TaxProf Blog

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

Thursday, November 3, 2016

Donald Trump Channels John Edwards And New Gingrich, Avoids Paying Social Security, Medicare Taxes

Trump (2016-3)New York Times op-ed: Trump Probably Avoided His Medicare Taxes, Too, by Fred T. Goldberg, Jr. (Skadden) & Michael Graetz (Columbia):

In the final debate, Hillary Clinton said she would secure Social Security and Medicare by raising taxes on high-income earners, including herself and her opponent, Donald J. Trump, “assuming he can’t figure out how to get out of it.”

As we’ve learned in the past few weeks, Mr. Trump has used all kinds of extravagant maneuvers to get out of paying taxes. Without Mr. Trump’s returns, we can’t know for certain whether he figured out a way to get out of paying into Medicare and Social Security. But we have some clues.

The only public information he has offered about his finances is buried in the 2015 Financial Disclosure Form 278e that he filed when he entered the Republican primary. According to his financial disclosure, Mr. Trump owns and controls an extensive business empire.

Given that, it seems incredible that he reported only $14,222 in total salary on his 2015 financial disclosure form, all of it paid by 208 Production LLC, which made his reality show “The Apprentice.” He claims that the other part of the form, which asks about “Sources of Compensation Exceeding $5,000 in a Year,” is “not applicable.”

That means that he was paid no salary by the more than 200 corporations that he owns and runs — corporations that own or manage businesses having more than a billion dollars in value and hundreds of millions of dollars in income.

By declaring such a low salary, Mr. Trump, we believe, avoided paying millions of dollars of Medicare taxes that should have gone to support senior citizens and their families. He may even have shortchanged Social Security by declaring salary and self-employment income below the limit on Social Security taxes ($118,500 in 2015). ...

Mr. Trump would hardly be the only wealthy American who used tax schemes to avoid contributing to Medicare and Social Security. The Treasury has estimated that these loopholes cost about $25 billion a year. Such schemes tripped up the presidential candidates John Edwards in 2004 and Newt Gingrich in 2012. It is now called the Gingrich-Edwards Loophole in their dubious honor.

We can’t know for certain what Mr. Trump paid or did not pay without looking at his 1040, starting with Page 1 (showing his wages), Schedule SE (showing his self-employment income), Form 8959 (showing his additional 0.9 percent tax on salary and self-employment income above $250,000) and Form 8960 (showing his Medicare net investment income tax).

We don’t have his returns, so we don’t know what Mr. Trump paid. But absent any evidence to the contrary, the inescapable conclusion is that Mr. Trump has failed to pay millions of dollars in Medicare taxes.

TaxVox: Did Donald Trump Take Advantage of the Gingrich-Edwards Payroll Tax Loophole?, by Steven M. Rosenthal:

New information surfaced today that suggests that Donald Trump may not only have used aggressive tax planning to reduce his income tax bill to zero, he may also have avoided paying any Social Security and Medicare payroll tax on a substantial amount of his income. If so, he’d be at least the third well-known politician to rely on a gimmick to avoid payroll taxes on consulting income.

https://taxprof.typepad.com/taxprof_blog/2016/11/donald-trump-channels-john-edwards-and-new-gingrich-avoids-paying-social-security-medicare-taxes.html

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Comments

I blame the 1993 subterfuge of uncapping the Medicare tax rather than straightforwardly increasing the top brackets by another 2.9%. Had the latter course been taken these taxpayers would not have been able to avoid the tax.

Posted by: AMTbuff | Nov 3, 2016 11:52:05 AM