A new Gallup poll last week once again confirmed that Americans are decidedly unimpressed by the GOP’s “Tax Cuts and Jobs Act” passed in December. Coming just weeks after a Fox News survey found Obamacare enjoyed greater popularity than the Republican tax cuts, Gallup’s latest tally revealed that respondents continue to disapprove of President Trump’s signature legislative achievement by a 46 to 39 percent margin.
Those dismal numbers should come as no surprise to anyone. For starters, the wealthiest, stock-holding Americans have pocketed the lion’s share of the benefits of the tax cuts. Exactly as predicted, the steep corporate tax reductions have not led to increased business investment or higher wages for workers, but instead fueled an avalanche of stock buybacks and mergers and acquisitions. It’s no wonder 51 percent of those surveyed by Gallup reported “the law has not helped their family's financial situation”, while 26 percenr say it has helped "a little.” Only among families earning over $90,000 a year did the combined percentage stating the tax cuts helped a little (34 percent) or a lot (13 percent) exceed the share (45 percent) responding the TCJA hasn’t helped their families at all. (Making matters worse, the Republicans’ $10,000 cap on the deductibility of state and local taxes means larger payments to Uncle Sam for residents in high-tax, high-service states like New York, New Jersey, Massachusetts, and California.) Adding insult to injury, the extra economic growth and cash back to working Americans the GOP confidently forecast have not come to pass, while a multi-trillion hemorrhage of red ink from the United States Treasury is already underway—just like Democrats said.
But as Election Day approaches, Americans might find one additional reason to be disgusted with this budget-busting windfall for the wealthy courtesy of Donald Trump, Senate Majority Leader Mitch McConnell, and House Speaker Paul Ryan. As it turns out, the president of the United States lied about almost every aspect of the “Tax Cuts and Jobs Act.” The man who in August 2016 promised voters “I will always tell you the truth” lied about the impact of his tax plan on your family—and his. As we learned recently, Trump has grossly misled the American people—and tax authorities in New York City, New York State, and Washington, D.C.—about his financial worth. And as they have once again made clear, Republican leaders by word and by deed have no problem with any of it.
Republicans alone approve of the GOP tax plan. Everyone else? Not so much.
During the 2016 presidential campaign, candidate Donald Trump repeatedly boasted that he was worth $10 billion. (Taking him at his word, one analysis estimated his proposal to eliminate the estate tax would redirect $7 billion from Uncle Sam to Trump’s heirs.) But that’s not all. Trump, the New York Times reminded readers on Oct. 2, also bragged, “I built what I built myself.” Both claims, the Times reported in its exhaustive analysis of decades of Trump family finances, were complete frauds. Trump father and son, it turns out, were worth a lot less and cheated a lot more than anyone previously knew:
President Trump participated in dubious tax schemes during the 1990s, including instances of outright fraud, that greatly increased the fortune he received from his parents, an investigation by The New York Times has found…The Times’s investigation, based on a vast trove of confidential tax returns and financial records, reveals that Mr. Trump received the equivalent today of at least $413 million from his father’s real estate empire, starting when he was a toddler and continuing to this day.
Much of this money came to Mr. Trump because he helped his parents dodge taxes. He and his siblings set up a sham corporation to disguise millions of dollars in gifts from their parents, records and interviews show. Records indicate that Mr. Trump helped his father take improper tax deductions worth millions more. He also helped formulate a strategy to undervalue his parents’ real estate holdings by hundreds of millions of dollars on tax returns, sharply reducing the tax bill when those properties were transferred to him and his siblings.
“The president’s parents, Fred and Mary Trump, transferred well over $1 billion in wealth to their children, which could have produced a tax bill of at least $550 million under the 55 percent tax rate then imposed on gifts and inheritances,” the 18-month investigation by David Barstow, Susanne Craig and Russ Buettner found. Instead, the authors determined, “The Trumps paid a total of $52.2 million, or about 5 percent, tax records show.”
Coming as it does on the heels of a New York State lawsuit against the Trump Foundation for “self-dealing” (some of which was first revealed during the 2016 campaign), the damning New York Times investigation into “financial vampire” Donald Trump should have set off alarm bells among the GOP’s best and brightest. Instead, the alleged multi-generational tax crimes of the Trump clan produced only yawns from Republican leaders.
Take, for example, Florida Sen. Marco Rubio. In 2016, then-presidential candidate Rubio warned Trump had spent 50 years in business “sticking it to the little guy.” But in response to the Times’ jaw-dropping rap sheet against Trump, Little Marco said only, “I think it’s a testament to how crazy and complicated the tax code is in general.” This week, Senate Majority Leader McConnell brushed off the urgent questions surrounding a lawless occupant of the White House as “presidential harassment.” Congressman Kevin Brady, chairman of the powerful House Ways and Means Committee, instead warned that Democratic demands to see Trump’s tax returns were “dangerous,” adding:
What stops them from prying/making public YOUR tax returns for political reasons? Who is next? #AbuseOfPower #EnemiesList
Leave aside for the moment that Donald Trump was the first presidential candidate in 40 years to withhold his tax returns from the public. For decades, Republicans and the conservative commentariat have insisted Americans shouldn’t even try to collect taxes from the richest among them. In 2004, President George W. Bush declared, “The really rich people figure out how to dodge taxes anyway.” Defending GOP presidential nominee Mitt Romney eight years later, Sen. Lindsey Graham put it this way:
“It's a game we play. Every American tries to find the way to get the most deductions they can. I see nothing wrong with playing the game because we set it up to be a game.”
In 2009, supply-side snake oil salesman Arthur Laffer explained that only some Americans get to play the game. “You really can't collect much money from upper-income people,” Laffer sneered, “They know how to get around taxes.”
Especially if no one is trying to enforce the rules of the game. And as the New York Times documented just one day before its Trump exclusive, crippling the enforcement of America’s tax laws is precisely what Republicans have been trying to achieve for almost a decade.
How can it be that the Trump family’s “maneuvers met with little resistance from the Internal Revenue Service”? How were Donald Trump associates like Paul Manafort and Michael Cohen “able to cheat the Internal Revenue Service for so many years”?
The I.R.S. pursues fewer cases of tax evasion than it did less than 10 years ago. Provided you’re not a close associate of President Trump, there may never be a better time to be a tax cheat.
Last year, the I.R.S.’s criminal division brought 795 cases in which tax fraud was the primary crime, a decline of almost a quarter since 2010. “That is a startling number,” Don Fort, the chief of criminal investigations for the I.R.S., acknowledged at a New York University tax conference in June.
Draconian GOP budget cuts have impaired the ability of Uncle Sam to collect tax revenue owed.
As Jesse Eisinger and Paul Kiel of the Times explained, “Starting in 2011, Republicans in Congress repeatedly cut the I.R.S.’s budget, forcing the agency to reduce its enforcement staff by a third.” In addition to recovering lost revenue, Fort explained, tax fraud cases brought by the IRS are needed to “influence taxpayer behavior for the hundreds of millions of American citizens filing tax returns.” With the steep drop-off in such cases, the authors cautioned, “experts fear [that] Americans will get the message that it’s all right to break the law.”
And that message carries a massive price tag in dollars lost to the United States Treasury. In 1998, then-IRS director Charles Rossotti warned Congress about an epidemic of tax cheating creating an estimated “tax gap” (that is, the difference between taxes owed to the federal government and revenue actually collected) of $195 billion a year. As I noted in 2014 (“The Pro-Tax Evasion, Pro-Deficits GOP Strikes Again”):
By 2006, as the New York Times reported, "Over the last five years, officials at both the I.R.S. and the Treasury have told Congress that cheating among the highest-income Americans is a major and growing problem." As former Reagan administration official Bruce Bartlett explained in 2012, "As the I.R.S. data show, noncompliance increased between 2001 and 2006, a period in which a substantial number of tax cuts were enacted." All told, according to the IRS estimates, the tax gap for 2006--that is, revenue lost to evasion, fraud and underreporting--reached $385 billion. That's $95 billion more than in 2001 and almost double the $195 billion Rossotti warned Congress about in 1998.
The “tax gap” keeps growing as IRS enforcement wanes.
By fiscal year 2006, the net tax gap had risen to $385 billion. A 2016 IRS study found that on average, the net tax gap for fiscal years 2008, 2009 and 2010 rose to $406 billion. From 2006 to 2010, the total tax gap (that is, missing revenue before enforcement actions) had hardly changed (rising only from $450 to $456 billion annually). But the drop-off in revenue recovered by the IRA from those non-reporting, underreporting or otherwise misrepresenting their income (down from $65 billion to just $52 billion) made that the net tax gap larger. And this was before the draconian budget cuts the new Republican House majority put in place beginning in 2011. With the IRS repeatedly telling Congress it can recover between $6 and $10 for every additional dollar added to its enforcement budget, Ezra Klein concluded back in 2011:
“Converting dollar bills into $10 bills is an excellent way to pay off your credit card. Except, it seems, if you're a House Republican.”
Upset about needless budget deficits and bad customer service? Call your GOP member of Congress.
For America’s gilded class, the result has been the equivalent of a “Get Out of Jail Free” card. IRS audits have dropped by 42 percent since the budget cuts started, with criminal referrals down by almost half. And while the agency focused on higher income earners in 2009 (when the audit rate was 3 percent for those earning over $200,000 a year compared to around 1 percent under that level), Republicans have pushed the IRS to monitor lower-income households, especially those benefitting from the Earned Income Tax Credit (IRS).
Which brings us back to America’s Tax Cheater-in-Chief, Donald Trump. In trying to sell his tax cuts in December 2017, Trump took to Twitter to proclaim, “TAX CUTS will increase investment in the American economy and in U.S. workers, leading to higher growth, higher wages, and more JOBS!” As detailed above, that prediction has not been borne out. (While GDP and job growth is little changed since Trump took the oath of office, wage gains have been largely wiped out by inflation.) But that’s not all President Trump promised. In September 2015, Trump made this guarantee about his tax proposals:
“It reduces or eliminates most of the deductions and loopholes available to special interests and to the very rich. In other words, it’s going to cost me a fortune — which is actually true — while preserving charitable giving and mortgage interest deductions, very importantly.” [Emphasis mine]
Two years later on September 13, 2017, Trump pledged “the rich will not be gaining at all with this plan.” Two weeks after, the president on September 27, 2017 reassured the American people:
"No, I don't benefit. I think there's very little benefit for people of wealth."
For the well-to-do, the TCJA was a BFD.
But even without seeing his tax returns, there was never any doubt Donald Trump was lying all along. Because even when he wasn’t defrauding Uncle Sam (as the New York Times laid out in pain-staking detail), Donald Trump was rigging the system in his favor. As Vox summed up the “Tax Cuts and Jobs Act” on December 22, 2017:
The final bill lowers the corporate rate from 35 percent to 21 percent, gives pass-through businesses like the Trump Organization a 20 percent tax deduction, increases the standard deduction, expands the child tax credit, and temporarily lowers individual rates across the board…
Trump, and the ultrarich like him, would benefit in several ways. First, the tax bill cuts the top individual tax rate to 37 percent from 39.6 percent. Next, it also increases the exemption on what Republicans call the “death tax” — the 40 percent tax (after deducting donations and spousal gifts) on the wealth of deceased persons before it’s distributed to their heirs — from $11 million to $22 million for married couples.
Trump would also benefit from the tax bill’s “pass-through” provision, which Republicans say is aimed at helping small businesses, but also give wealthy investors, like Trump, a major windfall.
Currently, owners of pass-through companies, like LLCs, partnerships, sole proprietorships, and S corporations — the Trump Organization, for example — are taxed as personal income. The Republican tax bill will now give pass-through businesses a 20 percent deduction, in addition to cutting the top individual tax rate.
And to be sure, as Tara Golshan explained, “The Trump Organization is a large pass-through.” As Trump's tax attorneys explained in his campaign's March 2016 required financial disclosure:
"You hold interests as the sole or principal owner in approximately 500 separate entities. These entities are referred to and do business as The Trump Organization. ... Because you operate these businesses almost exclusively through sole proprietorships and/or closely held partnerships, your personal federal income tax returns are inordinately large and complex for an individual."
That means that the big tax cut for pass through businesses wouldn’t go to Trump’s “plumbers, the carpenters, the cops, the teachers, the truck drivers, the pipe fitters … the people that like me best.” No, as the Center on Budget and Policy Priorities explained, the winnings would go to people exactly like Donald Trump.
That's because more than two-thirds of pass-through business income flows to the highest-income 1 percent of tax filers.
Who got helped by the tax cut on “pass through” businesses? Folks like Donald Trump.
In his original proposal, Donald Trump wanted to eliminate the Alternative Minimum Tax (AMT). Originally introduced to prevent abuses by the richest taxpayers, the AMT now affects 5 million filers. It falls almost exclusively on families earning above $200,000 a year, with almost two-thirds of those earning between $500,000 and $1 million now paying the AMT. And in 2005, the one year over the last 20 in which we’ve seen anything of his tax returns, Donald Trump was among them. According to that year’s leaked return, Trump paid $38 million (or 25.3 percent) to Uncle Sam on his income of $150 million. But $31 million of Trump’s check to the IRS was the result of the AMT. Without it, his tax bill would have been only $7 million, or just 4.7 percent.
The final version of the Tax Cuts and Jobs Act modified, but did not eliminate the AMT. But that doesn’t necessarily mean Donald Trump owed any money on his federal taxes before 2005—or since. As the New York Times discovered in October 2016, thanks to tax code advantages for real estate investors like himself Trump may have owed no federal taxes for almost two decades:
The 1995 tax records, never before disclosed, reveal the extraordinary tax benefits that Mr. Trump, the Republican presidential nominee, derived from the financial wreckage he left behind in the early 1990s through mismanagement of three Atlantic City casinos, his ill-fated foray into the airline business and his ill-timed purchase of the Plaza Hotel in Manhattan.
Tax experts hired by The Times to analyze Mr. Trump’s 1995 records said that tax rules especially advantageous to wealthy filers would have allowed Mr. Trump to use his $916 million loss to cancel out an equivalent amount of taxable income over an 18-year period.
Trump’s massive net operating loss in 1995 reduced his tax bill to zero for years.
As Matthew Yglesias explained in Vox, "You don't need 'genius' to pull off Trump's tax avoidance -- you just need to be rich." Rich, that is, and in the real estate business. The key, as tax expert David Cay Johnston documented, is the manipulation of "net operating losses" (NOLs) on top of the "already liberal tax breaks Congress gives big real-estate owners."
Trump dumped the real costs of all this on investors who saw gold in his brand name, but who lost everything even as he was paid tens of millions of tax-free dollars...
NOLs are incredibly valuable. These tax losses can be used to offset salaries, business profits, and income from, say, a television show or making neckties in China. Thanks to his $916 million of NOLs, Trump could earn much over 18 years in salaries, profits, and interest, but pay no income taxes.
Without Donald Trump's tax returns, there is still much we do not know about the shell games—legal and illegal—that may have enabled the reality TV star to stiff Uncle Sam. By all indications, that’s just fine with congressional Republicans and those that voted for them; as Gallup found that while only 8 percent of Democrats and 34 percent of independents approve of the Trump tax cuts, Republican support for the GOP law is 76 percent. But for the 64 percent reporting they’ve seen no increase in their take-home pay, the Republicans’ “Tax Cuts and Jobs Act” is probably just another scam from America’s tax scammer-in-chief, Donald Trump.
