Under tax laws in effect during Barack Obama’s presidency, Donald Trump paid no federal income tax for the years 2011 to 2014 and $750 for 2016, the year he was elected president, according to recent New York Times reports.
Overall, Trump paid no federal income taxes for 10 of the 15 years before he was elected, The Times reported.
Like Trump, millionaires and billionaires pay very little or no taxes in a complex tax system of rules and regulations under laws passed by Democrats and Republicans and enacted during administrations of both parties. Democrats controlled both the Senate and the House of Representatives for the first two years of Obama’s presidency, which lasted from January 2009 to January 2017.
A tax policy expert said the ultra-rich know how to play the game.
“They have a lot of options for playing the tax code. The president may have been very aggressive in his use of them,” Eugene Steuerle, cofounder of the Urban-Brookings Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, told Newsweek. “Some things he might not, with a detailed audit, get away with, but I’m guessing a lot of other people do get away with, such as the extent to which you can effectively write off personal expenses as a business deduction. For the president, whether it’s his haircuts or trips to the golf courses.”
Sometimes, the bigger the deduction, the easier it is to justify.
“The really big ways that people like Donald Trump avoid taxes often are quite legal,” Steurle said.
He added that avoiding paying taxes using accounting methods allowed in the tax code is legal, but evading taxes, not paying what’s owed to the government, is not legal.
Trump also took advantage of the tax laws in effect during the presidency of George W. Bush. For 10 of the 15 years from 2000 to 2015 Trump paid no federal income taxes, according to The Times. Alan Garten, a lawyer for the Trump Organization, disputed that claim, The Times reported. Trump is the sole owner of The Trump Organization, a conglomerate of about 500 companies in the Trump family empire started in the 1920s by the president’s grandmother and father.
Real estate developers fall into a category all their own, enjoying exemptions and other tax code provisions on capital gains that allow them to avoid paying federal income taxes, Steuerle said.
“While owners of corporations do often pay corporate income tax, large real estate owners have long been close to exempt from both corporate and individual taxation,” Steuerle said.
The Times series recounted the millions of dollars in losses Trump reported that could perhaps be a big win later, since expenses are deducted for the year the money is spent, but capital gains taxes aren’t paid until much later, if at all, Steuerle said
“Capital gains are only taxed when property is sold, and, if the property is held until death, no tax is ever owed on those gains,” Steuerle said. “As long as income can be earned through appreciation of the property, whether a real estate building or golf course, no tax is paid until that property is sold. The losses seen on the Trump tax returns do not count the appreciation in New York and other property values along the way.”
The revelations about Trump’s taxes, Steuerle said, have put a spotlight on much broader policy issues, including taxes on income from assets rather than work, bankruptcy policy that allows people to “play games” over time, and monetary policy with very low interest rates that has protected very inefficient investments while influencing economic growth.
“Whether the president also engaged in illegal practices along the way is only a small part of this story,” “Steurle said, “and undue focus on his personal behavior may give Congress yet another reprieve from addressing the broader policy issues.”
The entire tax code needs to be re-examined, not just the provisions that make it easy for wealthy people to pay very low income taxes,” said Chuck Marr, senior director of federal tax policy at the Center on Budget and Policy Priorities (CBPP), a progressive think tank.
But he said they also need to go beyond increasing funding for IRS operations and enforcement to rebuilding the agency in a multi-year effort.
“It’s clear that after 10 years of devastating budget cuts, the IRS is not in a position to play the role it needs to play,” Marr told Newsweek. “The people who do the most complex audits, there’s so few of them. Their numbers are back to where they were in the 1950s.”
In addition to high-income individuals escaping taxes, Fortune 500 companies and other large publicly traded corporations often legally avoid paying federal income taxes, benefitting their large investors and small shareholders, like office workers and grandmothers, who own tiny parts of companies either directly through stock bought in the markets, or indirectly through mutual funds or 401(k)s.
In 2018, the video streaming service Netflix had $856 million in income and paid no federal or state income taxes. But it still qualified for a $22 million federal tax rebate earned using legal tax breaks for certain stock transactions, according to a December 2019 report by the non-profit, non-partisan Institute on Taxation and Economic Policy (ITEP).
Amazon, the online retail giant that reported $10.8 billion in U.S. income in 2018, claimed a federal income tax rebate of $129 million for that year, using a provision in tax law, while paying no federal income taxes, according to ITEP.
The New York Times has said that to protect its sources, it will not release the tax documents on which its story is based.