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Trump just gave the House a very good reason to look at his tax returns
When the man on top boasts that taxpaying is beneath him, he threatens the whole system.
By Daniel Hemel
Daniel Hemel is an assistant professor of law at the University of Chicago.
May 9, 2019 at 8:36 AM EDT
The disclosure this past week that Donald Trump accumulated a staggering $1.17 billion in losses from 1985 to 1994 was not, in itself, terribly surprising to anyone who has followed the president’s financial travails. That’s because the same New York Times reporters who broke the story — and who won a Pulitzer Prize for their prior investigations into his personal finances — had previously unearthed state tax returns from 1995 showing that Trump claimed tax losses of close to $1 billion. What’s truly stunning, however, is how he responded to the news.
Rather than attributing the losses to business troubles from which he ultimately bounced back, the president insisted instead that the losses were conjured up to avoid taxes. “Real estate developers in the 1980’s & 1990’s, more than 30 years ago, were entitled to massive write offs and depreciation which would, if one was actively building, show losses and tax losses in almost all cases,” Trump tweeted Wednesday morning. “Much was non monetary. Sometimes considered ‘tax shelter,’ ” he continued, adding that for developers like him, tax ploys were “sport.”
Never mind that the 1990s were not by anyone’s count “more than 30 years ago” (math has never been our commander in chief’s strong suit). What’s astonishing about Trump’s tweetstorm is that the president of the United States — who has a constitutional responsibility to take care that the laws, including the tax laws, are faithfully executed — was gloating about his efforts to skirt the tax code. And he did this in full view of his 60.1 million Twitter followers, only some of whom are Russian bots. The man who sits two rungs above the IRS commissioner in the executive branch’s organizational chart bragged that tax dodging was one of his pastimes.
Some of Trump’s tax-minimization moves were, concededly, kosher. It’s perfectly legal to claim real estate depreciation deductions, which are intended to reflect the gradual decline over time in the value of buildings and fixtures. Far more dubious, however, were Trump’s attempts to write down his debts in the early 1990s without reporting the forgiven loans as income on his tax returns. And Trump’s efforts to minimize estate and gift taxes on transfers of wealth from his father, Fred, sometimes amounted to — in the Times’ words — “outright fraud.”
Of course, anyone who has been following Trump-related tax news over the past several years should know by now that the president’s attitude toward tax compliance is cavalier, if not contemptuous. Still, seeing him brag about bilking the IRS should shake every American who strives to fulfill her or his taxpaying obligations. Trump’s tweet is reminiscent of a remark attributed to real estate mogul Leona Helmsley, who supposedly said that “only the little people pay taxes.” The difference is that Helmsley landed in prison, while Trump landed in the White House.
All of which makes the Times’ revelations — and Trump’s nonchalant response — directly relevant to the escalating battle over his tax returns. The perception that the president is a tax cheat, a perception perpetuated by his own words, presents a genuine difficulty for the federal tax system. That system relies on voluntary compliance — the idea that individuals and firms will report their income honestly and pay their taxes promptly without the IRS having to track them down. It’s a system that ultimately rests on the faith of the citizenry. When the man on top boasts that taxpaying is beneath him, that essential faith frays.
For this reason, and to assure Americans that taxes aren’t just for the little people, the IRS has established a special procedure to audit the returns of every sitting president and vice president — a procedure designed to reduce the risk that enforcement will be skewed to favor our leaders. But this procedure does not, according to the IRS’s internal manual, apply to returns filed by the president’s business enterprises. That might have seemed like a minor omission with respect to past presidents, who placed their assets into blind trusts beyond their control. But for Trump, who reportedly receives regular updates on his businesses and retains authority over them, it’s a gaping hole.
The IRS’s special procedure for presidential audits also does not appear to apply to returns filed by Trump before 2017 that were still under examination when he took the oath of office. According to a statement by Trump’s lawyers during the presidential campaign, his returns dating back to 2009 were still under IRS review. The IRS, in other words, has recognized the need for a special presidential audit to mitigate the risk of bias but has not applied this procedure to some of the examinations for which the bias risk is highest.
The House Ways and Means Committee, which has oversight responsibility over the IRS and the tax system more broadly, has responded to well-founded concerns about presidential tax noncompliance by initiating an inquiry into the IRS’s audits of Trump and his enterprises. To that end, Ways and Means Chairman Richard E. Neal (D-Mass.) has requested that the agency hand over filings by Trump and several of his businesses — including returns filed before he became president that were still apparently under audit when he entered the White House. A specific statute, which has been on the books for 95 years, requires the IRS to comply with that request, and Trump’s treasury secretary, Steven Mnuchin, acknowledges that the IRS must do so as long as there is a “legitimate” purpose for the request.
Nonetheless, Mnuchin told the House on Monday that there was no legitimate reason for the Ways and Means Committee to see Trump’s returns. That was a puerile claim at the time Mnuchin made it, since surely the committee has a legitimate reason for seeking to verify that the IRS is applying the same standards to the president that it applies to everyone else. Two days later, though, Trump’s tweets exposed Mnuchin’s argument as patently preposterous. Our famously fitness-phobic president has proclaimed that tax dodging is an athletic activity, yet the treasury secretary maintains that Congress has no cause for concern.
While the urgency of the Ways and Means Committee’s inquiry should have been apparent already, Trump’s tweets are one more reminder. If the president won’t release his returns to the public, then the least we can demand is that a bipartisan panel review those filings and assure us that the president is not a tax scofflaw — and if he is, that the IRS isn’t letting him off the hook. Until then, ordinary Americans will have reason to wonder why they are working hard to fund a government whose leader seems to think that taxpaying is just for chumps.