Econ-man or Con-Man? (Aug. 12)

Mike & Co. —
Today, HRC and Sen. Tim Kaine released new tax returns, HRC to supplement her previous release of 30 years of returns and Kaine to reveal his tax practices over the past decade.  As you know, Trump continues to refuse to release any of his tax returns from the past 40 years, citing an IRS audit as the hold-up.

Trump has exhibited a variety of negative personal characteristics throughout his campaign, but one less considered is kleptomania, with a Trumpian interpretation.  A close look at his past behavior and current policies demonstrates a recurring pattern and inclination to horde his income from the government and to develop new policies to protect and extend this practice. Trump is in some ways a reverse Robin Hood – stealing from the low and middle classes and giving to the very rich.

The below is an examination of Trump’s “kleptocrat” tendencies, focusing on his refusal to pay taxes, his pro-rich proposals and his plagiarism in policy development.

Best,
Dana

———-

Failure to Pay Taxes?

A plethora of real estate and tax professionals have stated the possibility that Trump has paid very little, or perhaps nothing, in income tax over the years. According to Len Green, chairman of a tax advisory firm, it is “both possible and legal that Donald Trump would pay little or no income tax.”

This situation is made possible by the numerous tax breaks available to reduce reported income to zero, or even report a loss.  The real estate sector is a prime arena for reducing tax liability, due to tax deductions as well as the generous leeway in timing and recognition of income on real estate developments.

Trump himself has stressed that corporate executives “get away with murder” in their tax filings.  He has also said he pays as little as the law allows, though maintaining his payments are still “substantial.”

Though the evidence is mounting, the accusations regarding Trump’s limited income tax payments remain speculations and nothing can be proved until Trump’s recent tax returns are released to the public.  Unfortunately, it appears that Trump will continue to hoard those for the foreseeable future.

A few of Trump’s tax returns from the 1970s are available to the public, and show that Trump paid no federal income tax in 1978 and 1979, due to reported losses.  From 1975 to 1977, Trump paid less than $75,000 total in federal income tax.

An Unmentioned Loophole

One loophole in particular, pertaining to depreciation, provides real estate enormous benefits in terms of taxation.  Depreciation as a concept holds that, over time, physical capital loses value and is eventually worthless, and real estate is often cited as an asset facing depreciation.  Historically, most real estate has in fact appreciated in value.

Under the tax code, estimates of depreciation on real estate (whether accurate or not) are permitted some tax deductions.  Depreciation is usually later recaptured and taxed when an asset is sold.  But if a real estate developer sells an appreciated property at a large profit, and uses said profits to buy another property, the transaction is deemed a “like-kind” exchange, which is free from taxation.

This enormous loophole is estimated to cost $33 billion in lost tax revenue each year.  According to Steven Rosenthal of the Urban-Brookings Tax Policy Center, this loophole allows “well-to-do and well-advised taxpayers to defer their tax liability potentially until death.”  If Trump truly wanted the wealthy to stop getting away with murder in manipulating the tax code, he would include eliminating this loophole in his plan.

Democratic Openness on Tax Returns

While Trump continues to refuse to release his tax returns, HRC and running mate Sen. Tim Kaine both released new tax returns today.  HRC has already released her returns from each year dating back to 1997.  This release made her 2015 tax returns available to the public.

Kaine also presented his first release, which included the returns of the Senator and his wife over the past ten years.  Both HRC and Kaine’s returns detail information on the two candidates’ income, charitable giving, and yearly tax rates.

Friends and Family Plan, with a Trump Loophole

Trump’s actual policies suggest an intent to continue taking advantage of the tax code and avoid a tax burden.  Trump’s tax plan, though limited details are available, clearly appears to be a tax relief boon for the wealthy.  Despite his claims that his “across-the-board income tax reduction” would favor middle-class families, his actual proposals are by and large a “family and friends plan” for the rich.

At the heart of Trump’s tax agenda is the so-called “Trump Loophole,” a part of Trump’s proposal to reduce the top marginal corporate tax rate from 35 percent to 15 percent.  While this sharp reduction is already problematic, more concerning is this proposal’s applicability for pass-through entities.  These organizations are currently taxed on the business owner’s tax returns through the individual income tax code.  However, under Trump’s plan, pass-through income would be treated instead as “business income,” receiving the 15 percent top corporate rate rather than Trump’s suggested top individual rate of 33 percent.  This “Trump Loophole” for pass-throughs presents an opportunity for the wealthy to report all of their income as “business income,” thus avoiding the individual rates faced by average Americans earning traditional wages and salaries.

The share of business income that goes through pass-through organizations has dramatically increased over the past 30 years, from 25 percent of net business income in 1980 to more than 50 percent in 2012.  Thus, a majority of business income in recent years has been exempt from the corporate income tax, and instead subject to individual rates.  While Trump’s plan would return this income to the corporate side of the tax code, a significant amount of business income would face a drastically lower rate.

Trump’s numerous organizations are among those that stand to benefit from the proposal.  Trump himself has stated that though he has raised some numbers for the wealthy, “a lot of the rich are benefitting because of the reduced taxes for businesses.”

The Trump Loophole also makes his proposal to eliminate the carried interest deduction irrelevant.  Though the wealthy would no longer be able to avoid taxation on carried interest, the low rate of 15 percent on their business income would result in a lower tax burden overall.

It also bears mentioning that Trump aims to eliminate the estate tax, which affects only 0.2 percent of Americans.  As all estates under $5.45 million for individuals and $10.9 million for couples are exempt from the tax, only the wealthiest of Americans, again Trump’s family and friends, would benefit form this proposal.

Stealing from Existing Plans

But Trump’s “kleptomania” isn’t limited to hoarding taxes.  The candidate is also extensively borrowing from others’ plans in developing his own “original” proposals.  In his overhaul of his first tax plan, Trump has leaned heavily on the plan devised by Speaker Paul Ryan on tax reform.  Trump changed his individual income brackets to match the 12, 25, and 33 percent levels supported by Ryan. The candidate also included a proposal to allow businesses to immediately deduct the cost of their investments, a key feature of the Ryan plan.  In revising his tax plan, it is unclear whether Trump bowed to internal Republican pressure (perhaps an indication of his poor negotiating skills), or merely stole Ryan’s ideas for his own benefit.

More surprising is Trump’s blatant copying of HRC’s infrastructure agenda. HRC released a detailed plan on infrastructure in November of 2015, featuring a direct public spending, renewed and revitalized Build American Bonds, and an infrastructure bank, with the combined potential to generate $500 billion in infrastructure spending over the next five years.  Trump, when pressed for details on his own infrastructure agenda, suggested spending half a trillion, thus equalizing HRC’s proposed investment.  He also proposed developing a fund to pay for the investment, utilizing bonds with a low rate of return.  Trump’s plan appears to be a poorly copied version of HRC’s agenda, further evidence of his kleptomania of ideas.

Both of these instances are additional evidence of Trump’s inability of Trump to identify and develop unique solutions to our country’s problems.  For someone who claims to have endless innovative ideas to “make America great again,” and to be the “only one” able to “fix it,” he seems to be quite over-reliant on his shaky GOP alliances and his Democratic opponent.

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