The Irony of Democrats Complaining about Trump’s Taxes

The irony is that Trump was a beneficiary of the kind of tax complexity that Democrats tend to prefer, and specifically a beneficiary of an Obama tax policy that Trump repealed.

The question might well be asked about why we look into any politician’s taxes. Partly, of course, it’s just an opportunity to poke fun at Trump, which is fair enough game in politics, but not a reasoned argument of any kind. Partly, it’s a complaint that Trump has taken every available opportunity within the law to reduce his tax bill, which is not just in character; it’s also in the American traditionof paying as few taxes as the law will allow.

The usual angle, though, that gets raised in these arguments and is raised now is some combination of hypocrisy and self-interestedness. “See,” the argument goes, “Trump just wants to cut taxes for the rich because he is a rich guy who uses tax loopholes to avoid paying taxes.” But here’s the problem: It’s not Republicans or conservatives who want a tax code riddled with exploitable ways to let people out of paying generally applicable tax rates. In fact, when you look closer, Trump has sometimes benefited significantly from Democratic tax policy, or from policies of the kind that Democrats have pushed for in recent years.

Much of Trump’s income comes from his businesses, and he pays taxes on those businesses only when they make money. Personal and business income taxes in America are not gross-revenue taxes or wealth taxes; they are income taxes. For a business, that means profits. If the business loses money, after considering all its expenses, it owes no taxes. In theory, our system could work differently — we could have a gross-receipts tax or a value-added tax — but there are serious reasons why it doesn’t. For example, taxing money-losing businesses would put a burden on new small businesses and drive more businesses to close their doors during down times.

More controversial is what to do about businesses that make money some years, and lose a lot more money in others. The tax code allows losses to be spread out over multiple years, wiping out tax liability for profitable years. Naturally, this is not something a typical wage-earner can do with their taxes, although it can be helpful if you own a small business or a family farm. This is not unique to the United States; most European countries, even ones with fairly socialist economies, also allow losses to be “carried forward” for some period of years. As in the U.S., there may be varied and complicated restrictions on how much tax reduction one gets out of those losses. According to the Times report, much of Trump’s tax avoidance in the period between 1995 and 2004 arose from carrying forward his large losses in the 1990s.

An even more aggressive use of losses is “carrying back”: allowing a business that loses money to offset that against prior years’ profits and claim a retroactive tax refund. The economic incentives involved in allowing businesses to carry losses back are more dubious. If a business loses money and hopes to make it back in the future, carry-forward provisions give the owner an incentive to stay in operation rather than declare bankruptcy or start over with a new venture. That is good for workers, customers, suppliers, etc. By contrast, carry-back not only offers no long-term incentives, it encourages profitable business to take larger risks, knowing that they can get a bailout down the road in the form of a tax refund.

These rules have changed over the years. In 2009, the Obama-Biden stimulus bill changed the rules to allow carrying back losses four years into the past, rather than two. The stimulus was written by Democrats and passed essentially on party-line votes. As Kyle Smith has discussed, the Times storyadmits that Trump claimed a $73 million windfall refund of past taxes from Obama’s expansion of carry-back rules:

Mr. Trump had paid no income taxes in 2008. But the change meant that when he filed his taxes for 2009, he could seek a refund of not just the $13.3 million he had paid in 2007, but also the combined $56.9 million paid in 2005 and 2006, when “The Apprentice” created what was likely the biggest income tax bite of his life.

That $73 million (including interest) refund is still being contested eleven years later. The bipartisan Congressional Joint Committee on Taxation has to offer a recommended opinion on refunds that large, and it has dragged its feet. The committee’s opinion is advisory, because the Constitution could not empower a committee of parts of both houses of Congress to carry out an executive or judicial function, but the process becomes more problematic when the taxpayer is the president and the committee simply doesn’t act.

Still, the entire windfall was the direct result of Democrats giving a big handout. It is hard to blame Trump, or Republicans, for that policy decision. In fact, the 2017 Tax Cuts and Jobs Act passed by the Republican Congress and signed by Trump eliminated carry-back provisions. (On the other hand, it eliminated the already-generous 20-year limit on how far losses could be carried forward). But the bipartisan CARES Act passed this year reversed course again, allowing a five-year carry-back not only for losses in 2020 but also in 2018 and 2019.

On the broader point, if you dislike the spectacle of some very rich people and businesses paying a lot less in taxes than you’d expect from their tax rates, the solution should be a flatter, simpler tax code. And that is the last thing that Trump’s Democratic critics want.

When I heard turd world dipshits regurgitating liberal’s battle cry " pay their fair share " I cringe .

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