The publishing of data about more than a decade of President Donald Trump's tax returns in The New York Times confirms he often paid little or no federal income tax and suggests running for president and being elected did nothing to awaken a patriotic sense of tax-paying duty in Trump.
The report left me completely confused about how and why tax law allows this type of behavior and how, specifically, Trump's tax lawyers might have gone about reducing his tax bill so dramatically below the more than $10,000 per capita that Americans pay in federal income tax. I reached out to Charlene Luke, a professor at the Levin College of Law at the University of Florida who is a tax law expert.
She answered my questions but wanted to make clear that she hasn't reviewed the returns reported on by the Times -- this is a good place to note that no one outside the Times has seen them -- so she couldn't weigh in on the specific avoidance measures he is reported to have used.
Our conversation, conducted by email and lightly edited for flow, is below. And I'll be the first to admit that while Luke made this more accessible, I don't completely understand all of it, particularly what led to the refund of years of taxes that Trump's now fighting with the IRS over. The hard-to-follow nature of US tax law is one of its less attractive features.
Is not paying tax common for billionaires?
WHAT MATTERS: The New York Times reports President Trump paid no taxes in multiple years, including when he was running for president and only $750 in two subsequent years. Is it common for billionaire real estate investors to pay no federal income tax?
LUKE: Because return information is generally not publicly available, it is hard to know. There are tax rules, most of which have been in place for decades, that favor active real estate investors, and so it is possible that such real estate investors would have lower taxes than other types of investors or business owners.
Whether it is common to have that lower amount approach zero is hard to say. One of these special favorable tax rules is available only if the real estate investor spends "more than one half of the personal services" performed for a particular year in real property trades or businesses. In some situations, these rules do allow losses from earlier years to be used in later years, which could also further explain a tax reduction.
Is a billionaire paying no tax the way it's supposed to happen?
WHAT MATTERS: Is this the way US tax law is supposed to work?
LUKE: Genuine losses and expenses that arise in connection with active real estate holdings, including when those holdings are funded by debt, are deductible and can be applied to reduce salary or income from other businesses.
I am personally of the view that the tax law needs to be revised to place real estate investing on the same footing as other types of businesses and investing. For example, if instead a person engaged in equipment leasing, the losses from that investment could only be used to reduce the taxes for the equipment l
