But the richer you are, the more likely your money is coming from non-wage income, business property interest, and other complex assets – and the easier it is to play with the system.
Many of these sources of income are already taxed at lower rates than regular wages. But the top 0.1% also hire professionals from the “wealth defense industry” – tax lawyers, accountants, wealth planners – who exploit the tax code for loopholes and move assets. in the dark. As a result, the effective tax rate paid by the wealthiest American families has fallen below 25% over the past decade.
This is less than what most low and middle income people are already paying. But even in this extremely privileged club, Trump’s tax evasion stands out. With a string of tax bills ranging from $ 0 to just $ 750 of his alleged billions, Trump has paid virtually 0% most years.
How? ‘Or’ What? In part, Trump has aggressively used tax deductions for business and charitable giving.
For example, Trump has “carried over” losses of losing companies from year to year, allowing him to claim the loss over several years. As a result, he paid no taxes for 10 out of 15 years between 2000 and 2015. On top of that, he deducted lavish lifestyle perks such as private jets, luxury residences and $ 70,000 in hairdressing as “professional expenses”.
Trump also paid tax-deductible salaries and counseling fees to his children, a form of wealth transmission that avoids inheritance and gift taxes. In fact, it’s the same technique Trump’s father used decades earlier to transfer $ 413 million to Donald Trump himself.
Trump even found a way to deploy charitable tax deductions in a self-interested manner. By donating the development rights surrounding his personal mansion in Westchester County, New York, to a land registrar, Trump created a taxpayer-subsidized buffer zone around his private property while receiving a $ 21 tax break. $ 1 million for charities.
Trump has donated conservation easements in three other cases, including land around the Trump National Golf Club in Los Angeles. These transactions accounted for the vast majority of his charity deductions during those years. The New York attorney general is investigating several of these transactions that may have deployed inflated valuations.
Abuses like these show it all too clearly: Lawmakers must restore the integrity of the tax code, with a focus on manipulations of 0.1 percent like Trump.
For example, there should be a time limit and a financial cap on how much taxpayers should subsidize bankrupt businesses. Limiting the carry-over of legitimate losses to six years is a reasonable period for viable businesses. Likewise, there should be a stricter review of deductions for excessive personal luxury expenses as qualifying business expenses – $ 70,000 on haircuts should not make the cut.
More fundamentally, Congress should eliminate the preferential treatment of income from capital over income from wages. There is no reason why stock gains, for example, should be taxed at a lower rate than workers’ wages. An easy first step would be to levy a 10% surtax on all income over $ 2 million, whether from wages or investments. This would raise $ 635 billion over a decade from those with the greatest capacity to pay.
Congress should also modernize the rules governing charitable donations to remove the personal transaction provisions so well described in Trump’s donation of conservation easements that enhance his personal property.
Congress is expected to increase the IRS’s enforcement resources to close the estimated gap of $ 574 billion in lost annual revenue due to tax evasion and non-compliance. The app should focus on the richest 1%, who are responsible for around 70% of tax underreporting, according to a study.
Investments in new technology and law enforcement could generate $ 24 in revenue for every dollar invested. If the laser focuses on the wealthiest 0.1% of households and cracks down on many devices Trump deployed, the potential benefits could be even greater.
Next, Congress could turn its attention to restoring the progressivity of the federal tax system, legislating an annual wealth tax, strengthening inheritance tax, and equalizing capital gains and rates. income tax.
The integrity of the U.S. tax system has hit a new low, with revelations that a sitting president is chief tax avoidance. Trump’s tax handbook should serve as a catalyst for reform.
- Chuck Collins is the Director of the Inequality Program at the Institute for Policy Studies, where he co-directs Inequality.org. His next book is The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions (Polity)