I know a lot of people don’t like Donald Trump. I don’t care for him, either. But it is unclear to me exactly what they think he should have done differently regarding his income taxes.
By now, you’ve probably read or heard about the New York Times’ story, based on a leak of one portion of one year’s tax return. The Times reports that Trump in 1995 claimed a net operating loss of almost $916 million — and that, because of that loss, he might not have paid federal income taxes for some unknown number of years that followed. No one knows how many years, because only one year’s return was leaked. (The maximum number of years for which a loss could be carried over at the time of Trump’s filing was 18.) No one should be surprised if that one year was chosen intentionally to portray Trump in the worst light possible.
Trump of course could have avoided this revelation, or at least gotten out front of it, by releasing his returns on his own, as previous candidates have done. But only the specifics here are any kind of revelation. It is after all a well-known provision of tax law that individuals and companies can carry forward losses from one year into succeeding years. As the AJC reports, Delta Air Lines has done this for several years now. Heck, even the Clintons have carried forward capital-gains losses, as their tax returns indicate. This is not some secret loophole that only “the rich” have ever heard about. Heck, President Obama and the Democrat-controlled Congress actually expanded the length of time some net operating losses could be carried over.
The question is: What would you have these individuals and companies do differently?
If you want* companies to pay income taxes on their profits, then why should they also pay taxes on their losses?
If Trump’s loss for 1995 remained at $916 million — and it’s entirely possible the amount was reduced after one of those audits the IRS performed on his returns — it’s not as if it entitled him to wipe out any number of gains for all 18 years. He was entitled to offset the same amount of gains. So the net amount of the losses and gains in question would be zero.
How much in taxes should Trump have paid on that long-term zero? How much should Delta pay for its long-term zero? How about the Clintons for theirs? After all, it’s not as if the ill effects of a $916 million loss simply disappear the next year. If you lose $100 today but make $5 tomorrow, it’s not as if you’re ahead by that $5; you’re still $95 in the hole.
A friend of mine who teaches tax law at a college outside Georgia explained it this way in a message to me:
“I am not a fan of either candidate but as a tax teacher this is driving me nuts! Trump generated a large loss, and the tax code provides for a deductibility of this loss. The reason for the deductibility of losses is clear. Trump took a risk and invested money in a business that was not successful … However, that money he invested into his businesses was ALREADY TAXED. It is not fair to pose the question, ‘Isn’t (it) unfair that we have to pay taxes and he doesn’t?’ He did pay tax on the cash used for his business and then lost all that money which allowed for a tax loss. If I invest … and I incur a loss I can deduct it too! The funniest thing about the whole situation is the reason why business losses are allowed … to promote investors to take a risk on businesses and invest in America! Isn’t that what both parties want to happen?!”
Now, if Democrats wanted to make an issue out of this by saying Trump isn’t as successful a businessman as he claimed, that’d be fair game. (Keep in mind, though, that we already knew Trump lost a lot of money related to his casinos; that’s what the Clintons usually describe, when answering for their own scandals, as “old news.”) But to claim that Trump somehow cheated Uncle Sam by observing tax laws that Democrats helped write and also use to their own benefit is not just preposterous but deeply hypocritical.
If Hillary Clinton believes individuals and companies should pay taxes on their losses as well as their gains, she should come out and say so. Something tells me she won’t.
*Personally, I think corporate income taxes are mostly a way for government to disguise the true burden it places on workers, investors and consumers, since they are the ones who ultimately forgo money in some shape or fashion to cover the corporate tax payment.