In case the news cycle hasn’t been whiplash-y enough for you, The New York Times dropped an explosive exposé on President Donald Trump’s taxes during your sacred Sunday-night-couch routine. Allegedly, the commander-in-chief didn’t pay federal income taxes for over ten (10!) years. And when he did pay in 2016—the year he won the presidency—he only coughed up $750. And again in 2017, his first year in office, only $750. Through the stunning report, we also learned that Trump wrote off certain lavish lifestyle habits as business expenses, including $70,000 for hairstyling during his time on The Apprentice. Yeah, not great.
The scandal around Trump’s taxes, which involves a lengthy audit battle with the IRS over the legitimacy of a $72.9 million tax refund, has been unfolding for years. Trump frequently argues that he cannot release his tax returns to the public because they are currently being audited—a point that his own I.R.S commissioner has dismissed as untrue. Predictably, Trump already called the Times report “fake news.”
If you spent the morning scanning the #TrumpIsBroke hashtag and thinking to yourself, hm, none of this is actually all that…surprising? hang on. We’re here to break down what the news means, how it could impact the upcoming presidential election, and why you should care—with help from financial expert David Rae, the president of DRM Wealth Management in Los Angeles.
Okay, first up: What are the biggest takeaways from the NYT report?
David Rae: We’ve known since before the 2016 election that Trump has managed not to pay federal income taxes in some years. What is shocking to me is that he has been able to not pay income taxes in 11 of the 18 years reported on here. [Editor’s note: That’s a lotta years!] We’re able to see how far Trump (and his advisors) were willing to push the tax code in order to avoid paying taxes on a substantial amount of business revenue and income.
How much does the average American pay in taxes?
DR: To compare apples to apples, the typical billionaire is paying tens of millions of dollars in taxes each and every year. In some cases, hundreds of millions of dollars. A single person making $100,000 would find they end up in the 24% tax bracket. Even with tax planning and various tax deductions, they would be stuck with a tax bill much larger than $750 per year that Trump paid.
On the lower end, the lowest federal income tax bracket is 10%, so if someone had a taxable income of just $7,500 per year—which would put them well below the poverty line—they would be paying the same amount of federal income taxes that Trump paid in 2016 and 2017.
So, uh, is this legal? Is he going to go to jail for tax evasion or fraud?
DR: There have been allegations of Trump committing tax fraud throughout his decades in the public eye. We don’t know from the information in the Times report if he necessarily committed fraud, but we *can* see that he is pushing the boundaries of tax planning. We’re getting a glimpse into why he hasn’t wanted to release his tax returns, and why he is so concerned about the never-ending tax audit. It appears Trump has taken large amounts of tax deductions that he’s not entitled to, which have helped him not pay hundreds of millions of dollars in taxes over the years.
Tax planning is legal—or as Trump says, it “makes him smart.” The tax code in the U.S. has many loopholes for those with enough money to pay tax experts, like me, to figure out how to pay the least amount of taxes possible. You and I would not be able to deduct $70,000 in haircuts, but when you make your taxes complicated enough—and have access to the best tax advisors—you might be able to get away with it. There are some generous tax breaks available to real estate developers that are ripe to be abused and Trump has a way of pushing those boundaries farther than anyone else.
I always get asked if “normal people” can do tax planning at this level, but the reality is that Trump probably spends more money on tax advisors and tax attorneys than the average American makes in a year.
Cool, cool, cool. In summary: yikes. So then the big question is…does any of this even really matter?
Yes and no. The leader of the free world being a spectacular liar is important, but unfortunately, it’s not all that new for his character. This is far from the first time Trump has faced legal controversy during his presidency. Even with an impeachment hearing under his belt and accusations of possible collusion with Russia, it appears that the GOP is standing firmly with his administration.
But to voters, yes, this should be a matter of interest, as Trump often positions himself as a man of the people (which, as a self-reported billionaire, made no sense to begin with). Regardless, it goes to show that the President thinks himself above the law and that in itself is a huge problem given that he, well, decides the law.
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