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Trump probably paid less in federal income tax than average middle-class American

The president defended his actions in new Twitter post, but report shows Trump used tax strategies that most Americans can’t.

On Sept. 27, President Trump was asked about a story published by the New York Times that the paper said was based on information from Trump's tax records. (Video: The Washington Post, Photo: Salwan Georges/The Washington Post)

The average middle-class American household paid approximately three times as much in federal income taxes in 2016 and 2017 as President Trump, a billionaire real estate mogul with properties and developments all over the world, according to a new report.

The New York Times on Sunday revealed that the president, who has for years refused to release his tax returns, paid $750 in income taxes in 2016 and $750 again in income taxes in 2017. In 2016, households in the middle 20 percent of the U.S. income distribution paid an average of $2,200 in federal income taxes, according to the Congressional Budget Office, a nonpartisan government agency. Those middle-income households each earned about $60,000 on average in 2016.

“His income tax burden is certainly much lower than the average taxpayer,” said Brian Galle, a law professor and tax expert at Georgetown Law. “He’s likely paying less than the shoeshine guy who works in the foyer of the Trump Tower.”

The Times’s disclosure of Trump’s shockingly low federal income payments prompted an outpouring of criticism of what appeared to be his unusually aggressive attempts to evade obligations to the Internal Revenue Service. The Times’s report reveals that Trump also appears to have stretched the boundaries of deductions that allow firms to lower their federal tax burdens on losses and expenses, for instance by paying his daughter Ivanka Trump consulting fees that the firm later claimed as a tax write-off.

Since 2016, President Trump has cited an ongoing IRS audit as the primary reason that he will not release his tax returns. (Video: Monica Akhtar/The Washington Post, Photo: Salwan Georges/The Washington Post)

Alan Garten, a lawyer for the Trump Organization, said the article was filled with inaccuracies and told The Washington Post in a statement: “Over the past decade the President has paid tens of millions of dollars in personal taxes to the federal government." Trump has also characterized the Times’s report as “fake news” at a press conference Sunday evening. On Monday, he said he had paid “many millions” in taxes and that he used the tax credits allowed under the law.

“The Fake News Media, just like Election time 2016, is bringing up my Taxes & all sorts of other nonsense with illegally obtained information & only bad intent. I paid many millions of dollars in taxes but was entitled, like everyone else, to depreciation & tax credits,” the president said on Twitter.

Trump’s companies also do pay payroll and unemployment taxes to the federal government, and he probably pays significant taxes on his real estate properties.

But congressional Democrats and multiple tax experts criticized as grossly unfair the idea that Trump would pay far lower in income taxes than middle-class Americans.

Trump avoided paying taxes for years, largely because his business empire reported losing more money than it made, report says

About half of all American families paid more in federal income taxes than Trump, according to Ernie Tedeschi, who served as an economist in President Barack Obama’s Treasury Department. Trump’s federal income tax obligation amounts to less than the typical amount paid by families earning between $40,000 and $50,000, including after their tax credits are factored in, Tedeschi said. Lily Batchelder, a tax expert at New York University, said on Twitter that over 18 years, from 2000 to 2017, Trump paid the taxes of someone who earned roughly an average of $150,000 annually.

“The outrage is that what he paid in federal income tax is right in the middle of American families and is clearly living a lifestyle that is not in the middle of American families. It’s at the very upper echelon,” Tedeschi said. “And that strikes people as unfair.”

How Trump’s taxes compare to those of other presidents

Trump’s low tax burden stems in large part from the way his businesses are legally incorporated.

Most Americans’ tax payments to the IRS are derived from the income they receive from their wages and salaries from the employer. In this traditional formula, Americans’ employers — often formed as a “C-Corp,” or corporation — also pay a separate additional tax payment to the IRS on the corporate tax rate.

By contrast, Trump runs his firms as “pass-through” entities. This legal structure — such as an “S-Corporation” or “Limited Liability Corporation” — requires business owners to report both the income and losses from their business operations on their personal tax returns. There are almost 30 million pass-through entities in America.

“Trump is not an ordinary taxpayer: He is a business taxpayer with loads of losses, which can do funny things to your taxes and zero them out for some years or many years,” said Kyle Pomerleau, a tax expert at the American Enterprise Institute, a conservative-leaning think tank. “It can happen across different industries, for different reasons.”

The revelation is also likely to reanimate a longstanding debate over taxing the rich in the United States. Wealthy families’ tax burdens have declined dramatically since the 1960s, according to economists Emmanuel Saez and Gabriel Zucman. Data compiled by the team show that in 1960, the richest 400 families in the U.S. had an average effective tax rate of well over 50 percent.

The Post’s Jonathan O’Connell and David A. Fahrenthold explain the legal troubles President Trump could face after a New York Times investigation. (Video: The Washington Post)

By 2018 that burden had been slashed by more than half, with the top 400 paying an effective total rate of less than 25 percent — lower than the effective tax rate paid by the bottom half of American households.

Saez and Zucman’s tallies include not just federal income tax but also corporate, state and local taxes.

That decline is partly because of deliberate congressional policy choices, with steep drops observed following the Reagan tax cuts in the 1980s and, more recently, the Trump tax cuts in 2017. That law lowered the top rate on federal income taxes and slashed the corporate tax rate, both of which were unlikely to have benefited Trump personally. It also limited taxpayers’ ability to deduct their state and local taxes, which may have squeezed Trump. But the GOP tax law also significantly expanded a deduction for pass-through, which may have benefited the president.

Congress has also restricted funding for the Internal Revenue Service in recent years, giving the agency fewer resources to go after suspected cases of tax fraud. An investigation by ProPublica found that the wealthy have been the primary beneficiaries of that policy change, which effectively slashed the audit rate for the richest 1 percent of taxpayers.

The audit rate for low-income taxpayers fell, too, but by not nearly as much. Today, a low-income person claiming the earned income tax credit is more likely to be audited by the IRS than someone making $400,000 a year, according to ProPublica.