The real story behind Trump's tax return
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"Only the little people pay taxes." — Leona Helmsley
"There's a sucker born every minute." — attributed to P.T. Barnum

The real story behind the release of GOP nominee Donald TrumpDonald TrumpMedia giants side with Bannon on request to release Jan. 6 documents Cheney warns of consequences for Trump in dealings with Jan. 6 committee Jan. 6 panel recommends contempt charges for Trump DOJ official MORE's fragmentary 1995 tax return has been lost in the contorted justifications by the candidate and his surrogates. Unfortunately, the media have reported their distortions without adequate analysis or debunking. The information disclosed in the tax documents is far more damaging than the American people have thus far been led to believe.

Here's why.

• Trump's 1995 deduction may not be legal.

The media have seemingly bought the fiction that although Trump's $916 million tax deduction in 1995 may be morally reprehensible and hypocritical, it was perfectly legal. One story in The Hill is even headlined "Report: Trump could have legally avoided taxes for years." Trump's surrogate Rudy Giuliani (R), former New York mayor, has gone several steps further to claim that Trump was a "genius" for legally avoiding the payment of federal taxes.


However, we do not in fact know that Trump acted within the law. A $916 million loss in 1995 may well have enabled him to legally avoid taxes on hundreds of millions of dollars of income in subsequent years. However, we do not yet know that the $916 million reported loss was in fact a legitimate, documented business loss.

Doubts about Trump's 1995 claimed loss are raised by the history of his 1984 tax returns in which Trump claimed $626,264 in business deductions and yet no income. Trump was unable to provide documentation for these counterintuitive losses. In an appeal to a demand for payment of state taxes, the administrative judge found that "The record does not explain how Petitioner [Trump] had significant expenses without any concomitant income from his consulting business."

Trump's biographer David Cay Johnston has also noted that Trump keeps two sets of books, one of which he uses for obtaining loans, tax breaks or concessions and shows a far rosier picture of his enterprises than the other, which he may use for his taxes.

This history certainly raises serious questions about whether Trump's 1995 deduction represents fully a legitimate or at least a partially fabricated loss. At a minimum, Trump and his surrogates have a lot of explaining to do to the American people. 

• Trump's $916 million loss may not have come out of his own pocket.

This loss apparently derived from Trump's flagrant mismanagement of his Atlantic City casinos and other ill-fated enterprises. For Trump, however, these may have been only paper losses that had no effect on his lavish lifestyle. Through his bankruptcies and other devices, it is quite possible that Trump passed off most or even all of these losses on others, leaving himself with the golden ticket that could have enabled him to avoid taxes on his income for the next two decades. We don't know anything about the details of this purported loss, because Trump has not released his full tax records, including the 1995 and subsequent returns that are not currently under audit.

• Trump's tax plans will make it easier, not harder, for the rich to avoid taxes.

Trump and his surrogates have claimed that because he knows "the tax code better than anyone else" he will fix the code to curb loopholes for the rich and help the middle class. This "it takes a thief to catch a thief" propaganda has no basis in fact. Every independent analysis of Trump's rather ill-defined plan concludes that it heavily favors the wealthiest Americans like himself.

Two proposals are especially noteworthy. The plan creates a new loophole for so-called "pass-through" income, or income that "passes through" a business to the individual returns of the business's owners — precisely the way Trump does business. His plan would reduce the tax rate for such income from nearly 40 percent to just 15 percent for the top bracket earners. More than two-thirds of such pass-through income goes to the top 1 percent of tax filers. This loophole also cancels out his "reform" of the "carried interest" loophole that enables the rich to pay taxes at a rate of just 20 percent. By using his pass-through loophole, they can benefit from an even lower 15 percent rate.

In addition, Trump would abolish the estate tax, which benefits only the very wealthy because there is currently an exemption of $5.45 million for individuals and $10.9 million for couples. Trump claims that the estate tax is a "double tax" on the wealthy, but if like Trump, they avoid income taxes, his plan would mean that they are essentially zero taxed.

We should not forget that when rich elites like Donald Trump avoid taxes, the rest of us pay the price, either through higher taxes or an increase in the deficit that Trump repeatedly decries. Even our limited glimpse of Trump's tax history, coupled with his tax plan, leads to an inescapable conclusion. In parallel with his business practices, a Trump presidency will make the rich richer at the expense of everyone else.

Lichtman is distinguished professor of history at American University in Washington.

This piece was corrected on Oct. 4, 2016 at 12:19 a.m. to accurately note the loss Trump listed on his 1995 tax return.

The views expressed by contributors are their own and not the views of The Hill.