TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, October 3, 2016

How The Left (NY Times) And Right (WSJ) View Sunday's Trump Tax Tempest

Trump Tax Return

Following up on yesterday's post, NY Times: Trump Reported $916 Million Tax Loss In 1995, Perhaps Resulting In Zero Tax Liability For 18 Years Under NOL Rules:

New York Times, How Donald Trump Turned the Tax Code Into a Giant Tax Shelter:

Now we know: Donald J. Trump racked up losses so huge in the early 1990s that he wouldn’t have had to pay federal or New York State income tax on nearly a billion dollars in income. ...

It’s hard to imagine a starker contrast with the vast number of Americans who struggle to both pay taxes and make ends meet, or a more damning indictment of a tax code that makes that possible.

“If it wasn’t clear before, it is now: The tax code is tilted toward the rich in its statutory framework, its exceptions, and in how it is enforced and administered,” said Steven M. Rosenthal, a real estate tax specialist and senior fellow at the Urban-Brookings Tax Policy Center. “The American public,” he said, “needs to wake up and send a message that the tax code should be written to generate revenue and enforced to collect it, not to favor wealthy real estate developers and other special interests and their lobbyists.”

If Mr. Trump’s pattern of generating losses and using them to offset other income has continued, as seems likely, it’s obvious why he has not released his tax returns: not because he is being audited, or because the returns are too complicated, but because he hasn’t paid any taxes.

The latest revelations, in an article published by The New York Times, make a “compelling” case for more disclosure, said Michael Knoll, professor of law and real estate at the University of Pennsylvania Law School. “If his loss was so massive that he didn’t pay federal income tax for 15 to 20 years, that’s surprising. It’s even more surprising that someone in that situation would run for president.”

Even if Mr. Trump was correct when he asserted that he only took advantage of what the law allows, such a huge loss undermines one of his central campaign themes, which is that he is an astute and successful businessman. Given the size of the loss that Mr. Trump reported, “it’s clear he was a spectacularly disastrous businessman,” Mr. Rosenthal said.

Douglas Holtz-Eakin, an economist who served as director of the Congressional Budget Office and is now president of the American Action Forum, a conservative pro-growth advocacy group, agreed: “It’s either a unique combination of bad luck or he’s a terrible businessman or both. I don’t understand how you can lose a billion dollars and stay in business.” ...

At the broadest level, Mr. Trump’s tax avoidance undermines the entire tax system, which rests on the foundation that every citizen pays a fair share.

“Our whole system is based on voluntary compliance,” Mr. Rosenthal said. “How will people react when they see a self-proclaimed billionaire like Trump pays no tax? Why should they pay?”

Mr. Rosenthal said it reminded him of the famous quote attributed to the hotel owner Leona Helmsley: “Only the little people pay taxes.”

Wall Street Journal editorial, Progressives for Trump Tax Reform: The Media Are Shocked That Business Losses Reduce Tax Liability:

Who would have believed it? Donald Trump has driven his political opponents to embrace the cause of tax reform so the wealthy have fewer loopholes to exploit. That seems to be the inescapable logic of the media and Clinton campaign’s reaction to the weekend story that Mr. Trump may have used large income losses to reduce his tax payments. ...

The Times concludes from these losses and after consulting those it called “tax experts” that the resulting tax deduction “could have allowed him to legally avoid paying any federal income taxes for up to 18 years.” Cue the synthetic shock and outrage.

Note that word “legally.” No one, not even the Clinton campaign, is claiming Mr. Trump broke any tax laws 20 years ago. Had he done so you can bet the IRS would have noticed, since the tax agency doesn’t routinely ignore tax losses that large....

What is illegal in this story is that someone disclosed Mr. Trump’s tax returns without his permission. ... The left is committed to defeating Mr. Trump by whatever means possible, and many believe this end justifies any means, much as progressives have justified the Edward Snowden leaks despite the damage to national security. ...

Mr. Trump also invited this October surprise by refusing to release his tax returns. Had he done so last year, when we advised him to, the debate over the details would have burned itself out. The smart play in politics is transparency to give your opponents nowhere to go....

Mr. Trump hasn’t helped his cause by boasting about how “smart” he is for paying little tax. This is the vainglorious Trump who can’t stand to be criticized. He should be saying instead that the tax code is dumb. He could say he’s fortunate to have the means to hire lawyers and accountants who can maneuver through the tax maze to cut his payments. But he knows most Americans aren’t so lucky. ...

Mr. Trump has made so many campaign mistakes that it’s a miracle he’s still competitive. He owes this to the fact that a majority of Americans clearly don’t want to vote for Mrs. Clinton. But the hour is late, and if he wants to win he has to stop pursuing defensive, egotistical sideshows and focus on his plans to make America better.

https://taxprof.typepad.com/taxprof_blog/2016/10/how-the-left-ny-times-and-the-right-wsj-view-sundays-trump-tax-tempest.html

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Comments

I'm not going to vote for Trump, but I'm also not going to tolerate the all-too-predictable media demonization of him as a (R).

I run every news story through a Clinton Filter. I ask myself if this story would be covered this way if either Clinton were involved. If the answer is "no," I ignore the story. Those who lie to me to cover the vilest of wrongdoing wlll find I don't listen to them and encourage others to do likewise.

By the way, I've long suspected that the real story behind Trump's refusal to release his tax returns was income losses. He's not the kind of person who feels bad about making lots of money or of legally avoiding taxes.

Posted by: Michael W. Perry | Oct 3, 2016 6:00:16 AM

It is not clear that the disclosure was illegal, as the WSJ asserts. The returns disclosed were portions of Trump's NY and Conn state tax returns, not his federal returns. Disclosure of the latter without Trump's consent would have been illegal (although query whether the First Amendment would have trumped the anti-disclosure rules in this case). It is also odd for the WSJ to put "tax experts" in air quotes, inasmuch as one of the three experts quoted was Douglas Holtz-Eakin, a Republican who has advised several Republican Presidents on tax policy issues.

Posted by: Theodore Seto | Oct 3, 2016 6:36:58 AM

Am I missing something? All I see is a New York state return. I assume the numbers are supposed to mirror his federal return. If so, I'm curious, and maybe slightly jealous, about the "Schedule 1" shown for other income. What kind of losses would Trump have had on his federal return that would not have shown up in Schedules C or E? Is this an NOL from prior years? Inquiring minds (sic) would like to know.

Posted by: Dale Spradling | Oct 3, 2016 6:49:03 AM

That's interesting, Ted. Just to confirm:
1. It's not illegal for the tax authorities of New York or New Jersey to disclose someone's tax returns.
2. It would be illegal for the NYT to disclose someone's federal tax returns unless it is protected by the Pentagon Papers doctrine that a newspaper can publish confidential information it acquired from someone who committed the illegal theft.
Did I get it right?

Posted by: Eric Rasmusen | Oct 4, 2016 7:21:01 AM

Eric,

I won't speak for Ted, but New York State law seems pretty clear on this:

https://www.tax.ny.gov/bus/multi/dtf202_se.pdf

"Except in accordance with proper judicial order or as otherwise provided by law, it is unlawful for anyone to divulge or make known in any manner the contents or any particulars set forth or disclosed in any report or return required under the Tax Law... Any unlawful disclosure of information is punishable by a fine not exceeding $10,000, imprisonment not exceeding one year, or both."
State officers and employees making unlawful disclosures are subject to dismissal from public office for a period of five years

Posted by: MM | Oct 4, 2016 1:33:56 PM

Eric,

I won't speak for Ted, but New York State law seems pretty clear on this:

https://www.tax.ny.gov/bus/multi/dtf202_se.pdf

"Except in accordance with proper judicial order or as otherwise provided by law, it is unlawful for anyone to divulge or make known in any manner the contents or any particulars set forth or disclosed in any report or return required under the Tax Law... Any unlawful disclosure of information is punishable by a fine not exceeding $10,000, imprisonment not exceeding one year, or both."
State officers and employees making unlawful disclosures are subject to dismissal from public office for a period of five years

Posted by: MM | Oct 4, 2016 1:33:57 PM

Thank you, MM. That's pretty clear. I wonder if the New York state prosecutors will file charges? Maybe, because of that, the criminal law isn't relevant anyway. The next question--- how about civil suit by Trump himself?

Posted by: Eric Rasmusen | Oct 5, 2016 4:38:22 PM

I have no love of Trump, but the current Administration, and the last one for that matter, has a deplorable record on the 4th Amendment. But the New York State Bill of Rights includes privacy language. Unfortunatelty, you have to know whom to sue, and the NYT already made it clear it would no help help on that one.

Posted by: MM | Oct 5, 2016 7:55:54 PM

"Unfortunately, you have to know whom to sue, and the NYT already made it clear it would not help help on that one."

There's a simple answer then. Trump should sue the New York Times, and individually name the journalists and editors who published the returns, since they are the ones who made the "unlawful disclosure."

Trump supporters hate the New York Times. Heck, a lot of Clinton supporters hate the New York Times. So there's no political cost to going after them.

Posted by: privacy | Oct 8, 2016 11:08:16 AM