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Donald Trump: Nothing More Than a Big Tax Cheat?

Donald Trump. Image Credit: Creative Commons.
Donald Trump.

Donald Trump Has a Tax Problem?: The public finally has former President Donald Trump’s tax returns, the release of which Trump fought against for years.

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The left thinks that this is the smoking gun that could finally get Trump criminally indicted, and the right believes that the records are a nothing burger that shows no real criminal activity, conspiracy, or intent.

Trump has claimed before that he smartly uses the tax code the way it is written and that there is nothing unlawful going on with his taxes.

So what happens now? Is Donald Trump a tax cheat or just a savvy entrepreneur using the tax code to his advantage? 

Now the Tax Records Are Public

In December, the House Ways and Means Committee made public six years of Trump’s tax returns.

All presidents in the modern era and numerous candidates for the office have made a uniform practice of releasing tax returns. Donald Trump has refused, claiming that he was under an IRS audit.

Did He Cheat or Not?

The tax return document dump showed Trump has paid little in federal taxes over the previous years. Trump, who has depended heavily on promoting himself as a savvy and successful businessman, had endured years of heavy losses numbering into the hundreds of millions of dollars. He had $105 million in losses in 2015 and $73 million in losses in 2016 that he carried forward. Critics believe he illegally and unethically inflated those reported losses to reduce his tax liability and pay little or no taxes.

Win Some, Lose Some

Trump would often declare income at one of his businesses and then claim the enterprise lost the exact same amount of dollars to yield no tax liability and no taxes paid. For example, according to CNN, his personal helicopter is owned by an entity called DJT Aerospace LLC. In 2017, Trump claimed that DJT had $42,965 in income and $42,965 in losses, which meant Trump did not have to pay taxes on these earnings.

This Is Evidence of a Bigger Problem, According to Critics

Leftwing magazine Mother Jones asked tax attorney Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, about these practices.

“Are those losses genuine? Our system taxes income, and if you have a zero or negative income for the year, you pay no taxes and that’s fine. But what happens if you have a zero or negative income because you’ve inflated your losses? Well, that’s not fine,” Rosenthal said.

The Right Says There Is Nothing to See Here

A reporter from the right-wing magazine National Review, disagreed. Columnist Ryan Ellis wrote that there was nothing there that constituted a crime – “There is no smoking gun here – nothing that will finally ‘get Trump.’” Ellis pointed out the illegality is coming from House Democrats on the Ways and Means Committee who wrongly leaked Trump’s tax returns, which Ellis said is a felony.

Devil in the Details

Let’s take a closer look at one of Trump’s tax years – 2020. Trump claimed he always made a practice of taking his presidential salary of $400,000 and giving it to charity. Trump did not pay taxes in 2020 because he had no positive income. CNBC explained it like this, “Trump’s -$4.8 million adjusted gross income in 2020 largely stemmed from $15.7 million in reported business losses that year from income sources like certain real estate, partnerships and S corporations.”

The More Losses, the Better

This appears to be Trump’s tax strategy – report income and then negate it with losses. He has negative tax liability, so he paid no taxes in 2020.

What investigators would have to determine is to what extent Donald Trump illegally inflated his losses to offset his gains and if he avoided paying taxes with this gambit.

Is Just Doesn’t Seem Fair

When billionaires avoid paying taxes, it makes ordinary Americans frustrated who do have their wages reduced by federal and state tax withholdings on their paychecks.

Trump would have to show mountains of receipts for his losses. In the helicopter example, he would have to show records that the fuel costs and wear and tear on his helicopter cost him money. However, it is unlikely that the losses would be exactly the same as the gains. It is more likely that the numbers in gains and losses would be different and not the same for the helicopter business.

In 2016, Trump paid $750 in federal income taxes. He stated $30 million in earnings but also claimed $60 million in losses. What is tricky is that these losses were carried over from tax year when the returns were not released, so it is difficult to tell where the losses came from.

But Which Part Is Legal, and Which Is Fraudulent?

That’s why it is difficult to find a mammoth fraud. The reporting looks suspicious, but it is plausible that Donald Trump could have such a large loss.

On the other hand, inflating his losses would be illegal.

Comingling Legitimate and Illegitimate Losses

Another suspicious activity was outlined as a “red flag” by Politico is that “There are multiple instances in which Trump may be improperly deducting money spent on personal activities and hobbies as business expenses.” That practice would be improper, if not illegal as well, if true.

Like many things Trump, the details become murky, and his actions fall under a gray area. You can deduct business expenses, you can write off losses, and you can give to charity for a write off. All of these tax strategies are legal under the tax code.

It is just that Donald Trump takes these gambits to extremes and when he pays little or nothing in taxes, it brings out suspicion in people who do not have fancy accountants and tax attorneys who often help the wealthy reduce their tax load.

This puts the president under a dark cloud and may bring him more legal pain to deal with as he runs again for the White House.

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Author Expertise and Experience: Serving as 19FortyFive’s Defense and National Security Editor, Dr. Brent M. Eastwood is the author of Humans, Machines, and Data: Future Trends in Warfare. He is an Emerging Threats expert and former U.S. Army Infantry officer. You can follow him on Twitter @BMEastwood. He holds a Ph.D. in Political Science and Foreign Policy/ International Relations.

Written By

Now serving as 1945s New Defense and National Security Editor, Brent M. Eastwood, PhD, is the author of Humans, Machines, and Data: Future Trends in Warfare. He is an Emerging Threats expert and former U.S. Army Infantry officer.