Trump went even further than other uber-rich to shrink taxes
WASHINGTON » The taxavoidance strategies that President Donald Trump capitalized on to shrink his tax bill to essentially zero are surprisingly common among major real estate developers and other uberwealthy Americans.
Yet Trump characteristically pushed those strategies to the limit — perhaps to the breaking point.
So say tax experts in the wake of a New York Times report Sunday that found that Trump paid only $750 in taxes in both 2016 and 2017 — and none at all in 11 of the 18 years that the newspaper examined.
“The things that Trump did are typical of wealthy businesspeople and particularly wealthy real estate developers,’’ said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy.
Still, Wamhoff noted, Trump claims “the special breaks and loopholes that are available in the tax code and sometimes just takes them to a whole new level.”
Seth Hanlon, a senior fellow and tax analyst at the left-leaning Center for American Progress, suggested that given all the tax breaks available to him, it wasn’t surprising that Trump paid so little in taxes.
But, Hanlon added, “it’s still pretty shocking to see it.’’
U.S. tax lawhas long been kindto big real estate developers. It allows themmyriad legal loopholes and breaks that can significantly shrink their tax bills. The law became even more beneficial to them after Trump’s Republican allies in Congress pushed through his $1.5 trillion tax overhaul, which took effect in 2018.
The Times reviewed Trump’s tax returns for 2000 through 2017, so its report didn’t capture the impact of the 2018 law. But Martin Sullivan, chief economist at Tax Analysts, said, “It is much easier now for a real estate developer to avoid taxes than it was five years ago.’’
Even before the 2018 law, developers could claim losses more quickly and easily than other businesses. They can also more easily delay or avoid reporting profits to the Internal Revenue Service. Even if they fall behind on their debts, they face fewer tax penalties than other investors do as long as their creditors forgive their debts.
Trump took full advantage of those tax breaks after failing to handle debts on his failing Atlantic City casinos in the 1990s and early 2000s. Even so, experts say it’s unclear whether all his actions were permissible.
“There are a lot of things that Trump has done that may exceed what is allowed by the law,” Wamhoff said.
Wamhoff noted that the IRS has raised questions about some of Trump’s claims — in particular, a whopping $72.9 million federal tax refund that he sought and received, as well as “business deductions for expenses that really look like personal expenses.’’
The Times reported, for example, that Trump has claimed a 200- acre family retreat in Bedford, New York, as an investment, thereby allowing him to write off property taxes. And he has used what the Times called “unexplained’’ consulting payments to shrinkhis business taxes. Trump even claimed $70,000 in hair styling expenses during his TV show “The Apprentice.’’
At the same time, said Sullivan at Tax Analysts, defining legitimate business expenses is a “murky’’ issue.
Hair styling is a clearly a personal matter for an everyday office worker. But for a television personality, it would be a legitimate business expense.
Experts note that such outsize tax advantages for the most privileged businesspeople have served to widen the nation’s economic inequality. Economists Emmanuel Saez and Gabriel Zucman at the University of California, Berkeley, found that in 2018 billionaires faced a small burden than did theworking class for the first time in 100 years: The richest 400Americans paid an overall tax rate of 23%, including federal, state and local taxes, compared with 24.2% for the bottom50%— and comparedwithtrump’s effective 0% federal income tax.
Wealthy families typically try to transfer some of their assets during their lifetime to ease the tax burden on their heirs, something they can do legally in a variety of ways. As assets go, real estate is one of themost flexible options.
That said, there’s a fine line between tax avoidance and abuse.