Former President Donald Trump’s tax returns are about to be released and will show he paid little to no federal income taxes for years, leaving many to wonder why.
Despite Trump’s wealth and assets, he was able to use the federal tax code to his advantage to insulate himself from federal tax liability. Democrats have cast the maneuvering as unfair, although some of the wealthiest people in the United States also legally pay little to no federal taxes.
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Trump declared negative income on his federal returns in 2015, 2016, and 2017, with $0 taxable income for each year, according to a report by the Joint Committee on Taxation to the House Ways and Means Committee made public as part of House Democrats’ effort this week to release Trump’s tax information.
Despite being worth millions of dollars — he claims he is a billionaire, although doubts have been raised about that assertion — Trump paid just $750 in 2016 as he was running for office. The former president also paid just $750 during his first year in office. Trump ended up paying nothing in income taxes in 2020, the last year of his presidency.
In 2018 and 2019, Trump reported a combined income of nearly $30 million, for which just over $1.1 million was collected by the IRS. The way Trump and his wife, Melania, were able to pay so little in taxes is because they reported heavy business losses to offset their income.
Steve Rosenthal, a senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute, explained that Trump’s tax situation is a bit different from other high earners in that most very wealthy people have a lot of investment income and tend to be taxed at through rates such as capital gains and qualified dividends.
“Trump is different because Trump is operating a bunch of businesses,” he told the Washington Examiner. “He does have some investment income, but the bulk of Trump’s activities are through, over the last several decades, operating businesses … but Trump loses lots of money from his businesses, which is I think what keeps his taxes low.”
Rosenthal said some of Trump’s losses are “real,” for instance in 2020, when he paid no income taxes, the country was in the throes of a pandemic, and businesses across the country hemorrhaged money. But Rosenthal said that in the years prior to being sworn in, Trump also paid little or no taxes.
Trump’s tax returns have made headlines in the past. In 2020, the New York Times reported, based on leaked documents from an unknown source, that Trump paid no federal income taxes in 10 of the past 15 years
Trump’s low tax burden prior to entering office was not pandemic-related, Rosenthal said, but rather was a combination of him losing money through his business operations and also “aggressively exploiting” federal tax rules and “taking positions that most taxpayers are too conservative to take.”
Rosenthal said Trump generated almost $1 billion in losses in 1995 and used those losses to shelter income over the following decade by carrying those losses forward.
“Once those losses expired, he generated another $700 million in losses in 2009, which he carried back to soak up some income and then carried forward to soak up income all the way through 2018,” he said. “Trump’s losses, both real and fake from his operations, allowed him to generate all sorts of what are known as net operating losses to shelter income in the years he actually made money.”
The taxes of the wealthy have been a hot topic over the past couple of years, particularly given that the Democratic-controlled Congress has been heavily debating changes to the tax code that would cause the wealthy’s tax burden to increase.
The issue of the wealthy paying so little in federal income taxes came to a head last year when an unprecedented trove of documents was leaked to nonprofit investigative outfit ProPublica and detailed in a series of stories exploring tax-planning maneuvers the ultrawealthy sidestep paying huge amounts of taxes.
Collectively, the top 25 richest people saw their net worths increase by $401 billion from 2014 to 2018, according to ProPublica. According to the tax documents, that group paid a total of $13.6 billion in federal income taxes in those five years. The federal government taxes income but not wealth.
On Tuesday night, after a closed-door meeting that lasted for more than four hours, the Ways and Means Committee voted 24-16 to release six years’ worth of Trump’s personal and business tax returns. Bank account information, Social Security numbers, and other information will be redacted from the returns before the public gets to see the actual documents.
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The committee’s report also found that while the IRS is required to conduct annual audits of sitting presidents’ tax returns, the agency failed to do so during Trump’s first two years in office.
“The Ways & Means Committee’s solemn oversight work has revealed the urgent need for legislation to ensure the public can trust in real accountability and transparency during the audit of a sitting president’s tax returns — not only in the case of President Trump, but for any president,” House Speaker Nancy Pelosi (D-CA) said in a statement. “The American people deserve to know without question that no one is above the law.”