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Trump and Taxes

The current focus on the improperly released, decades old, partial tax return of Donald Trump illustrates some common misperceptions many have as to how and why we impose taxes in the United States.   

The documents released showed the deep financial troubles that Mr. Trump experienced in the 1990s resulting in a $916 million loss on one year's tax return.  Many speculated that this loss could have offset future income for years, allowing him to legally avoid paying future federal income taxes.  The emerging consensus is that yet Trump taxesanother wealthy guy got away with not paying his "fair share".  Still, a chorus of Trump defenders is touting Trump's brilliance for his use of the tax code.  

Rather than applauding while implying he gamed the system, we should be asking:  "What is the appropriate amount of tax that the government should charge when an individual has no or negative income?" 

Trump defenders are not doing Trump or conservatism any favors by portraying him as being a genius that brilliantly exploited tax loopholes that he will quickly fix when he occupies the oval office.  Of course I have not viewed the full Trump return, but not paying taxes when one has a net loss of income is not taking advantage of a loophole.  We should all hope that a President Trump would not "fix the tax code" by supporting taxation without (income) generation. 

The discussion of the Trump return has provided yet another opportunity for the left to promote the often repeated lie that "the wealthy do not pay their fair share of taxes".  But any discussion of taxes paid by the rich or the poor overlooks the simple fact that other than the estate tax paid at death, individuals in this country are not taxed based on wealth.  We tax based on income.  An individual with an eight digit net worth could have a tax return much the same as an individual with a negative net worth. 

When Hillary Clinton challenged Trump's non-release of his returns in their first debate, she noted that perhaps he was holding these back because they would show that he was not as wealthy as he says he is. While I believe Trump has himself in a pickle (release or non-release are likely both problematic) he should have responded something like this: 

"Obviously you do not understand our tax system if you believe you could determine my wealth from looking at a tax return.  In this country we tax income not wealth.  There is no "Schedule N--Net Worth" on an IRS return."    

The oversized condemnation of Trump for apparent avoidance of taxes is solely a matter of perception of Trump's wealth.  It seems somehow wrong that a rich guy would not have to pay a tax bill each and every year.  But if we were talking about a home builder that sold two homes last year for a total of $600,000 only to discover that it cost him $700,000 to build them, we would not expect him to "pay his fair share". 

But it is also based on a misunderstanding of what a "loss" on a tax return represents.  The perception is that Trump pulled a fast one on the government, and thereby all of us, because he did not give them any revenue.  But that is not correct.  Again, I have not studied the Trump tax return, but losses represent funds going somewhere.  To go back to the above example of the home builder, while he may not have paid income tax for that year, he bought lumber and nails generating sales tax and income tax from the supplier. At sale of the homes, a realtor, title company, escrow officer, lender and various inspectors all took fees and paid taxes on these.  The previously vacant land will now be reassessed based on the increased value of the homes, generating an increase in property taxes at the local level.  The home builder may well have employees, for which he paid taxes as their employer.   

If the home builder's expected income went to others, then the others are the ones that should pay the tax. In any case, we can say that the home builder's loss is still the government's gain. 

Similarly, a large loss by Mr. Trump means a benefit to others that no doubt generated considerable taxes. And it should be obvious (even without his personal returns) that Trump is the original source of much pubic revenue.  Each Trump property pays significant property taxes.  I would venture that the Trump Tower in New York probably pays more in property taxes than is paid in all types of taxes by most individuals or corporations.   Property taxes are public records that could be reported on if one desired.  And one could guess with some level of accuracy the payroll taxes paid by employees that work directly or indirectly for Trump. 

Finally, business income and taxes should not be viewed in one year blocks.  It is amusing to hear his critics suggest that Trump may not be a very good businessman if he lost a significant amount in one year.  But it is a very small list of businesspeople that would not trade their complete record of wins and losses for the Trump record.

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