fighting the IRS over the $72.9 million tax refund from 2010, which was triggered by major business losses and helped wipe out several years’ worth of tax liabilities. If the IRS decides the refund was illegitimate, he could owe the government over $100 million.
The refund and other questionable tax deductions Trump has claimed are signs that Trump may have been more aggressive in avoiding taxes than other wealthy people, experts said, although they cautioned that more facts would be needed to show evidence of illegality.
The Times reported, for example, that the president’s daughter Ivanka Trump, while working as an employee of the Trump Organization, appeared to have received "consulting fees" that were later claimed as business expenses, which reduced the family’s tax bill.
More information is needed to confirm whether Ivanka Trump was the recipient of those fees and whether there was wrongdoing, Georgetown Law’s Galle said. But such a move is unusual for a person who is involved in a company’s operations as an executive.
"It is common to hire consultants," Galle said. "It is not common to hire your child as a consultant and pay her seven figures when she doesn't provide any actual services in exchange."
Other experts raised questions about different tax write-offs 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 charitable tax deduction. The classification also allowed Trump to claim millions of dollars in property taxes as a business expense.
The Times said Trump has also classified personal spending as business expenses — for example, more than $70,000 he spent on hairstyling during "The Apprentice." Trump’s position on these expenses was "more aggressive" than many wealthy people, said Joseph Bankman, a professor of law and business at Stanford Law School.
Charitable deductions and deductions for business expenses are "widely used without abuse," said Bishop-Henchman. They are governed by an increasing number of rules.
But McCaffery, the expert at USC, said that while the deductions Trump has claimed are somewhat standard, they seem to have been "taken to lavish extremes" by the president: "An actor can deduct hairstyling costs. But $70,000?"
Hewitt said Trump’s tax returns show "what any wealthy person's tax history is, if you can believe it — which is good years and bad years, years of immense taxes and years of almost no taxes at all because you carry over losses."
Wealthy business people do sometimes experience a mix of good and bad years, with fluctuations in their tax liabilities, and they deploy similar strategies to reduce their tax bills.
But a key difference is scale. Trump’s tax avoidance as documented by the Times is exceptionally aggressive, experts said, and the losses he has used to reduce his income taxes are bigger and more persistent than what’s typical.
We rate Hewitt’s statement Mostly False.
Media Matters for America, "Hugh Hewitt dismisses report of Trump paying $750 in taxes: "It's what any wealthy person's tax history is, if you can believe it," Sept. 28, 2020
The New York Times, "Long-concealed records show Trump’s chronic losses and years of tax avoidance," Sept. 27, 2020
The New York Times, "18 Revelations From a Trove of Trump Tax Records," Sept. 27, 2020
Just Security, "Ten Quick Takeaways from the New York Times’ Bombshell Article on Trump’s Tax Returns," Sept. 28, 2020
The Associated Press, "Trump facing devastating debt load? Experts say not so fast," Sept. 29, 2020
CNN, Trump's taxes tell a tale of debt and desperation," Sept. 28, 2020
The Washington Post, "Trump avoided paying taxes for years, largely because his business empire reported losing more money than it made, report says," Sept. 27, 2020
The White House, "Remarks by President Trump in Press Briefing | September 27, 2020," Sept. 27, 2020
Lily Batchelder on Twitter, Sept. 27, 2020
Internal Revenue Service, "SOI Tax Stats - Individual Statistical Tables by Tax Rate and Income Percentile," Sept. 3, 2020
Congressional Budget Office, "The Distribution of Household Income, 2016," July 9, 2019
Email interview with Steven Rosenthal, senior fellow at the Tax Policy Center, Sept. 29, 2020
Email interview with Joseph Bishop-Henchman, vice president of tax policy and litigation at the National Taxpayers Union Foundation, Sept. 29, 2020
Email interview with Kimberly Clausing, professor of economics at Reed College, Sept. 28, 2020
Email interview with Daniel Shaviro, professor of taxation at New York University Law, Sept. 28, 2020
Email interview with Brian Galle, professor of law at Georgetown Law, Sept. 28, 2020
Email interview with Edward McCaffery, professor of law, economics and political science at the University of Southern California Gould School of Law, Sept. 28, 2020
Email interview with Omri Marian, professor of law at the University of California, Irvine, School of Law, Sept. 28, 2020
Email interview with Joseph Bankman, professor of law and business at Stanford Law School, Sept. 28, 2020
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Experts say Trump tax report shows aggressive tax avoidance, unusually persistent losses
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