During the the presidential debate in September 2016, Hillary Clinton stated that the only time he went public with his taxes, it showed that Donald Trump paid no federal taxes. Trump interrupted Clinton while she was making her point. He said that it makes him smart. This created talking points with Democrats and the media that Donald Trump does not pay taxes.
Congress makes federal tax rules. They made the rules on how your income are taxed, exempt from tax, or taxed at a fraction of income. They made the rules on what expenses are tax deductible. Why is it not smart for Donald Trump to pay zero federal taxes, or as little tax as possible?
Non Taxable Income and Deductible Expenses
Income that in many cases are not taxable are scholarships, court judgments and gifts. Who would report these as income and pay full taxes on them, if allowed? When you give to charity, own a home or have medical expenses, these are deductible expenses. It would be foolish to not claim them on your tax returns. Therefore, Donald Trump would also be foolish not to claim income that are tax exempt, or not to claim deductible expenses.
If they follow the law and the rich pays less or no taxes, it is Congress to blame, not the rich. They made the rules. But, it is not true. While in general, the rich pays lower taxes as a percentage individual of income, the top 10% pays 50%, and the top 1% pays 23% of all federal taxes.
Capital Gains vs Salary
However, because of income classification, the rich does pay less, as a percentage of their individual income, because in general, the income of the rich is capital gains, as opposed to salary. Salary and capital gains have different rates. (Capital gains income are returns on investment.) The top tax rate for salaries is 40% and the top tax rate for capital gains is 20%.
You can argue that capital gains taxes should be raised. President Obama did. He campaigned on raising taxes on the rich, and raised in 2012. He could not raise it by much without noticeably affecting the economy. He raised only it 5%. Taxing investment lowers investment.
Even for those who don’t own a business, most everyone has capital gains income in some form. In selling a home or car, the profit, if any, is capital gains. The gains in retirement accounts are capital gains.
President Trump’s Tax Loss
What we know Donald Trump’s taxes is, he reported a $916 million loss in 1995. IRS rules say he is allowed to deduct that much as a loss to offset future income in subsequent years. How many years it took him to offset the loss with expenses, is not clear, since Trump has not released his returns. And yes, unless he had other deductions, he would have had to pay taxes after the loss is offset.
Beyond that, what other deductions can make President Trump not to have paid taxes? Donald Trump is a developer. In order to encourage building, taxes are often deferred. That is, expenses for a project will be deferred until the time in which the building generates income. The first year or two of a project might not be subject to taxes. There are similar IRS rules for other business types.
It is of no wonder that Trump will not release his taxes. Many say he pays no taxes. Indeed, if one looks at his 1996, 1997, 1998 or other tax returns, it will probably be true. The media and the Democrats have been picking bits and pieces of facts and making it a talking point (This is not to say that the Republicans don’t do the same thing). His tax returns would then dominate the media. Policy would take a back seat.
Most likely, if he doesn’t pay taxes in a particular year, he is either offsetting losses or deferring taxes. Overall, the rich, including Donald Trump, still pays a big chunk of the overall tax burden. It is very unlikely that Donald Trump pays no federal taxes.
- Donald Trump’s Taxes: Flickr