Trump’s (and Hillary’s) taxes

The Wall Street Journal:

The New York Times reported Saturday that it had received an anonymous gift in the mail of three pages from three of Mr. Trump’s state tax returns from 1995. The real-estate and casino magnate, who was having well-known business problems at the time, reported a loss of $916 million on those New Jersey, New York and Connecticut returns.

The Times concludes from these losses and after consulting those it called “tax experts” that the resulting tax deduction “could have allowed him to legally avoid paying any federal income taxes for up to 18 years.” Cue the synthetic shock and outrage.

Note that word “legally.” No one, not even the Clinton campaign, is claiming Mr. Trump broke any tax laws 20 years ago. Had he done so you can bet the IRS would have noticed, since the tax agency doesn’t routinely ignore tax losses that large.

The details from three pages are scant and don’t reveal the specific tax deductions that Mr. Trump might have exploited in 1995 or other years. But even average taxpayers who declare self-employment income know that business losses are deductible, often across several years. This reflects that the cycle of business investment and sales isn’t confined to a calendar tax year.

The real-estate business is also notorious for complex accounting and depreciation practices that can reduce tax liability. Developers borrow heavily, and the interest on that debt is deductible. Mr. Trump didn’t write the tax laws he was exploiting, though President Bill Clinton did have a hand in writing them since he pushed a major tax bill through Congress in 1993 with a Democratic Congress. Maybe Hillary Clinton should blame her husband and party for tolerating such rules.

What is illegal in this story is that someone disclosed Mr. Trump’s tax returns without his permission. The Times reports that the postmark on the documents indicates they were sent from New York City, and the “return address claimed the envelope had been sent from Trump Tower.” The Trump Tower bit is probably a joke, and the sender could have traveled to New York from anywhere to send them.

But the tax-return leak was nonetheless all too predictable. The Trump campaign is attacking the newspaper for publishing the documents, but publication is not a crime. Releasing it is. The left is committed to defeating Mr. Trump by whatever means possible, and many believe this end justifies any means, much as progressives have justified theEdward Snowden leaks despite the damage to national security.

Mr. Trump also invited this October surprise by refusing to release his tax returns. Had he done so last year, when we advised him to, the debate over the details would have burned itself out. The smart play in politics is transparency to give your opponents nowhere to go.

The Clintons can count on a protective press corps to ignore or forgive their email and Clinton Foundation deceptions, but Republicans will never get that break. Mitt Romneymade the same mistake by waiting to release his 2011 tax return until September 2012, and George W. Bush almost lost in 2000 when someone disclosed his drunk-driving conviction shortly before Election Day. Don’t Republicans understand that their secrets will always be exposed, and at the most damaging moment?

Mr. Trump hasn’t helped his cause by boasting about how “smart” he is for paying little tax. This is the vainglorious Trump who can’t stand to be criticized. He should be saying instead that the tax code is dumb. He could say he’s fortunate to have the means to hire lawyers and accountants who can maneuver through the tax maze to cut his payments. But he knows most Americans aren’t so lucky.

He could also say that Mrs. Clinton’s tax plans all but guarantee that the rich would pay less in taxes. She wants to raise rates, which would invite the rich to lobby Congress for more loopholes, which it would eventually pass, which would be fine for the Clintons and Donald Trump but be terrible for middle-class Americans and the economy.

As it is, the current tax system is just fine for the Clintons, reports Zero Hedge:

With the leaked 1995 Trump tax returns ‘scandal’ focused on the billionaire’s yuuge “net operating loss” and how it might have ‘legally’ enabled him to pay no taxes for years, we now discover none other than Hillary Rodham Clinton utilized a $700,000 “loss” to avoid paying some taxes in 2015. …

And Hillary following up, adding Trump “apparently got to avoid paying taxes for nearly two decades—while tens of millions of working families paid theirs.”

However, a look back at Hillary Clinton’s tax returns from 2015 (here), proudly displayed by the campaign proving she has nothing to hide – shows something awkward on page 17…

Hillary's capital loss

While not on the scale of Trump’s business “operating loss”, Hillary Clinton – like many ‘wealthy’ individuals is taking advantage of a legal scheme to use historical losses to avoid paying current taxes.

As Bloomberg notes, this federal tax break is among the wealthy’s most used avoidance schemes…

Those 1.1 million folks in the 1 percent, as measured by the TPC, have annual income that averages a little less than $700,000. The top one-tenth of that group, some 110,000 households, average about $3.6 million, according to Howard Gleckman, a senior fellow at the TPC.2

The middle of the pack, some 33 million people, have pretax income ranging from $45,000 to $80,000. The lowest one-fifth of taxpayers, a universe of about 47 million Americans, have income up to about $24,000.

Among the biggest of these givebacks, courtesy of the Internal Revenue Service (well, really Congress), are capital gains and dividends—these are the biggest way the wealthiest benefit.

In the words of Hillary Clinton’s campaign manager, “this bombshell report reveals [Hillary Clinton’s] past business failures… and may show just how long [Hillary Clinton] may have avoided paying taxes.”

*  *  *

Finally, as we noted previously, the NYT itself is also perfectly happy to take advantage of the US tax to minimize the amount of money it pays to the government: in 2014 the company got a tax refund of $3.6 million despite having a $29.9 million pretax profit, an effective negative tax rate for 2014, which it explained was favorably affected by approximately $21.1 million for the reversal of reserves for uncertain tax positions due to the lapse of applicable statutes of limitations.

Simply put – pot, kettle, black.


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