Democrats release Trump tax returns and CPA weigh in: ‘To generate these kinds of losses, you need to be super rich. It’s not a poor man’s game.’
The findings of the nonpartisan committee also raise some red flags regarding recordsspecifically Trump’s transfer losses, loans to his children that may or may not be considered taxable gifts, and write-offs related to tax deductions.
That year, when the COVID pandemic hit, Trumps report losses worth $4.8 million. In 2018 and 2019, the then president’s reported income increased, and they paid about $1.1 million in federal taxes each year.
The Internal Revenue Service only began examining Trump’s 2015 tax returns on April 3, 2019, more than two years into his presidency, which some commentators say is a sign of resources. stress at the IRS.
“Like every other American, the President of the United States is obligated to pay taxes owed,” an internal IRS memo from earlier this month said. “This is the core responsibility of our common citizenship: without tax revenue, our government would cease to exist.”
In a statement released by the Trump campaign on Friday, the former president said his return shows “how proudly I have succeeded.”
Experts say the US tax code cuts both ways. “The government intentionally makes laws that have two goals,” said Charles Renwick, a CPA and author of an upcoming book.All Taxes of the President.” “One is to raise money and the other is to encourage behaviour. Real estate investment is clearly incentivized by the tax code.”
Renwick notes that people who lose money and therefore have no income will not pay taxes. “There is another scenario [Trump] lose money on paper but make money on the underlying economy. If that is the case, then it is the result of the incentives in the tax code and not necessarily the result of any mismatch. Chances are he did the right thing,” he said.
“Trump is engaging in an activity that is very, very encouraged by our current tax code,” Trump said.
One disclosure included Trump’s offshore bank accounts in Ireland, the UK, China and Saint Martin. Renwick told MarketWatch: “We already know he owns big buildings with Chinese partners (555 California Street in San Francisco).
“Disclosures like these are black and white,” he said. “Remember, his former campaign chairman, Paul Manafort found guilty of tax fraud for not disclosing offshore bank accounts, and this is clearly an important disclosure from the standpoint of providing transparency.”
Jonathan Medows, managing member of Medows CPA PLLC, based in New York, agrees that — based on what has been revealed about Trump’s 2020 income taxes — the former president’s tax returns highlight the How Americans can use the tax code to reduce their tax burden.
Business owners and investors can expedite certain deductions, he said. “Usually, it’s in the real estate sector,” he said. “You can lose a lot of money on paper and pay back your investors and still have cash flow. Bottom line: To make these kinds of losses, you need to be super rich. It’s not a poor man’s game.”
Inequality in the US tax system
How progressive is the tax system? Medows said the US middle class ultimately bears the burden of taxes, while the wealthy have more ways to minimize what they owe the IRS.
He took the example of the 6.2% Social Security tax. The maximum amount of income subject to Social Security tax (the taxable maximum) will increased to $160,200 from $147,000 in January. Those who earn more than that maximum will pay the same as those who earn $160,200.
“If you are self-employed, if you are a middle class person, you are paying this tax [on all your earnings], but if you’re super rich and make $3 million, you’re only paying that for the first $160,200 of your earnings,” Meadows told MarketWatch. “You have the people who make the most money who don’t pay it. You have middle-class people paying for it. It’s a hidden tax,” he said.
“I don’t know how progressive the US tax system is,” he concluded.
What about Donald Trump? Gary Burtless, a senior fellow at the central Brookings Institution, told MarketWatch: “For all I know, he may have simply been a very unsuccessful businessman, the real losses were already there. reduced his net worth over the past few decades.
However, Burtless, who doesn’t claim to be a Trump tax expert, actually sees inequality in the US tax system. “If we define ‘very rich’ as Americans with extremely high pre-tax incomes in the current tax year, then I agree with most of my compatriots in thinking that it is a shame that people ‘very rich’ pays $0 in current income taxes. Our theory of a progressive income tax system is that each U.S. resident’s tax liability should show an increase in their pretax income as their pretax income increases,” he said. .
“On the other hand,” he continued, “if we define ‘very rich’ as Americans with extremely high net worth, it is easy for me to imagine that some of these ‘very rich’ will not owe income tax at all. in a given year — for example, in a year where their pre-tax income for the current tax year is very low or negative.”
Property tax vs. income tax
Consider farmers who own $2 million or more farms, says Burtless. “If they reap a bad crop, their total income can be very low or even negative, despite the fact that they are still very rich by definition of ‘net worth’. Our progressive income tax is not a property tax; it’s income tax.”
Keep in mind, he adds, that some states and many localities levy property taxes on land, real estate renovation, and certain types of property. In that case, wealthy farmers may still be subject to sizable estate taxes, even in years when their federal income tax liability is very low or zero.
Burtless added: “In my view, if voters want to tax the high net worth, they should consider establishing a comprehensive wealth tax. “Progressive income taxes are not the most sensible way to achieve that goal.”
This year, some 72.5 million US households, or 40%, will pay no federal income tax, down from the pandemic peak of 100 million households, or 60%, two years ago, according to estimates from the Tax Policy Center. By 2021, nearly 56% of households, or 99 million households, will pay no federal income tax, the nonpartisan think tank said in a report released earlier this year.
“I don’t want to be inferior to anyone,” Medows said. “I would rather pay taxes. My wife works in a public hospital. My father, bless his memory, was a public defender. He has health insurance. Unless you work for a large company, many middle-class people cannot afford health insurance. This system is designed to fight the middle class.”
As for presidential tax returns, Renwick said full transparency should also require former presidents to release their tax returns after they leave office to show what foreign business transactions they conduct. may be affected by their policies and other transactions while in power. .
“Can we see all his information returns, such as his partnership and trust profits?” Renwick added. “All of these are valuable sources of potential conflicts of interest. If the goal is to increase transparency, if the goal is to identify conflicts of interest, if the goal is to see they are paying their fair share, if the goal is to see if they have foreign business agents or not — there should be more information out.”
“Individual tax returns are just the tip of the iceberg,” he said.