Trump’s Tax Returns Reflect Undue Privileges Given to Real Estate in Tax Code

Janine Jackson: “Donald Trump’s Tax Returns Have Many Wondering What They’re Doing Wrong,” ran one cheeky headline, based on long-awaited reporting from The New York Times. The implication is that tax avoidance, if you can get away with it, is clever, and presumably you can still use the other side of your mouth to complain about public resources being underfunded.

Corporate media don’t really believe that people are completely confuzzled about why they can’t get away with the same financial shenanigans as the rich and powerful. So where’s thenews you can (actually) use angle? As infuriating as it is to hear that while living a very wealthy lifestyle, Donald Trump paid just $750 in federal income tax in 2016 and 2017, and none at all in ten of the previous 15 years, or that he wrote off $70,000 for his hair, well, as infuriating as that is, if media leave the story at Trump being “sketchy,” we will have learned—and, more importantly, changed—nothing at all.

What questions and avenues of inquiry could make more lasting, forward-looking use of this latest illustration of a sort of open secret of a system that provides one set of rules for the wealthy and another for the hoi polloi, and that allows for the draining of public coffers in the face of increasing public need?

Steve Wamhoff is director of federal tax policy at the Institute on Taxation and Economic Policy. He joins us now by phone from Washington, DC. Welcome to CounterSpin, Steve Wamhoff.

Steve Wamhoff: Thank you.

I wonder if you could perhaps start by suggesting in general terms: How much of this is lamentable but legal—and we can talk about what to do about that—and how much of it is stuff that, if you weren’t the president, you might actually be in some kind of trouble for? Or do we even know?

That’s a good question. And it’s impossible to know for sure exactly what’s happening. But it’s clear that one of two things is going on: Either what Trump is doing is allowed by the law, and the law is really screwed up and needs to be changed, or Trump is breaking the law, and that shows that our enforcement of the law is deeply problematic. And that’s a result of Congress defunding the IRS, gutting tax enforcement, and making it impossible for tax enforcement to keep up with people like Donald Trump.

So one of those things is happening; quite possibly, both of those things are happening. You know, Donald Trump is using a lot of tax breaks, and he’s using a lot of special breaks and loopholes to avoid taxes. That is a thing that wealthy businesspeople often do. But Donald Trump nonetheless is in a league of his own. He really is extremely aggressive, he really pushes the tax avoidance tactics to the very limit, and quite possibly beyond the limit, of what the law allows.

Let me just draw you out a bit on that. Folks are getting a little hung up on “He lost money, so that means he’s a failure, and not the success that he says he is.” But the use of losses to avoid tax is evidently his thing, and not his alone. I wonder if you could give us a little bit of a primer on how that works, on paper and then in reality.

Right. So let’s be clear about one thing: Donald Trump is a terrible businessperson. He does have a lot of real losses. That’s just true, right? But at the same time, Donald Trump is also a very wealthy person. He clearly has a lot of income. You know, when you see someone who lives like a billionaire for decades, and still gets away with not paying taxes in most years, you know that there’s a problem with the system, right? Even if it is the case that he has a lot of ridiculous business investments that are complete failures. And he does have a lot of losses.

Now, it is the case that our tax rules have to have some kind of rule that recognizes when a businessperson has a loss. I mean, the income tax is a tax on income. So if your business has losses, and is not generating income, then we’re not going to tax you on business income. So there are some sort of rules we have to have in place to recognize that people can deduct losses.

But those rules sometimes are overly generous to businesspeople who can manipulate the system. And there are some particular types of rules that are particularly generous to certain types of business investors.

So, for example, the big real estate investors have some special rules that make it easier for them to use losses more quickly and more easily than other types of business investors. And we know that’s a thing he’s used in the past. In the ’90s, he had enormous losses from some of his real estate ventures. The stuff that he’s doing now may be a little bit different; now he’s involved in all these licensing schemes, where he slaps his name on steaks or something.

Right.

He’s in a lot of different lines of business. But nonetheless, it’s true that what we see is a person who is clearly wealthy, has income; he has all kinds of income from licensing schemes and from The Apprentice and whatnot, but he’s able to manipulate these rules and manipulate the losses from his other businesses to wipe out any tax liability that he would normally have.

And the real estate piece of that is a particular piece, and I know you just wrote about the 2017 tax bill, with regard to using that “losses to offset gains” thing, and there was a chance, there was an opportunity to address that, and it was missed?

Yeah, so there are all sorts of special breaks and loopholes for different types of investors, including real estate investors, that Republicans who were drafting the 2017 tax law decided not to touch. I mean, they could have used the opportunity to do a true tax reform, they could have made the tax system a lot simpler, they could have removed all kinds of loopholes and special breaks, but they did not do that. The law overall was a big giveaway to wealthy individuals and corporations.

There were a few provisions in there that did raise some revenue by limiting some of the shenanigans that wealthy people can do to avoid taxes, and there were some limits on how losses could be used. Those limits, however, were suspended recently, in March, when Congress passed the CARES Act to respond to Covid-19 and the recession.

The CARES Act, as it was negotiated, at some point, there are some provisions inserted into that law that waived these limits on losses. When you talk to people, it’s not exactly clear whose idea that was; was it someone in the White House who said, “Hey, let’s put the thing in the bill that no one’s paying attention to that will remove these limits on losses?” It’s unclear exactly.

Yeah.

But it does appear to be something that could help someone like Donald Trump, who wants to use his losses to offset his other income, so that he can tell the IRS that he doesn’t have any income, and he shouldn’t pay taxes.

I mean, we don’t have to choose between the problem being Trump, or the problem being the system he exploits; we could go for both of those, you know.

Yeah, I think both.

Let me just ask you, concretely, are there loopholes that we—“we” being Congress—could close right now, could close tomorrow?

Yeah. I mean, there’s a lot.

It’s not like everything’s so murky, and we don’t really know where people are causing problems. There are things that folks could see that could be changed.

Yeah, yeah. So I can give you an example, right. In 1995, Trump reported a loss of over $900 million. Afterwards, he was able to use that for many years to offset any income that he had from other sources, and he could tell the IRS he had no income and avoid paying taxes. So Trump, in 1995, reported this more than $900 million of losses. It’s very unlikely that Trump actually invested $900 million of his own income, right?

He had losses on investments that he made with other people’s money. And there’s a general rule in the tax code that you’re not going to be able to deduct the losses unless you actually put your own money into an investment. But there’s a special exception for that when it’s real estate, and Trump was able to exploit that. And that’s the sort of thing where you look at that and say, “Well, why should we provide a special break for these big real estate investors, like the Trumps and the Kushners?” That’s effectively providing a subsidy through the tax code for someone, and of all the things we could subsidize, why would we subsidize that? It doesn’t make any sense.

Right.

And that’s an example of something that we could repeal.

Let me bring you back to something you touched on earlier, in terms of systemic issues. You know, Willie Sutton said he robbed banks “because that’s where the money is.” And I understand that the top 1% are responsible for the vast majority of unpaid taxes. But the IRS audits the super-rich less than they do working class or low-income people because, and I’ll just paraphrase their position, “It’s really hard, you guys!”

If we don’t allow enforcement, if we don’t fund enforcement, then all this talk about rules is almost just deflection.

Exactly. There’s two parts of this: You have to have rules that work. And then you have to enforce the rules. And this is just really, it’s mind-boggling, frankly, that Republicans in Congress have decided that, as part of their, I guess what you’d call “antigovernment ethos”…

Right.

…they decided to cut funding for the IRS. Now, you can argue a lot about cutting different types of government spending, but cutting the IRS is particularly bizarre, because it means you get much less revenue to pay for the rest of the government, right? So the Congressional Budget Office recently put out a report about this, saying that if we just spent another $40 billion on IRS tax enforcement, that would actually end up raising another $103 billion that we would get by increasing our enforcement. So by not doing it, it’s like Congress is walking away from more than $60 billion by not providing that funding, right? And that was an example that the Congressional Budget Office gave.

And their report goes into the fact that, from 2010 through 2018, Congress cut the IRS budget 20%, basically, and that resulted in a staff reduction of 22%. And that resulted in a reduction of the tax enforcement staff by 30%. I mean, why would you cut the people who are collecting the revenue? It doesn’t make any sense. We’re not saving money by cutting the IRS, we’re losing a lot of money, but that’s what’s happening.

And over the years, one thing that’s happened is the rate of audits has fallen for people at all income groups, but it’s fallen more rapidly for the high-income folks. It just doesn’t make sense. Like you said, if you’re going to go where the money is, you would look at the wealthiest people, but that’s not what we’re doing, because the wealthiest people are, in fact, they are complicated; when you’re someone like Donald Trump, you can do so many complicated schemes that you can use to avoid taxes; it does require having very capable IRS enforcement staff on hand to be able to do that stuff.

But instead, what we see is a shift in IRS enforcement to do what’s easier. What’s easier? Well, that’s going after the low-income people who claim the earned income tax credit. And the earned income tax credit has so many complicated rules around it that a lot of people just accidentally make a mistake, and they can get caught up by the IRS on that. And that’s what the IRS seems to be shifting towards, focusing on that.

It seems completely unfair, completely nonsensical; these IRS budgets, they’re not saving us money, they’re losing money, right? So none of it makes any sense.

But one of the real-world consequences of that is, someone like Donald Trump is probably getting by with things that he should not get by with. And we know for a fact that, for example, there’s this dispute over this enormous tax refund of more than $70 million that the IRS is still looking at, and has been since 2011. Why that is taking so long, who knows, but it could very well have something to do with the fact that the IRS is just deeply underfunded right now and understaffed.

And you have to look at—while you look at what they don’t do—you have to look at what does happen, because it’s not just that, yeah, “shrinking the government” means, of course, shrinking its ability to collect taxes, but also, billionaires aren’t just exploiting these loopholes; they have the political power to also create them. So it’s not just laxity.

Right. And Donald Trump is not a passive bystander when these tax rules are created. We have recordings of him testifying before Congress, defending tax shelters, and saying that you should put tax shelters back in the tax code. Donald Trump was all about that back in the ’90s. And he and the rest of the real estate industry were successful in getting Congress to put some tax shelters back into the tax code. So you can’t say that Donald Trump is just doing whatever the law allows; Donald Trump was part of why this is in the law.

Right. Reporters are following up on the question of who owns Trump’s debt, this $420 million in personal liability debt, and that is important to know, to put it mildly. But it just reminds me of the vastly different role that debt plays in different lives. In Donald Trump’s case, as we’ve been saying, it didn’t seem to prevent him from virtually anything, whereas we know that lives are derailed, and people are politically cowed, frankly, are silenced, because they have debt, and debt is presented as a moral failing that should prevent you from moving forward in life. And I guess I just really want to say, what we think of as fiscal policy is so much more than fiscal policy, both for the country and also for individuals; it has myriad implications for people’s lives.

Yeah, it’s sort of like there are two sets of rules, one for really wealthy people like Donald Trump, and one for the rest of us. And that comes to the tax rules, but I guess it also includes the way we think about debt in almost moral terms; there is sort of a different set of rules for someone like Donald Trump.

He’s being clever, but you didn’t pay off your student loan, so how should you expect to advance in life? It’s very frustrating.

And I guess, finally, it takes me back to the stories we tell about it, and that has a lot to do with media, with media and taxes. There’s a personal side around April 15, like it gets kind of personal and individual, and then the rest of the time, tax cuts and other things are political stories, or Beltway stories, and the connection, the direct connection to folks’ lives, becomes less visible.

And I just wonder, finally, on this story, which is a huge story, and it’s just getting started, that’s just the first installment of the Times reporting, but are there things you would be hoping that media would do, or not do, to kind of make this story and these questions legible for people, so that we can be more prepared to push for change?

I do want to say, the New York Times has done a great job with this. And it’s actually incredible.

Long-awaited, and Trump didn’t want it to happen; we know that.

Right. I think this is a story that we can tell a lot about the Trump administration. We do have some norms and traditions in this country, and we don’t want to just allow Trump to just destroy those, right? And we do have this norm now of presidents releasing their tax returns and presidential candidates releasing their tax returns. And I think we should continue to expect that. I don’t think Trump’s refusal to release a tax return should be considered the new norm. I think that that kind of transparency is really important.

And I think that people will demand it, too. I mean, given what we’ve learned, like we’ve had, after decades and decades of presidents and presidential candidates releasing their tax return, one guy refused to do so, and it became very apparent why he refused to do so, as soon as these revelations came out. So my hope is that we’ll kind of get back to that norm immediately after he’s gone. And we’ll stick with it.

We’ve been speaking with Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy, you can find their work online itep.org. Steve Wamhoff, thank you so much for joining us this week on CounterSpin.

Thank you.