President Trump has managed to pay lower taxes than his average supporter. Yet he's just using legal tools to avoid shelling out tax payments.
Chances are you paid more than President Trump in taxes over the last decade. Based on a report from The New York Times, Trump shelled out a mere $750 in personal taxes last year. Naturally, President Trump has denied the story, retorting that he does pay taxes despite not providing specifics.
President Trump indeed pays little in taxes relative to his net worth. Ditto with most of the ultra-wealthy in the 1% or better.
Why? These ultra-wealthy have structured their lives to minimize their tax obligations.
Remember, America’s tax code is generally focused on income. And the wealthy (or at least their accountants) know ways around that.
For instance, the easiest way to avoid paying taxes while wealthy is simply to avoid earning an income. That may explain the low overall salaries of Amazon CEO Jeff Bezos or Berkshire Hathaway CEO Warren Buffett.
Bezos reported a salary of $1.68 million last year, which doesn’t even put him in the top 100-paid CEOs. Buffett’s pay was under $375,000. Both are among the ten wealthiest men on earth.
So, where’s the wealth coming from? Most of the net worth of the ultra-wealthy is tied up in their company shares instead. As long as those shares go unsold, there are no capital gains to tax. So when Warren Buffett laments that he pays a lower tax rate than his secretary, he’s not making an honest apples-to-apples comparison.
The New York Times report on Trump doesn’t mention the payroll, property, or real estate taxes of the Trump Organization, the President’s holding company. Chances are there are a fair amount of taxes being paid there. But, yes, it’s easy for any billionaire to keep their income taxes at laughably low amounts.
For President Trump, the real assets in his company are in his real estate holdings.
Forbes has recently updated the president’s net worth, showing a decline this year on reduced demand for his golf courses and hotel rooms.
That sounds like there may be a cash flow problem there, but real estate valuations have held up relatively well.
Even better, real estate can turn a paper profit into a loss. How? With depreciation. The tax code favors real estate investors with the ability to account for the wear and tear of property over 27.5 years. However, you don’t need to write a check first to get this deduction the way you would if you replaced the HVAC system on office property.
Once a property has been fully depreciated, the entire value becomes fully taxable when it’s sold. However, anyone who holds the real estate indefinitely, like Buffett with stocks, doesn’t have to deal with that potential tax.
Trump owns several properties that still provide depreciation. Add in reduced income this year, and yes, it’s possible that someone with billions of dollars in real estate can show a loss for tax purposes.
All in all, Trump isn’t broke. He just knows the tax system and has avoided the kind of work and investments that pay the highest tax rates. The Times already knows how Trump has played the game. It’s just trying to make him look bad ahead of the election.
Disclosure: The author own a rental property and is familiar with how depreciation can turn a profitable investment into a loss on a tax statement.