Just in case you’ve been living in a cave without internet or access to Twitter for the past 18 hours or so, a copy of President Donald Trump’s Form 1040 from 2005 was somehow made available, with the first reporting done on The Rachel Maddow Show last night. The return was sent anonymously to the home of journalist and professor David Cay Johnson, who made the return available on his website and discussed what the return means on air for over an hour. There are plenty of takes out there on the coverage of this media “event,” and I don’t really want to rehash that right now. What I’d like to talk about is what this return actually says about Trump’s finances – at least what we can parse from this actual 1040 – and what it means in the grander scheme of things surrounding our president.
As a means of disclosure and why you might want to read this from me, I don’t claim to be an expert on taxes. I am currently a student completing a Masters of Accounting with a Taxation emphasis from Southern Utah University, and I own and operate a very small tax business – RonStel Financial – that prepares tax returns every year for a (small) group of loyal clients. I hesitate to mention that, but I also don’t want anyone to read this to think that I’m just a crazy person ranting on the internet like I usually do. Taxes are a passion of mine, and in a perfect world, would be the way that I earned my living. There are also plenty of other smarter people about taxes out there that can fill in some of the gaps about what I am going to talk about here, so I urge you to find those sources as well, especially if you want to nerd out over presidential taxes.*
*For example, if you want to go down the Presidential Taxes rabbit hole for a few hours, check out this site – Tax History Project – to see the full returns from many recent presidents and presidential candidates. The site is run by Joe Thorndike, who is a great follow on Twitter if you want to get super wonky about taxes.
With that bit of a disclosure out of the way, let’s unpack this 1040 form that was released by some anonymous person close to the president that somehow had access to the client copy of his returns.
First of all, I’m going to assume that most people that happen upon this post have filed taxes in the past. With that assumption out of the way, I’m going to explain why a 1040 form doesn’t really paint the whole tax picture, especially for a person with a complicated tax history like Donald Trump. But it is better than nothing, even if it may only represent less than 1% of the total return that he filed that year (by my estimation). The big numbers that everyone is reporting are truly big numbers: $150ish million in income, $36ish million in total taxes paid ($5.3 million in regular income tax and the remainder because of the Alternative Minimum Tax), and over $100 million in what seems to be a carryover loss from previous and/or future years.
Big picture, this shows a man that made earned as much money as most people wouldn’t earn in 3,000 lifetimes in ONE YEAR, but also a person that was able to take advantage of a lot of completely legal tax loopholes to reduce his taxable burden. You may not like that his effective tax rate is around 24%, but from the look of things and a lot of the analysis out there, nothing appears to be illegal. Aggressive? Sure. Kinda scummy? That’s one way I described it last night. But not, on the surface, illegal.
Tax avoidance in and of itself is not illegal. The average tax payer practices tax avoidance almost every day. If you contribute to a 401k at work, you are avoiding taxes on your income. If you deduct mortgage interest from your taxes by itemizing your deductions, you are avoiding taxes on your income. That said, regular taxpayers aren’t afforded the complexity of some of the income avoidance “schemes” that people like Donald Trump are able to use. As a “real estate investor,” Trump is able to take out loans against assets and live a super lavish lifestyle, or even by more income producing assets to juice up is yearly income. He also gets to benefit from depreciation on these assets, and when you are talking about multi-million dollar real estate projects, that depreciation can be millions every year. This can often result in a yearly loss, which can be carried forward and backwards under certain circumstances, and can offset earned income in other years. That’s where the $100 million loss comes from shown on the 2005 return (we assume).
Now all that being said, if you are still with me, the presentation of the 1040 by itself doesn’t really tell the whole story. The only people that have their whole return confined to two pages are people that file a 1040EZ or taxpayers that only report W2 income and don’t itemize deductions or take any other credits/deductions. A very small part of the tax-filing population. My personal tax return, which isn’t terribly complicated but is a step above these type of people, check in at around 20 pages if all schedules and worksheets are included. It’s these schedules and worksheets where the real story of a tax return is told.
By only looking at the 1040, and trying to fill in all of these gaps, is where some of the tax analysis misses the mark. Sure, you get the big numbers like income and taxes paid, but you also don’t get to see if President Trump donated any money to charity or what the actual source of his self-employment income is. Based on his FEC filing regarding the Trump Corporation, and its use of pass-through entities, I imagine that Trump probably has a return that is hundreds – if not thousands – of pages long. Without the full disclosure of the full return, we have no idea where the money may be coming from, which allows the media to speculate he’s hiding it because of ties to Russia or some other foreign government. This can get tricky and dangerous, even if you think that they might be true and certain things were reported and look suspicious.
Beyond that, the appearance of this particular Form 1040 should be more telling than anything. The fact that it is stamped “Client Copy” shows that someone close to the president provided the form. David Cay Johnson even speculated on The Rachel Maddow Show that it was Trump himself, though it is not something that will probably ever come out. But the fact that the White House immediately confirmed the returns authenticity shows that maybe this was the return that got out because it was the only one in a series of years that showed that the president actually paid taxes. Without filling in the years around this return – with full disclosure of the ENTIRE RETURN – it is hard to say for sure.
The president, as a private citizen, had every right to not release his returns while running for office, despite every president and most candidates doing so before him. But his election, and the current cloud of suspicion surrounding his presidency, should result in more disclosure. If he didn’t pay taxes for 19 of 20 years, that sucks, but as long as he wasn’t breaking the law in doing so, it would provide us the opportunity to really examine the way that tax laws are written in this country. And getting a full accounting of his tax returns would allow Congress and the public to know if certain budget and tax proposals would directly impact the wealth of one of the most “wealthy” individuals to ever be elected president.
For example, we now know that Trump was subject to the AMT, and lo and behold, his tax proposal aims to eliminate the AMT! His tax proposal also aims to tax pass through entities a little different, and as I mentioned above, Trump’s business interest may be heavily dependent on these things. Full disclosure would not be without its problems. It could ultimately affect the Trump Corporation, and we shouldn’t be in the business of destroying what may be a legitimate, ongoing business concern simply because of politics. (However, if Trump truly and legitimately divested himself from these businesses, and the business was able to sustain itself without his presence, this would not be nearly as big of a deal as they say it would be.) Nevertheless, there should be something more than we have received so far, and Congress has the ability to get more if they so desired.
I want to end this before getting to 1,600 words (and thanks for reading all of this so far!), so I will conclude with this: the surest path we might have to seeing more of Donald Trump’s tax returns is returning control of at least one house of Congress to the Democrats in the next election. Republicans to this point have cared more about their policy goals than anything else and won’t be the one’s to put country before party. I’m not saying that the Democrats right now are 100% better, but at least having a check on the executive branch would be a start,. So I’ll end this with the reminder that tends to end a lot of my politics posts on here lately: get involved in your communities, and when November 2018 comes around, get out and vote. We are still a “democracy” even though it may not feel like it sometimes, and the best way to influence action is with your vote.
Until next time…
One thought on “Let’s Talk About the Trump Tax Return”