Derek Thompson: Three interpretations of Trump’s tax records
Trump tweeted, in response to the Times story, that he has “paid many millions of dollars in taxes but was entitled, like everyone else, to depreciation [and] tax credits.” He is right that the issue is not so much what he did as what he was allowed to do. The tax code has long been too easy to game, too complicated, too baroque, and too lightly enforced, allowing individuals like Trump to get away with paying far less than their fair share.
Hiding or sheltering income from taxation is a big problem for the American government. The Internal Revenue Service estimates that taxpayers illegally evade roughly 16 percent of overall taxes, accounting for about half a trillion dollars a year in lost revenue for Uncle Sam. (That missing revenue would have covered most of the country’s budget deficit in recent years.) Tax avoidance, using legal strategies to reduce a company or household’s tax liability, costs the country something like $200 billion a year more. These gaps amplify the country’s deficit and shift the burden of taxation away from rich households and rich businesses onto middle-class families and smaller firms.
Eliminating such gaps means simplifying the tax code: getting rid of deductions, credits, loopholes, and other provisions that allow big businesses and rich families to hide their income from taxation or to pass it on to their heirs tax-free. Trump, for instance, slashed his taxable income by $26 million by “treating a family member as a consultant, and then deducting the fee as a cost of doing business,” the Times report found, and he wrote off tens of thousands of dollars of spending on hairstyling. Getting rid of this kind of Swiss cheese is an easy way to raise more money while also making the tax code fairer.
Trump’s returns demonstrate how complexity in the tax code is regressive: something for rich people to research and exploit, and for poor people to be unaware of and miss out on. One in five people eligible for the lucrative earned income tax credit, for instance, does not receive it. “Credit eligibility depends on marital status at the end of the year, earnings, income, and citizenship status. There are additional tests of relationship and residency for people with children. Eligibility can vary from year to year,” the Tax Policy Center explains. People like Trump take advantage of this kind of complexity. Single parents juggling multiple jobs, teenagers just entering the workforce, the elderly and disabled, do not. Making the code simpler would benefit all Americans in this way too.
David A. Graham: Trump has nothing else up his sleeve
Trump’s tax returns also make a strong case for levies on wealth. Possibly legal tax maneuvering zeroed out much or all of Trump’s income, year after year. But he still benefited from owning a valuable real-estate and branding empire, allowing him to throw lavish parties, use private jets, and maintain multiple homes. Wealth taxes would ensure that rich Americans with low paper earnings, like Trump, pay their fair share while also reducing the incentive to shelter or hide earnings in the first place. A wealth tax might be a straightforward levy on an individual’s net worth, as suggested by Emmanuel Saez and Gabriel Zucman of UC Berkeley. It could also come in the form of financial transaction taxes, stronger taxes on real-estate trades, or hefty inheritance taxes, which might be easier to administer.