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What we know about Donald Trump's tax returns, explained

Republican Presidential Candidate Donald Trump Campaigns In Battleground State Of Pennsylvania Jessica Kourkounis/Getty Images
Dylan Matthews is a senior correspondent and head writer for Vox's Future Perfect section and has worked at Vox since 2014. He is particularly interested in global health and pandemic prevention, anti-poverty efforts, economic policy and theory, and conflicts about the right way to do philanthropy.

Donald Trump claimed $916 million in losses from his businesses in 1995, including losses from earlier that were carried forward. Thus, he did not pay taxes that year, and probably did not for many years thereafter. Trump also did not pay federal income taxes in 1978, 1979, or 1984, and most likely did not in 1991 or 1993.

That is the sum total of what we know about Trump’s income tax payments. These tiny scraps of data raise a few immediate questions.

First, why don’t we know more about his taxes? Hillary Clinton has released every tax return for her and her husband going back to 1977. You can view PDFs going back to 1992 here; here’s an in-depth analysis of their taxes from the late 1970s. Trump says he can’t do the same because he’s under audit, but that’s bullshit. There’s no rule preventing people under audit from releasing returns; as IRS Commissioner John Koskinen told C-SPAN in April, “From our standpoint, if you’re being audited, and you want to do something else, share that information with your returns, you can do that.”

So why is Trump not releasing them? Why is he the first nominee since George McGovern to not let the American people examine his taxes? Furthermore, how the hell does Donald Trump — who, as he would be the first to tell you, is a rather rich man — keep paying nothing in taxes? Is that even legal? How?

And finally, what do Trump’s tax returns have to do with his message on taxes? Trump has, at various points in this election, pledged to be tough on rich people like himself, to prevent them from exploiting lucrative tax loopholes. And yet the original version of his tax plan proposed specifically reducing the tax rate on “pass-through” income — which the 1995 return confirms is Trump’s own main source of income — to 15 percent, from a current top rate of 39.6. He’s since waffled on whether to include this provision.

So it’s worth asking: Why did Trump propose a plan on taxes that doesn’t just help rich people but specifically helps rich people who work for companies that happen to be structured like the Trump Organization?

Why paying too little in taxes hurts Trump

Governor Romney Attends Roundtable in Bethel Park
“I paid, like, thiiiiiis much.”
Jeff Swensen/Getty Images

Presidents don’t technically have to release their tax returns — and the expectation that they should is relatively recent, originating with 1968 presidential candidate George Romney. It gained ground after Richard Nixon famously refused to release his taxes as president, which showed him paying pathetically little; it was this scandal, not Watergate, that prompted him to declare, "I am not a crook," and the fallout has forced every president since to comply and release at least one year’s returns.

The norm has grown so strong that last cycle, Romney’s son Mitt was widely attacked for only releasing one year’s return and eventually pressured into releasing another. In 2004, John Kerry released 20 years; in 1996, Bob Dole released 30.

Returns provide a bevy of financial data not included in mandatory campaign financial disclosure forms. The latter doesn't report candidates’ yearly income, their tax payments and tax rate, which deductions and credits they claimed, what taxes they paid on real estate, how much they gave to charity and to which charities, to which banks or other institutions they owe money, or which people the candidate is in business with. Tax returns can reveal all of that.

“There is a reason why banks use tax returns when evaluating mortgages,” the Sunlight Foundation’s Melissa Yeager and Richard Skinner explain. “The forms offer a snapshot of a person’s financial position and their financial decision making processes.”

So a reasonable inference from Trump’s refusal to release his returns is that there’s some data point that they’d reveal and his current disclosures don’t which he finds embarrassing or fears will hurt his public reputation. The question is which data point.

My colleague Matt Yglesias ran through a number of possibilities back in May, when the Trump tax return controversy was heating up. The first and most obvious possibility is the one that the New York Times’s big scoop on Saturday implied: that Trump has paid no taxes, or very little, for many years, while continuing to enjoy a lifestyle of affluence and luxury.

Trump does not personally act ashamed by this possibility. When, at the first presidential debate, Hillary Clinton pointed out earlier reporting suggesting that Trump paid nothing, Trump replied, “That makes me smart.” That may not be good politics, implying as it does that the taxpayers in the electorate are imbeciles, but it seems like an honest reflection of Trump’s ethos, that being good at business means exploiting every tax and regulatory loophole and shelter to the best of your abilities. Trump’s campaign has even insisted that he has a “fiduciary duty” to shareholders in his companies, and to his employees, to minimize his taxes, a claim that, while absolutely false, suggests he believes deep in his heart that tax evasion in defense of profit is no vice.

But politically this makes sense to hide. Going back to Romney the Elder, the main reason the press and others have pushed for candidates to release tax returns has been a concern that they are paying too little. That’s what drove the push for Nixon to disclose; the Providence Journal-Bulletin's Jack White found evidence that Nixon paid only $792.81 in 1970, out of an income of $362,942.16 ($2.25 million today), for an effective tax rate of 0.2 percent. Nixon got the low rate by claiming his promised future donation of presidential papers to a library or other nonprofit as a charitable donation. This degree of tax evasion naturally sparked outrage.

The dynamic is even stronger with rich candidates. One reason George Romney was the first candidate pressed (successfully, it turned out) to release his returns was his tenure as CEO of the American Motor Company, which had made him incredibly wealthy. In the 1996 Republican primary, Bob Dole repeatedly attacked multimillionaire rival Steve Forbes for not releasing his taxes. “Did he pay any income tax at all? Or did he put it all in tax shelters?” Dole campaign manager Scott Reed asked in a statement to reporters.

Then Romney’s even richer son, when he eventually did release his returns, mostly drew criticism for his low, under 14 percent effective tax rate. “He "paid only 14 percent in taxes — probably less than you," an Obama campaign ad announced. Senate Majority Leader Harry Reid spread rumors that Romney, like Trump, just didn't pay taxes for several years.

It’s perfectly understandable for Trump to not want to follow in Forbes and Romney’s footsteps. There’s a history of rich candidates getting attacked for paying little in taxes — so hiding that he pays little in taxes could pay dividends.

Other reasons Trump might not want his tax returns out in the open

Donald Trump — with Ivanka, Marla Maples, and his friend Ingrid Casares — in 1995.
Trump — with Ivanka, Marla Maples, and his friend Ingrid Casares — in 1995.
Ron Galella/WireImage

But a low tax burden isn’t the only motivation Trump might have for secrecy. Indeed, there are probably others. As Ezra Klein notes, the Trump campaign did not specifically deny that he paid no taxes in 1995 after the Times story came out, nor did it respond by releasing his returns to show there’s nothing to hide. That suggests there’s still something there they don’t want to get out.

The returns would reveal considerable details about Trump’s charitable giving. Trump has repeatedly claimed to have given $102 million to charity over the past five years, a claim the campaign has tried to back up but that doesn't appear to be true at all. Most of that amount comes from "conservation easements," wherein property owners decline to build on land they own. Trump is effectively claiming that by using land as a driving range rather than putting buildings on it, he's giving to charity.

Seeing returns where Trump’s actual deductible giving doesn’t come close to adding up to $102 million could be humiliating for the campaign and give the Clinton campaign a potent line of attack. Trump’s foundation is extraordinarily sketchy, but the problems with it have thus far been too complex to make a winning issue for Clinton. Tax returns could change that.

Tax returns could also include information on Trump's business partners. Most of Trump's businesses are structured as "pass-throughs," meaning they don't pay corporate income tax but profits are instead taxed upon distribution to shareholders. So you have to give the IRS information on those businesses: other owners, what lenders you owe tax-deductible interest to, and so forth. So if Trump got a disproportionate number of investors or loans from Russia, as Donald Trump Jr. has suggested in interviews in the past, that should show up on the returns in some fashion.

Maybe the most plausible explanation, especially for not releasing multiple years of reports, is that they might imply Trump’s net worth is much lower than he has said. Trump has written in his book The Art of the Comeback that in the early 1990s, his net worth had fallen to about negative $900 million — perhaps not coincidentally, about the same amount as his reported loss in his 1995 tax returns:

One day, while walking down Fifth Avenue, hand in hand with Marla, I pointed across the street to a man holding a cup and with a Seeing Eye dog. I asked, "Do you know who that is?"

Marla said to me: "Yes, Donald. He's a beggar. Isn't it too bad? He looks so sad!"

I said, "You're right. He's a beggar, but he's worth about $900 million more than me." She looked at me and said, "What do you mean, Donald? How could he possibly be worth $900 million more than you?"

I said, "Let's assume he's worth nothing (only from the standpoint of dollars) — I'm worth minus $900 million."

If that's true, then examining all of Donald Trump's tax returns from, say, 1992 to the present should allow one to roughly estimate his current net worth by adding his net earnings to his self-reported net worth of negative $900 million. Even seeing, say, a 2010 return would be helpful; if he was still carrying forward net losses, that would suggest that he earned less than $918 million from 1995 to 2010, suggesting a net worth far, far below the $9 billion figure he's touted.

There are a lot of reasons to believe that Trump is exaggerating his net worth. In 2005, his biographer Tim O’Brien estimated Trump’s wealth at between $150 million and $250 million; Trump sued him for defamation, but O’Brien had three sources with direct knowledge of his finances. Deutsche Bank, in weighing a loan to Trump in 2005, estimated his net worth at $788 million.

Trump’s wealth probably grew since, not least due to The Apprentice franchise, but it’s improbable that it would grow as dramatically as the $9 billion figure suggests. What’s more, the multibillion-dollar estimates tend to include the value of Trump’s personal “brand,” which is nearly impossible to measure and, in any case, not very liquid. You can’t draw $500,000 in personal brand value from the bank.

Confirmation from tax returns that Trump is lying about his wealth would hurt him both because he’d be caught lying and because it puts his business prowess in doubt — just as his loss of $918 million in various enterprises, as revealed in the 1995 tax return, does.

Trump started with roughly $40 million from his father in 1974; if he'd just stuck that in an index fund, he'd have $2 billion to $3 billion today. If he is really worth $9 billion, then that's a big success; he beat the market. But if his net worth is under $1 billion, that suggests he's a rather massive failure, who did worse than a passive investor just sitting and biding his time would've done without lifting a finger. That’s not exactly impressive to voters, especially when your one claim to be qualified for the presidency is your record as a successful businessman.

How can Trump pay this little, anyway?

An excerpt of Donald Trump’s 1995 taxes.
An excerpt of Trump’s 1995 taxes.
New York Times

Aside from what his other tax returns might reveal, it’s reasonable to wonder how the hell Trump got away with paying $0 in taxes in 1995. To understand that, you need to understand a bit about how the government taxes businesses, and in particular something called “carryforwards.”

The goal of the tax code isn't to tax companies' profits in each individual year, necessarily. The goal is to tax the firms' average profitability over time. One year might have more sales than the next, but that shouldn't mean wild fluctuations in tax bills; so that companies can plan effectively, the bill should be reasonably predictable. To further this goal, the US tax system allows "carrybacks" and "carryforwards" of business losses.

If you lose money in 1994 but make money in 1995, you can deduct your losses against your profit so your sudden success doesn't translate into a massively higher tax bill. US tax law lets you carry forward for up to 15 years, and carry back for up to three. That means big losses like Trump's could mean reduced tax payments for up to 18 years total.

For big companies organized as “C corporations,” this all happens in the company’s tax books. But for “pass-through” companies, whose profits are distributed to shareholders and then taxed, this takes place on individual income taxes. So Trump’s share of his companies’ losses amounted to $918 million by 1995, and he could thus use those to defray his own taxes.

It may seem strange that this corporate tax principle is allowed for individuals who own companies, but it’s not all that different from, say, a freelance journalist deducting the cost of a new laptop from her taxable income on taxes. It’s a business expense; as a sole proprietor, the freelancer has a right to deduct business expenses the same as anybody else. And the federal government has decided that past losses are deductible in the same way.

The result is a system where the overwhelmingly rich people who own pass-through company shares can use those companies’ losses to defray their taxes on a regular basis. This isn’t something normal people can do; it’s reserved for an elite class of investor typified by Donald Trump.

Donald Trump has proposed cutting taxes on people who make money the exact same way he does

One of the most confident defenses of Trump’s tax nonpayment came from campaign surrogate Rudy Giuliani, who declared that Trump’s tax evasion was an act of economic “genius.” "Don't you think a man with this kind of economic genius is better for the United States?" he asked ABC News’s George Stephanopoulos.

It’s a decent enough argument: These returns suggest that Trump is a man who really gets the tax code, and was able to use that knowledge to his advantage. And, by proxy, it suggests that he can use that knowledge to improve the tax code to make life better for Americans as a whole, should he become president. Sounds pretty good, right?

Except an examination of Trump’s tax policy proposals suggests that while he’s using his knowledge of the tax code to generate ideas for reform, they’re ideas that don’t benefit the country so much as they do Donald Trump specifically. In particular, Trump’s first tax plan sought to change the taxation of pass-through income: profits from companies that distribute those profits directly to shareholders. Companies, for instance, like those in the Trump Organization. Rather than subjecting this income to current income tax rates, or even the lower individual tax rates that Trump proposed, he wanted to set the same rate that he’d have corporations pay: a mere 15 percent.

This is a huuuuuuuge giveaway to rich shareholders in pass-through businesses. Imagine for a second that Trump were the CEO of a C corporation (a non-pass-through company), and got paid through a combination of stock options and regular wages. He would pay a top rate of 39.6 percent on his own wages and stock options, as well as capital gains taxes of up to 23.8 percent when he actually sold the stocks he used the options to buy. Trump’s rate cuts would help a CEO in a company structured like that. He’d pay a 33 percent top rate instead, and then a 20 percent top capital gains tax rate paid on the sale of the stocks.

But Trump’s pass-through proposal went a step further. If you didn’t structure the company as a C corporation, and instead set it up as a pass-through wherein you’re paid entirely through company profits and not through wages, then you’d see your top rate fall from 39.6 percent to 15 percent — a much larger drop than the 39.6 percent to 33 percent enjoyed by other executives.

Put simply, Trump was proposing helping rich executives across the board, but reserved the biggest tax break for executives at companies structured exactly like the Trump Organization. It was … suspicious.

In mid-September, sources at the campaign suggested they were abandoning this plan. That made sense; the cut cost $1 trillion over 10 years, and served no obvious policy purpose other than personally enriching Donald Trump. But at the same time, the campaign was also telling a small-business group, the National Federation of Independent Business, that the pass-through cut was still a go, earning NFIB's endorsement in the process. When the New York Times's Binyamin Appelbaum reached out to the Trump campaign, they were vague but suggested that the pass-through cut was there to stay.

Donald Trump won’t really tell us what his tax plan says — just as he won’t tell us what he’s paid in taxes. But its original version, and maybe its current version, appeared designed specifically to help people like him, with his company’s precise legal organization. That’s not an economic genius working for the public at large. It’s a guy who knows the tax code looking out for number one.

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