A Judge Rules That Trump Isn’t Above the Law—and Neither Are His Tax Returns

By John Cassidy

In the past two and a half years, Donald Trump’s enablers have made a number of outlandish claims, but perhaps none of them was quite as preposterous as the one that his lawyers made last month, in an effort to prevent New York state prosecutors from obtaining eight years of his tax returns.

In a filing to a federal court in New York, the Trump legal team, including Marc Mukasey, a son of Michael Mukasey, who served as Attorney General during the George W. Bush Administration, argued that, under the U.S. Constitution, a sitting President can’t be subjected to any criminal investigation except as part of an impeachment inquiry. The team’s argument was not merely that Trump can’t be hauled into court and prosecuted—a claim that now has the imprimatur of the U.S. Department of Justice—but that a President can’t be subjected to any type of “criminal process,” because it would “distract him from his constitutional duties.”

A number of independent legal experts quickly pointed out that Trump’s lawyers were trying to rewrite the Constitution to create a whole new layer of executive protection and privilege. “I think there is some force to the argument that states can’t be allowed to hobble presidents with local prosecutions, but there is certainly no authority for the claim that they cannot at least investigate while a president is in office,” Frank O. Bowman, a University of Missouri law professor who has written a book about impeachment, told the Times.

On Monday morning, the federal judge Victor Marrero, who was appointed to the bench by Bill Clinton, came down firmly on the side of Bowman and against Trump. “The president asserts an extraordinary claim in the dispute now before this court,” Marrero wrote. “This Court cannot endorse such a categorical and limitless assertion of presidential immunity from judicial process as being countenanced by the nation’s constitutional plan.”

In dismissing a request from Trump’s lawyers for a preliminary injunction to prevent Cyrus Vance, the District Attorney for Manhattan, from getting hold of the tax returns, Marrero rejected their legal arguments in a long and, at times, impassioned ruling. “Bared to its core, the proposition the President advances reduces to the very notion that the Founders rejected at the inception of the Republic, and that the Supreme Court has since unequivocally repudiated: that a constitutional domain exists in this country in which not only the President, but, derivatively, relatives and persons and business entities associated with him in potentially unlawful private activities, are in fact above the law,” Marrero stated. “Because this Court finds aspects of such a doctrine repugnant to the nation’s governmental structure and constitutional values, and for the reasons further stated below, it ABSTAINS from adjudicating this dispute and DISMISSES the President’s suit.”

The dispute arose after Vance issued a subpoena to Trump’s accounting firm, Mazars USA L.L.P., demanding that the firm hand over the President’s tax returns, which Trump has refused to make public. Vance’s office is investigating whether the 2016 hush-money payoff made to the adult-film performer Stormy Daniels, through Trump’s personal attorney Michael Cohen, violated state law. (Trump has denied both having an affair with Daniels and that the payment violated any campaign-finance laws.) Late last year, Cohen pleaded guilty in federal court to eight criminal counts, including violating campaign-finance laws by giving Daniels a hundred and thirty thousand dollars to buy her silence, and was sentenced to three years in prison. Earlier this year, it was widely reported that the Office of the U.S. Attorney for the Southern District of New York wouldn’t be bringing any more charges in the Daniels case, despite the fact that it had identified in court documents an “Individual 1,” widely agreed to be Trump, who had directed Cohen to make the hush-money payments.

Trump and his lawyers have accused Vance, who is a Democrat, of launching the state investigation of the Daniels case for political reasons. “Throughout President Trump’s time in office, government institutions, both federal and state, controlled by or aligned with the Democratic Party have attempted to use their power to obtain and expose his confidential financial information in order to harass him, intimidate him, and prevent his reelection,” the Trump team’s lawsuit said. “In recent months, the District Attorney of New York County has joined this campaign of harassing the President by obtaining and exposing his financial information.”

Shortly after Judge Marrero issued his ruling, Trump, in a tweet, amplified this argument in his usual distinct and self-pitying manner. “The Radical Left Democrats have failed on all fronts, so now they are pushing local New York City and State Democrat prosecutors to go get President Trump. A thing like this has never happened to any President before. Not even close!”

Judge Marrero’s task was to rule on the law, not Vance’s motivation. In his ruling, which stretched to seventy-five pages, he said that he couldn’t “impute bad faith to the District Attorney on the basis of statements made by various legislators and the New York Attorney General”—Letitia James, who had campaigned last year, in part, on a promise to investigate Trump. Marrero noted that the President’s lawyers had not asserted that Vance and his team lacked any “reasonable expectation” of obtaining a favorable outcome in their investigation of the hush-money payments, which extends beyond Trump individually to the Trump Organization.

The judge also noted that Trump’s legal team, in claiming that the President couldn’t be investigated, had placed a lot of emphasis on internal Department of Justice guidelines, which say that a President can’t be prosecuted while in office. But “the DOJ Memos do not constitute authoritative judicial interpretation of the Constitution concerning those issues,” Marrero wrote. “In fact, as the DOJ Memos themselves also concede, the precise presidential immunity questions this litigation raises have never been squarely presented or fully addressed by the Supreme Court.” Although Marrero obviously doesn’t speak for the high court, he did consider the constitutional arguments that Trump’s team had raised, and dismissed them, saying: “The Court concludes that neither the Constitution nor the history surrounding the founding support as broad an interpretation of presidential immunity as the one now espoused by the President.”

Marrero seemed well aware that his wouldn’t be the final word in this legal battle, and he was quickly proved right. Shortly after he issued his ruling, the Second Circuit Court of Appeals granted Trump’s lawyers a temporary stay, which meant his accounting firm didn’t have to hand over his tax returns immediately. The Appeals Court said that it would review the case on an expedited basis, and the Justice Department said that it would join the proceedings and make arguments on the President’s behalf.

It seems likely that the case will go all the way to the Supreme Court, where there is a solid conservative majority. But, for today, at least, a federal court has reasserted a fundamental principle: no President is above the law.

How to Fix 23 Tax Problems for Americans Abroad with 3 Solutions

posted by Carmelan Polce | Taxation Task Force Chair
February 28, 2018

INTRODUCTION

Democrats Abroad has documented here the scope of tax problems that uniquely impact Americans living abroad. We hope that by profiling the wide range of U.S. tax code and other provisions that have – however unintended – severe adverse consequences for Americans abroad that we might persuade Congress to act on our behalf and resolve them.

The list includes 23 discrete matters and, to our disappointment, it has recently grown due to provisions in the 2017 Tax Cuts and Jobs Act. As is the case with most of the provisions that vex Americans abroad, the Repatriation Tax and GILTI provisions in the new law were enacted without due consideration for the impact they would have on non-resident filers.

Other examples include: the financial account reporting provision in the Bank Secrecy Act, which includes exorbitant and out-of proportion penalties for non-compliance and requires updates generally; SEC regulations and the USA PATRIOT Act which make both investing in the U.S. and investing abroad extremely difficult for Americans living abroad without a U.S. address; and the Windfall Eliminations Provision, which unintentionally denies fully entitled Social Security benefits to Americans abroad who have pensions in their country of residence. Saving and investing for the future is extremely difficult for Americans abroad because of these provisions.

Thus, we are burdened with an unfair, unreasonable and unjust compliance burden that causes financial and personal hardship and that will require remedies across myriad areas of the tax code and other laws, plus within existing U.S. double taxation treaties and the model U.S. tax treaty. We do not believe Congress has the time or political will to implement these remedies and so instead recommend three solutions that would eliminate the problems enumerated herein:

1. A switch from our current system of Citizenship-Based Taxation to Residency-Based Taxation. There is evidence to suggest that Residency-Based Taxation can be implemented on a revenue-neutral basis[1]. A switch from Citizenship-Based Taxation to Residency-Based Taxation would resolve most of the tax problems outlined herein.

2. A same country exemption for Americans abroad to eliminate FATCA reporting on financial accounts in their country of residence.H.R. 2136, the Overseas Americans Financial Access Act would provide Americans abroad from relief from the unintended adverse consequences of the Foreign Account Tax Compliance Act (FATCA). FATCA was enacted to discourage and apprehend those using foreign bank accounts to commit financial crimes and not to cause personal and financial pain to ordinary Americans abroad who use accounts in their countries of residence to pay bills and save for the future.[2]

3. Replace the Windfall Eliminations Provision with the Social Security Fairness Act (H.R. 2710).Filing from abroad alone is inordinately complex and costly. The forms required to declare income generated abroad are highly detailed, preparing them is extremely difficult and it very often requires the support of professional tax return preparers with specialist knowledge of overseas filing.[3] Our recommendations address the filing costs for Americans abroad which far exceeds the costs incurred by U.S. based tax filers.

TAX CODE PROVISIONS THAT DISCRIMINATE AGAINST AMERICANS ABROAD - AND PROPOSED REMEDIES
In our examination of the provisions in the Internal Revenue Code that govern tax filing and reporting for non-resident Americans we have identified these areas that require remedies in order to address their perhaps unintended but certainly adverse consequences.

Note: A switch from Citizenship-Based Taxation to Residency-Based Taxation would resolve most of these issues for Americans living abroad.

1. US Capital Gains Tax Exclusion – harmonization of capital gains treatment for properties owned by citizens living abroad with the treatment of properties owned by citizens living in the US.

2. Artificial Capital Gains/Losses due to Currency Fluctuations – elimination of artificial capital gains and losses when no currency has been exchanged by allowing the currency of the country of residence to be the functional currency for tax reporting purposes.

3. Applying foreign credits to NIIT – allow Americans abroad to apply foreign income tax credits in calculating Net Investment Income Tax.

4. Marital deduction for bequests to foreign surviving spouses – reinstate the marital deduction for bequests to surviving foreign spouses in the calculation of estate tax.


5. Declaration of foreign long term savings plan income – tax the income from foreign long-term savings plans at the time the money is withdrawn from the plan.

6. Taxation of welfare payments – tax imposed on foreign government invalidity, unemployment and social welfare payments to disabled and disadvantaged Americans abroad only by the country making the payments, i.e. the country of residence.

7. Tax-free transfer of foreign retirement plan assets – render tax-free the transfer of assets from foreign retirement plans deemed qualified plans under international tax treaties to retirement plans in the taxpayer’s new country of residence, be it the US or another country.

8. Revise punitive PFIC rules – For citizens residing abroad revise the punitive Passive Foreign Investment Company rules and reporting requirements that apply to non-US pension plans, foreign mutual funds and other investment savings vehicles that prohibit Americans abroad from using them to save efficiently for retirement.

9. Taxation of non-US non-qualified pension plans – simplify the reporting structure for non-US, non-qualified pension plans that would alleviate the onerous need for Form 3520 filings for non-employer funded pension schemes.

10. Reforms to the FEIE and FHE – maintain the Foreign Earned Income Exclusion, merge it with the Foreign Housing Exclusion and eliminate the ceiling. This would completely eliminate double taxation of the earned income of non-resident taxpayers.

11. Repeal WEP – Replace the Windfall Elimination Provision (WEP) which drastically reduces the Social Security payments owed to Americans also receiving foreign pension payments with the Social Security Fairness Act to restore rightful Social Security payments to Americans abroad.

12. 15.5% Repatriation Tax – Provide an exemption for small to medium sized business owners from the 15.5% Repatriation Tax. Meant as a tax break for American companies retaining profits abroad, it forces small to medium size business owners to declare profits set aside for future capital investment.

13. GILTI tax regime - Harmonise the tax treatment of Global Intangible Low Tax Income and Foreign Intangible Direct Income across all types of foreign corporations owned by U.S. persons or entities by giving pass through-type S corporations owned by Americans living abroad access to the same offsets and deductions afforded to C corporations controlled by U.S multinationals.

IMPROVING TAX FILING AND REPORTING FOR AMERICANS ABROAD
Although these reforms would lose their importance for most Americans abroad after a switch from Citizenship-Based Taxation to Residency-Based Taxation, they would be enormously helpful for those who do not elect to file as non-resident US citizens for tax purposes.

14. Optional simplified earnings declaration – provide non-resident taxpayers who owe no US federal income tax with the option of a one-sentence, handwritten or printed declaration of earnings, accompanied by a tax return or assessment from the taxpayer’s country of residence

15. Expand the criteria for determining the threshold for who has to file – add a provision so that foreign earned income that can be excluded under current rules does not need to be included when determining your gross income for filing purposes.

16. Make electronic tax return filing possible for non-resident taxpayers declaring foreign tax credits - Allow taxpayers using the free, fillable IRS electronic forms to exclude the attachments eliminating the need for the taxpayer to file the return by post.

17. Translated IRS publications and forms – provide translated versions of IRS publications and tax forms commonly used by non-resident, non-English speaking US citizens.

18. Harmonize International Tax Treaties – align all international tax treaties with the US Model Income Tax Convention of November 15, 2006, especially (but not exclusively) as they apply to private pensions, social welfare benefits, annuities, alimony, child support and pension plans.

19. Promote the Streamline Filing Compliance (Offshore) Procedures (SFCP) – expand awareness of the SFCP, a tax compliance restoration program introduced in 2014 for Americans who non-wilfully are not compliant with their tax filing and reporting obligations.

20. Improve communication – encourage the IRS to do even more to expand communication with Americans living abroad, starting with the establishment of non-resident taxpayer support hotlines operated by officials schooled in matters unique to non-resident filers and including the reopening of overseas IRS offices and the restoration of offshore services lost due to cuts in IRS funding.

21. Protect American Citizens Services – ensure that proposed cuts to State Department funding do not result in further reductions in American Citizen Services provided by U.S. consulates and embassies, which often include advice about tax filing deadlines and local tax return services.

22. Reform the Foreign Account Tax Compliance Act (FATCA) – enact HR 2136 to exempt from FATCA reporting, by both the U.S. citizen abroad and their financial account provider, the financial accounts of law-abiding overseas resident U.S. citizens in their bona fide country of residence.

23. Reform the Foreign Bank and Financial Accounts Report (FBAR) reporting requirement for U.S. Citizens in their bona fide country of residence – as follows

o Redress the enormous, out of proportion penalties – civil and criminal – imposed by the IRS for non-willfully neglecting to file forms;

o Adjust for inflation the $10,000 aggregate threshold amount that triggers a FBAR filing requirement, which has not been adjusted since the Bank Secrecy Act was enacted in 1970;

o Eliminate the duplication of information disclosed on the FBAR and FATCA reports;

o Exempt U.S. citizens from reporting foreign financial accounts that are not reportable by financial institutions in their country of residence;

o Address the vulnerability of FBAR data security inherent in electronic filing; and

o Remove the burden imposed on filers who are computer illiterate or with no access to computers by eliminating recently introduced mandatory electronic FBAR reporting.

REGULATIONS CONSTRAINING BANKING, INVESTMENT AND RETIREMENT SAVINGS FOR AMERICANS ABROAD
Note: A switch from Citizenship-Based Taxation to Residency-Based Taxation would resolve most of these issues for Americans living abroad.

Investment options for Americans abroad are increasingly limited and fraught. Due to SEC regulations and legislation designed to protect consumers in the market for financial products, a provider of financial fund products must be registered to sell and market their products in a foreign jurisdiction. Although U.S. brokerage firms have over time turned a blind eye to this requirement, more recently, in an atmosphere of increased disclosure and oversight, many have elected to prohibit clients residing abroad from buying U.S. mutual funds in order to avoid the registration requirement. Exchange-Traded Funds are a legal work-around for Americans abroad interested in a mutual fund-type investment exposure, however even Exchange-Traded Funds may not be an option for individuals whose foreign and/or U.S. bank and brokerage accounts have been closed.

Features of the U.S. tax code impacting investments, savings plans and retirement savings uniquely penalize Americans residing abroad in the following ways:

· Punitive taxation of retirement savings plans which qualify and are taxed under local laws but are not qualified plans for U.S. tax purposes;

· Punitive taxation of foreign government sponsored retirement savings plans that are not qualified plans for U.S. tax purposes;

· Capital gains tax laws that do not take into account currency fluctuations, thereby creating assessable capital gains upon the sale of assets even if no currency was exchanged;

· The inability to claim the foreign tax credit against taxes owing under the Affordable Care Act, the 3.8% Net Investment Income Tax;

· Inflexible regulations involving Social Security and Medicare contributions particularly disadvantage (double-tax and other) self-employed Americans abroad.

· The Windfall Elimination Provision which drastically reduces the Social Security payments owed to Americans also receiving foreign pension payments;

· The Social Security benefit taxation regime for taxpayers who are Married Filing Separately provides no exclusion for spouses. Americans married to foreign nationals normally file as Married Filing Separately and as such cannot receive the exclusion afforded Americans married to Americans who file jointly;

· Social Security contributions required of self-employed Americans abroad are taxed (15.5%) even if they are already making contributions to an aged pension contribution scheme in their country of residence;

· Welfare payments made by foreign governments to Americans who are disabled, unemployed or disadvantaged are subject to US tax though they are normally not taxed abroad.

U.S. BANKING ALSO CONSTRAINED
The USA PATRIOT Act, ratified after the terrorist attacks of 9/11, established new “Know Your Customer” rules for US financial institutions. As a result, banks and financial institutions are no longer willing to hold or open accounts for customers whose only address is outside of the United States. This has constrained the banking, saving and investment activities of Americans abroad. A sensible reform would be to exempt American citizens living abroad from this provision even if they have only a non-US address.

Noam Chomsky: Bernie Sanders Isn't Radical, He's Popular! The Public Agrees With Him on Healthcare & Taxes

Transcript:
NOAM CHOMSKY: Well, Bernie Sanders is an extremely interesting phenomenon. He’s a decent, honest person. That’s pretty unusual in the political system. Maybe there are two of them in the world, you know. But he’s considered radical and extremist, which is a pretty interesting characterization, because he’s basically a mainstream New Deal Democrat.

His positions would not have surprised President Eisenhower, who said, in fact, that anyone who does not accept New Deal programs doesn’t belong in the American political system. That’s now considered very radical. The other interesting aspect of Sanders’s positions is that they’re quite strongly supported by the general public, and have been for a long time. That’s true on taxes. It’s true on healthcare. So, take, say, healthcare. His proposal for a national healthcare system, meaning the kind of system that just about every other developed country has, at half the per capita cost of the United States and comparable or better outcomes, that’s considered very radical. But it’s been the position of the majority of the American population for a long time. So, you go back, say, to the Reagan—right now, for example, latest polls, about 60 percent of the population favor it. When Obama put through the Affordable Care Act, there was, you recall, a public option. But that was dropped. It was dropped even though it was supported by about almost two-thirds of the population.

You go back earlier, say, to the Reagan years, about 70 percent of the population thought that national healthcare should be in the Constitution, because it’s such an obvious right. And, in fact, about 40 percent of the population thought it was in the Constitution, again, because it’s such an obvious right. The same is true on tax policy and others. So we have this phenomenon where someone is taking positions that would have been considered pretty mainstream during the Eisenhower years, that are supported by a large part, often a considerable majority, of the population, but he’s dismissed as radical and extremist. That’s an indication of how the spectrum has shifted to the right during the neoliberal period, so far to the right that the contemporary Democrats are pretty much what used to be called moderate Republicans. And the Republicans are just off the spectrum. They’re not a legitimate parliamentary party anymore. And Sanders has—the significant part of—he has pressed the mainstream Democrats a little bit towards the progressive side. You see that in Clinton’s statements. But he has mobilized a large number of young people, these young people who are saying, "Look, we’re not going to consent anymore." And if that turns into a continuing, organized, mobilized—mobilized force, that could change the country—maybe not for this election, but in the longer term.

The GOP tax bill may be the worst piece of legislation in modern history

By Fareed Zakaria

If the Republican tax plan passes Congress, it will mark a watershed for the United States. The medium- and long-term effects of the plan will be a massive drop in public investment, which will come on the heels of decades of declining spending (as a percentage of gross domestic product) on infrastructure, scientific research, skills training and core government agencies. The United States can’t coast on past investments forever, and with this legislation, we are ushering in a bleak future.

The tax bill is expected to add at least $1 trillion to the national debt over the next 10 years, and some experts think the real loss to federal revenue will be much higher. If Congress doesn’t slash spending, automatic cuts will kick in unless Democrats and Republicans can agree to waive them. Either way, the prospects for discretionary spending look dire, with potential cuts to spending on roads and airports, training and apprenticeship programs, health-care research and public-health initiatives, among hundreds of other programs. And these cuts would happen on top of an already difficult situation. As Gary Burtless of the Brookings Institution points out, combined public investment by federal, state and local governments is at its lowest point in six decades, relative to GDP. 

The United States is at a breaking point. In August, the World Bank looked at 50 countries and found that the United States will have the largest unmet infrastructure needs over the next two decades. Look in any direction. According to the American Road & Transportation Builders Association, the United States has almost 56,000 bridges with structural problems (about 1,900 of which are on interstate highways), and these are crossed 185 million times a day.

Another industry report says that in 1977 the federal government provided 63 percent of the country’s total investment in water infrastructure, but only 9 percent by 2014. There’s so much congestion in America’s largest rail hub, Chicago, that it takes longer for a freight train to pass through the city than it takes to get from there to Los Angeles, according to Building America’s Future, a public interest group.

There is no better indication of the U.S. government’s myopia than the decline in funding for research. A recent report in Science notes that for the first time since World War II, private funding for basic research now exceeds federal funding. Research and development topped 10 percent of the national budget in the mid-1960s; it is now less than 4 percent. And the Senate’s version of the tax bill removed a crucial tax credit that has encouraged corporate spending on research, though the House-Senate compromise version will probably keep it. All this is happening in an environment in which other countries, from South Korea to Germany to China, are ramping up their investments in these areas. A recent study found that China is on track to surpass the United States as the world leader in biomedical research spending.

When I came to America in the 1980s, I was struck by how well the government functioned. When I would hear complaints about the IRS or the Federal Aviation Administration, I would often reply, “Have you ever seen how badly these bureaucracies work in other countries?” Certainly compared with India, where I grew up, but even compared with countries such as France and Italy, many of the federal government’s key offices were professional and competent. But decades of criticism, congressional micromanagement and underfunding have taken their toll. Agencies such as the IRS are now threadbare. The Census Bureau is preparing to go digital and undertake a new national tally, but it is hamstrung by an insufficient budget and has had to cancel several much-needed tests. The FAA lags behind equivalent agencies in countries such as Canada and has been delayed in upgrading its technology because of funding lapses and uncertainties. The list goes on and on.

There are genuine problems beyond underfunding. The costs of building American infrastructure are astronomical. But during the Depression, World War II and much of the Cold War, a sense of crisis and competition focused America’s attention and created a bipartisan urgency to get things done. 

Ironically, at a time when competition is far more fierce, when other countries have surpassed the United States in many of these areas, America has fallen into extreme partisanship and embraced a know-nothing libertarianism that is starving the country of the essential investments it needs for growth. Those who vote for this tax bill — possibly the worst piece of major legislation in a generation — will live in infamy, as the country slowly breaks down.

‘I don’t feel wealthy’: The upper middle class is worried about paying for the tax overhaul

By Todd C. Frankel


ALPHARETTA, Ga. — On the income distribution charts at the center of tax overhaul plans, Courtney Mishoe knows she’s doing well. She works as a tax manager at a firm in the Atlanta suburbs. Her husband is a police officer. Together they make more than $180,000 a year. They are solidly in the upper middle class. But they have a mortgage and three kids, including one in day care and another in high school with plans to go to college. It all adds up. They depend on tax deductions to make their budget work.

“I don’t feel wealthy,” Mishoe said. “I don’t have a bunch of money stashed away anywhere.”
Mishoe is the type of person — affluent enough for an annual family vacation but not enough for a boat or second home — who potentially stands to lose under the Republican framework for changing the country’s tax code, which threatens to eliminate or deeply cut deductions for mortgage and student loan interest and state and local taxes. These popular deductions are widely viewed as sacrosanct in high-tax, high-cost states like New York, New Jersey and California, where residents have led the fight against the proposed changes.


But what has been widely overlooked is that residents of well-to-do suburbs in red and blue states across the nation — including here just north of Atlanta — could find themselves in a similar tax squeeze. This threatens to further complicate efforts to pass a tax plan that many Republican officials view as essential after a year of legislative struggles. Both the House version, which passed out of a critical committee Thursday, and the Senate version, released Thursday, target this group of upper-middle-class Americans to raise revenue to offset other tax cuts.

The tax push illustrates the political risks of attacking provisions favored by prosperous but far-from-rich suburbanites, a powerful voting bloc that often faces the financial stress of living in increasingly pricey neighborhoods. Many in the GOP already are worried about losing their grip on this important group after Tuesday’s result in the Virginia governor’s race, where Democrat Ralph Northam crushed Republican Ed Gillespie by running up votes in the dense areas outside cities.

Alpharetta is part of a booming region known as North Fulton, where no one bats an eye at $600,000 homes, Whole Foods and West Elm are eager to locate, and property taxes are relatively high to fund the top-performing public schools that attract striving white-collar professionals. And when it comes to their taxes, residents often have more in common with people living just outside New York City and Washington, D.C., than those in other parts of Georgia.

The Republicans’ plan proposes to offset $2 trillion in tax cuts in part by going after the deductions enjoyed by the upper middle class, generally those earning $100,000 to $250,000 a year, representing about the top 80 to 95 percent of earners. The Joint Committee on Taxation found, for instance, that nearly 90 percent of the state and local tax-deduction benefit went to people earning more than $100,000. The House plans would cap the deduction at $10,000. The Senate plan is said to eliminate the deduction entirely.

In Georgia’s 6th Congressional District, which contains most of North Fulton, nearly half of tax filers took this deduction, well above the national average and on par with expensive coastal states.
“These people will probably be hit,” said Roger Lusby, a tax accountant in Alpharetta, who said he was disappointed by the Republican’s offerings. “They just don’t realize it yet.”

Rep. Karen Handel, a Republican representing the 6th District who won a closely contested special election here earlier this year, defended the plan by pointing to another Joint Committee on Taxation study that found all income groups in the nation would see lower taxes in the short term, on average. But the report did not break down the impact at the local level, and other nonpartisan research has shown that about a third of taxpayers in this income group would pay more. Handel said it was a mistake to focus on deductions.

“It’s important to look at this in the totality,” she said.

Brandon Beach, a local state senator, said he was confident that residents would see lowered individual tax bills in the final proposal.

“This is a tricky thing,” Beach said. “You’ve got to start somewhere.”

North Fulton seems like a place that could afford to pay more in taxes, but residents say their low-six-figure incomes obscure the economic challenges of living here.

A string of prosperous suburbs aligned along an eight-lane highway known as Georgia 400 that funnels cars and light-rail trains into the heart of Atlanta, the region has been transformed in the past two decades into a sought-after community with increasingly dense subdivisions and corporate campuses filled with technology and health-care firms. The headquarters of huge firms such as UPS, First Data and Veritiv are located here.

Homes nearby sell for $500,000 to $800,000. And new construction is constant, with signs in front of unfinished Craftsman-style townhouses that wishfully boast “from the mid-$500s.”
Yet, said Tracey Craft, a local real estate agent, “you can’t get them for them for anywhere near that.”

Other residents say North Fulton is a place where earning $100,000 — nearly twice the national median household income — means a surprising degree of struggle.

“Some of them are living paycheck to paycheck,” Ted Jenkin, a financial adviser, said. “You would imagine that people are fairly well-to-do even with $200,000. But they don’t consider themselves to be rich. It’s challenging.”

Lusby, the accountant, said people earning up to $250,000 in this region “don’t consider themselves to be high-earners.”

He distinguished between income and wealth. Few of his clients in this bracket were socking away much for retirement or college costs. They might have a nicer house, maybe a few extras, “but they feel like it’s all being spent and, for the most part, that’s true,” he said.

If Congress no longer allows individuals to deduct state and local income taxes, including property taxes, from their federal tax bills, it could change the calculus of places like Alpharetta. Education, funded by property taxes, is one of the region’s main selling points.

Officials here credit the public schools — stocked with Advanced Placement and honors classes — with helping to persuade Mercedes-Benz two years ago to relocate its North American headquarters and 1,000 high-paying jobs from New Jersey to Sandy Springs, a town near Alpharetta in the same county.

Broadly speaking, the Republican attack on deductions is being cheered by many economists and analysts, who have complained for years that the tax code favors deductions not available to most Americans.

But where agreement breaks down is that while many in the upper middle class will be asked to pay more, the very rich won’t be.

“I do think the plan seems to be asking more from the top 20 percent,” said Richard Reeves, a senior fellow at the Brookings Institution who recently wrote a book called “Dream Hoarders,” accusing the upper middle class of gaming the system to their advantage.

But Reeves questioned a tax plan that places a greater burden on the upper middle class and delivers most of the benefits to the truly rich, the top 1 percent.

“That’s absolutely not the right way to do it,” Reeves said.

The tax plan, if passed, could further complicate the region’s reputation as a reliably Republican stronghold. The district has a long streak of sending a Republican to Congress, including Newt Gingrich and later Tom Price. President Trump edged out a win in the district last fall, in a state that he won by five points.

After Price was tapped to be Trump’s secretary of Health and Human Services — a position he later resigned — a runoff election became the most expensive House race in history, when Handel narrowly beat out Democratic challenger Jon Ossoff.

In Alpharetta, many people said they could not determine how they would make out under a confusing plan littered with caps and phase-ins.

As he ate lunch at Alpha Soda, a popular local restaurant, Chris Krogh said he hadn’t followed the debate closely but was troubled by what he heard. Krogh runs a custom cabinetry business and depends on homeowners as customers.

“I always thought Republicans were supposed to be good on the tax breaks,” he said.

What Is Trump Trying to Hide in His Tax Returns?

Presidential candidates have released IRS forms for years, but the GOP candidate wants to break that pattern—even though it’s more important for him than anyone else.
by David A. Graham

“This is the ultimate reality show—it’s the presidency of the United States,” Paul Manafort, a top adviser to Donald Trump, said on MSNBC Tuesday. Manafort’s comment was intended as both a defensive measure—a reply to those who mock Trump as a lightweight who thinks he’s still on The Apprentice—and a rebuke to President Obama, one of those who voiced the critique, sniping last week, “We are in serious times; this is a really serious job. This is not entertainment. This is not a reality show.”

But Manafort’s statement is also a useful key to explaining how Trump is approaching the general election. One of the rules of reality shows—right after not being there to make friends—is to break the rules. In an interview with the Associated Press released Wednesday morning, Trump said he will not release his tax returns before the general election in November. Here’s the AP report:

"There's nothing to learn from them," Trump told The Associated Press in an interview Tuesday. He also has said he doesn't believe voters are interested.

This being Trump, it’s unwise to wager much on him sticking to that if the heat gets too intense—like every other politician, Trump launches trial balloons, though his are often less subtle. But if he didn’t release the documents, it would represent a serious change in norms about what Americans can expect to know about their leader.

The habit of candidates universally releasing tax returns runs back to the 1970s. Even before then, there’d been some releases. George Romney famously released 12 years of returns ahead of the 1968 election. During the 2012 election, George’s son Mitt dragged his feet on releasing returns, earning some unflattering comparisons. At the time, Politifact investigated and found that since 1972, only seven presidential nominees had refused to release their returns: Democrat Jerry Brown (1992); Republicans Pat Buchanan and Dick Lugar (1996), Mike Huckabee, Rudy Giuliani, and Romney (2008), and Green Party candidate Ralph Nader (2000).

One thing sticks out about those candidates: None of them won a major-party nomination, or for that matter really came especially close. Trump, as the presumptive nominee of the Republican Party, is a different situation.

But Trump is a different situation for other reasons, too. He’s far wealthier than any other candidate to run for president, and he has a long history of questionable finances, and faces other allegations.

His companies have declared bankruptcy four times. He’s been fined by the Federal Trade Commission for improper behavior. He incorrectly received a tax break for people making less than $500,000 per year. All of this means that people might have legitimate questions about what Trump is doing with his supposed vast sums: what he does with it, whether those things are legal, and further whether the techniques he likely uses to reduce his tax obligations (like many wealthy people) are appropriate, even when they are legal. Given Trump’s repeated attacks on companies that move their profits offshore, or hedge-fund managers who use the carried-interest loopholes, voters have a right to know whether he practices what he preaches.

It is true that candidates are all required to file a personal financial disclosure as part of post-Watergate reforms from the 1970s, but tax experts say returns offer a more complete view. Trump released a disclosure in 2015, claiming that he was worth $10 billion. But many finance experts greeted that estimate with feelings ranging from skepticism to derision. The disclosure form allows for ranges of values, so that Trump could simply say certain holdings were worth more than $50 million—and then claim the top-line value. The Wall Street Journal offered a more sober estimate of “at least $1.5 billion.”

The journalist Tim O’Brien was especially savage in mocking Trump’s rather inflated claims of value for his brand. If it seems a little personal for O’Brien, that’s understandable—and the backstory explains why it’s wise to be skeptical of Trump’s claims and push for more disclosure. In a 2005 book, O’Brien sought to determine just what Trump was really worth. He concluded that the Donald was really only worth $150 to $250 million. Trump, outraged, sued O’Brien for $5 billion for libel. (Perhaps he doth protest too much!) It didn’t work: The suit was thrown out. That doesn’t prove that O’Brien was right—it only proves that there weren’t grounds for a libel case—but the proceedings offered more reasons to doubt the face value of Trump’s claims, as O’Brien writes.

Moreover, Trump appears to already be lying about his taxes. He claims that he can’t release them now because he is being audited. Yet that claim is false: The IRS says there’s no reason a citizen can’t release returns that are under audit. If Trump stands behind the returns he signed, why not just put them out there?

As Matt Gertz says, Trump’s statement that he won’t is a provocation to the media—in saying that citizens don’t care, he’s laying down a challenge to the press to make them care, and force him to release the returns. In the past, at least, that has worked. Romney ultimately opted to release his returns, despite misgivings, after extensive pressure from the media and other politicians. Stuart Stevens, a former top Romney aide, suggested that the Commission on Presidential Debates could make release a prerequisite for participation.

Whatever the mechanism, voters deserve a chance to assess Trump’s returns before they make their choice in November. The entertainer may be running a different sort of campaign, inspired by reality TV, but that doesn’t mean give him any leeway to cut them off from the normal information about a candidate’s private life. Besides, isn’t voyeurism the real allure of reality shows anyway?

 

Donald Trump Used Legally Dubious Method to Avoid Paying Taxes

By DAVID BARSTOW, MIKE McINTIRE, PATRICIA COHEN, SUSANNE CRAIG and RUSS BUETTNER

Donald J. Trump proudly acknowledges he did not pay a dime in federal income taxes for years on end. He insists he merely exploited tax loopholes legally available to any billionaire — loopholes he says Hillary Clinton failed to close during her years in the United States Senate. “Why didn’t she ever try to change those laws so I couldn’t use them?” Mr. Trump asked during a campaign rally last month.

But newly obtained documents show that in the early 1990s, as he scrambled to stave off financial ruin, Mr. Trump avoided reporting hundreds of millions of dollars in taxable income by using a tax avoidance maneuver so legally dubious his own lawyers advised him that the Internal Revenue Service would most likely declare it improper if he were audited.

Thanks to this one maneuver, which was later outlawed by Congress, Mr. Trump potentially escaped paying tens of millions of dollars in federal personal income taxes. It is impossible to know for sure because Mr. Trump has declined to release his tax returns, or even a summary of his returns, breaking a practice followed by every Republican and Democratic presidential candidate for more than four decades.

Tax experts who reviewed the newly obtained documents for The New York Times said Mr. Trump’s tax avoidance maneuver, conjured from ambiguous provisions of highly technical tax court rulings, clearly pushed the edge of the envelope of what tax laws permitted at the time. “Whatever loophole existed was not ‘exploited’ here, but stretched beyond any recognition,” said Steven M. Rosenthal, a senior fellow at the nonpartisan Tax Policy Center who helped draft tax legislation in the early 1990s.

Moreover, the tax experts said the maneuver trampled a core tenet of American tax policy by conferring enormous tax benefits on Mr. Trump for losing vast amounts of other people’s money — in this case, money investors and banks had entrusted to him to build a casino empire in Atlantic City.

As that empire floundered in the early 1990s, Mr. Trump pressured his financial backers to forgive hundreds of millions of dollars in debt he could not repay. While the cancellation of so much debt gave new life to Mr. Trump’s casinos, it created a potentially crippling problem with the Internal Revenue Service. In the eyes of the I.R.S., a dollar of canceled debt is the same as a dollar of taxable income. This meant Mr. Trump faced the painful prospect of having to report the hundreds of millions of dollars of canceled debt as if it were hundreds of millions of dollars of taxable income.

But Mr. Trump’s audacious tax-avoidance maneuver gave him a way to simply avoid reporting any of that canceled debt to the I.R.S. “He’s getting something for absolutely nothing,” John L. Buckley, who served as the chief of staff for Congress’s Joint Committee on Taxation in 1993 and 1994, said in an interview.

The new documents, which include correspondence from Mr. Trump’s tax lawyers and bond offering disclosure statements, might also help explain how Mr. Trump reported a staggering loss of $916 million in his 1995 tax returns, portions of which were first published by The Times last month.

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A line from one of Mr. Trump’s 1995 tax returns obtained by The New York Times.

United States tax laws allowed Mr. Trump to use that $916 million loss to cancel out an equivalent amount of taxable income. But tax experts have been debating how Mr. Trump could have legally declared a deduction of that magnitude at all. Among other things, they have noted that Mr. Trump’s huge casino losses should have been offset by the hundreds of millions of dollars in taxable income he surely must have reported to the I.R.S. in the form of canceled casino debt.

By avoiding reporting his canceled casino debt in the first place, however, Mr. Trump’s $916 million deduction would not have been reduced by hundreds of millions of dollars. He could have preserved the deduction and used it instead to avoid paying income taxes he might otherwise have owed on books, TV shows or branding deals. Under the rules in effect in 1995, the $916 million loss could have been used to wipe out more than $50 million a year in taxable income for 18 years.

Mr. Trump declined to comment for this article.

“Your email suggests either a fundamental misunderstanding or an intentional misreading of the law,” Hope Hicks, Mr. Trump’s spokeswoman, said in a statement. “Your thesis is a criticism, not just of Mr. Trump, but of all taxpayers who take the time and spend the money to try to comply with the dizzyingly complex and ambiguous tax laws without paying more tax than they owe. Mr. Trump does not think that taxpayers should file returns that resolve all doubt in favor of the I.R.S. And any tax experts that you have consulted are engaged in pure speculation. There is no news here.”

Mr. Trump financed his three Atlantic City gambling resorts with $1.3 billion in debt, most of it in the form of high interest junk bonds. By late 1990, after months of escalating operating losses, New Jersey casino regulators were warning that “a complete financial collapse of the Trump Organization was not out of the question.” By 1992, all three casinos had filed for bankruptcy, and bondholders were ultimately forced to forgive hundreds of millions of dollars in debt to salvage at least part of their investment.

The story of how Mr. Trump sidestepped a potentially ruinous tax bill from that forgiven debt emerged from documents recently discovered by The Times during a search of the casino bankruptcy filings. The documents offer only a partial description of events, and none of Mr. Trump’s tax lawyers agreed to be interviewed for this article.

At the time, Mr. Trump would have been hard-pressed to pay tens of millions of dollars in taxes. According to assessments of his financial stability by New Jersey casino regulators, there were times in the early 1990s when Mr. Trump had no more than a few million dollars in his various bank accounts. He was so strapped for cash that his creditors were apoplectic when they learned that Mr. Trump had bought Marla Maples an engagement ring estimated to be worth $250,000.

It is unclear who first glimpsed a way for Mr. Trump to dodge a huge tax bill. But the basic maneuver he used was essentially a new twist on a contentious strategy corporations had been using for years to avoid taxes created by canceled debt.

The strategy, known among tax practitioners as a “stock-for-debt swap,” relies on mathematical sleight of hand. Say a company can repay only $60 million of a $100 million bank loan. If the bank forgives the remaining $40 million, the company faces a large tax bill because it will have to report that canceled $40 million debt as taxable income.

Clever tax lawyers found a way around this inconvenience. The company would simply swap stock for the $40 million in debt it could not repay. This way, it would look as if the entire $100 million loan had been repaid, and presto: There would be no tax bill due for $40 million in canceled debt.

Best of all, it did not matter if the actual market value of the stock was considerably less than the $40 million in canceled debt. (Stock in an effectively insolvent company could easily be next to worthless.) Even in the opaque, rarefied world of gaming impenetrable tax regulations, this particular maneuver was about as close as a company could get to waving a magic wand and making taxes disappear.

Alarmed by the obvious potential for abuse, Congress and the I.R.S. made repeated efforts during the 1980s to curb this brand of tax wizardry before banning its use by corporations altogether in 1993. But while policy makers were busy trying to stop corporations from using this particular ploy, the endlessly creative club of elite tax advisers was inventing a new way to circumvent the ban, this time through the use of partnerships.

This was the twist that was especially beneficial to Mr. Trump. Wealthy families like the Trumps often own real estate and other assets through partnerships rather than corporations. Mr. Trump, for example, owned all three of his Atlantic City casinos through partnerships, an arrangement that allowed casino profits to flow directly to his personal tax returns when times were good.

But what if times were bad? What if Mr. Trump’s casino partnerships could not repay hundreds of millions of dollars they owed to bondholders? And what if the bondholders were persuaded to forgive this debt? Wouldn’t that force the partnerships — i.e., Mr. Trump — to report hundreds of millions of dollars of taxable income in the form of canceled debt?

Enter the tax advisers with their audacious plan: Why not eliminate all that taxable income from canceled debt by swapping “partnership equity” for debt in exactly the same way corporations had been swapping company stock for debt?

True enough, the I.R.S. and Congress had clearly signaled their disapproval of the basic concept. Fred T. Goldberg, who was the I.R.S. commissioner under George Bush, recalled in an interview that the I.R.S. frowned on partnership equity-for-debt swaps for the same reason it objected to corporate stock-for-debt swaps. “The fiction is that the partnership interest has the same value as the debt,” he said. Lee A. Sheppard, a contributing editor to Tax Notes, wrote in 1991 that trying to find a legal justification for this tactic was akin to proving “the existence of the Loch Ness monster.”

On the campaign trail, Mr. Trump boasts of his mastery of tax loopholes and claims no other candidate for the White House has ever known more about the tax code. This background, he argues with evident disgust, gives him special insight into the way wealthy elites buy off politicians and hire high-priced lawyers and accountants to rig the tax system — just as, he claims, they rig elections.

That insight was on display in 1991 and 1992 when he was laying the groundwork to make a multimillion-dollar tax bill disappear.

Before proceeding with his plan, Mr. Trump did what most prudent taxpayers do: He sought a formal tax opinion letter. Such letters, typically written by highly paid lawyers who spend entire careers mastering the roughly 10,000 pages of ever-changing statutes that make up the United States tax code, can provide important protection to taxpayers. As long as a tax adviser blesses a particular tax strategy in a formal opinion letter, the taxpayer most likely will not face penalties even if the I.R.S. ultimately rules the strategy was improper.

 

The language used in tax opinion letters has a specialized meaning understood by all tax professionals. So, for example, when a tax lawyer writes that a shelter is “more likely than not” going to be approved by the I.R.S., this means there is at least a 51 percent chance the shelter will withstand scrutiny. (This is known as an “M.L.T.N.” letter in the vernacular of tax lawyers.) A “should” letter means there is about a 75 percent chance the I.R.S. will not object. The gold standard, a “will” letter, means the I.R.S. is all but certain to bless the tax avoidance strategy.

But the opinion letters Mr. Trump received from his tax lawyers at Willkie Farr & Gallagher were far from the gold standard. The letters bluntly warned that there was no statute, regulation or judicial opinion that explicitly permitted Mr. Trump’s tax gambit. “Due to the lack of definitive judicial or administrative authority,” his lawyers wrote, “substantial uncertainties exist with respect to many of the tax consequences of the plan.”

Document

Donald Trump's Lawyers' Warnings on Tax Maneuver

Mr. Trump's own lawyers at Willkie Farr & Gallagher cautioned him about using a a tax avoidance maneuver in the 1990s.

OPEN Document

One letter, 25 pages long, analyzed seven distinct components of Mr. Trump’s proposed tax maneuver. It found only “substantial authority” for six of the components. In the stilted language of tax opinion letters, the phrase “substantial authority” is a red flag that the lawyers believe the I.R.S. can be expected to rule against the taxpayer roughly two-thirds of the time. In other words, Mr. Trump’s tax lawyers were telling him there were at least six different reasons the I.R.S. would probably cry foul if he were audited. In anticipation of that possibility, the lawyers even laid out a fallback plan that would have allowed Mr. Trump to spread the pain of a large tax hit over many years if the I.R.S. ultimately balked.

It is unclear whether the I.R.S. ever challenged Mr. Trump’s use of this specific tax maneuver. According to a financial disclosure statement prepared by Mr. Trump’s accountants, he was under audit by the tax authorities as of 1993, only a year after he avoided reporting hundreds of millions of dollars in taxable income because of this legally suspect tactic. But the results of that audit are unknown, and the agency declined to comment on Monday.

Regardless of whether the I.R.S. objected, Mr. Trump’s tax avoidance in this case violated a central principle of American tax law, said Mr. Buckley, the former chief of staff for Congress’s Joint Committee on Taxation, who later served as chief tax counsel for Democrats on the House Ways and Means Committee.

“He deducted somebody else’s losses,” Mr. Buckley said. By that, Mr. Buckley meant that only the bondholders who forgave Mr. Trump’s unpaid casino debts should have been allowed to use those losses to offset future income and reduce their taxes. That Mr. Trump used the same losses to reduce his taxes ultimately increases the tax burden on everyone else, Mr. Buckley explained. “He is double dipping big time.”

In any event, Mr. Trump can no longer benefit from the same maneuver. Just as Congress acted in 1993 to ban stock-for-debt swaps by corporations, it acted in 2004 to ban equity-for-debt swaps by partnerships.

Among the members of Congress who voted to finally close the loophole: Senator Hillary Clinton of New York.

Trump Accused Warren Buffett Of Not Paying Taxes At The Debate … Buffett Releases Taxes And DESTROYS Trump In The Process

RealtimePolitics

Sunday night at the debate, Anderson Cooper asked Donald Trump if he used his $916 million reported loss from his 1995 tax return to avoid income taxes in other years, Trump shot back that he did — but so did the fourth richest man in the world and Hillary Clinton supporter Warren Buffett, who Clinton had minutes earlier praised for his advocacy of higher taxes on the rich.

Cooper asked, “You have not answered, though, a simple question. Did you use that $916 million loss to avoid paying personal federal income taxes for years?”

Trump responded, “Of course I do. Of course I do. … I absolutely used it. And so did Warren Buffett and so did George Soros and so did many of the other people that Hillary is getting money from.”
Well guess what?

On Monday Buffett released a statement saying, in effect, bullshit. He has never used a carry-forward, the technique Trump used to avoid taxes, and he has paid taxes every year since 1944, when he was 13 and paid $7 to fund World War II.

Report: Donald Trump Violated US Embargo on Cuba in 1990s Even as He Called Castro a Brutal Dictator

JUAN GONZÁLEZ: Well, in news from the campaign trail, a new investigation by Newsweek reveals that one of Donald Trump’s businesses violated the U.S. embargo on Cuba and secretly did business there in the late 1990s and then tried to cover it up. The investigation draws on internal company documents showing Trump’s firm, then called Trump Hotels & Casino Resorts, spent at least $68,000 in Cuba during a secret business trip to Havana. At the time, it was illegal under U.S. law to spend any corporate money in Cuba.

AMY GOODMAN: Only a year later, Trump wrote in an op-ed piece in the Miami Herald in '99, "I would rather take a financial hit than become a financial backer of one of the world's most-brutal dictators ... Of course, we should keep the embargo in place," he wrote.

Well, for more, we go to Dallas, Texas, where we’re joined by Kurt Eichenwald, who’s senior writer at Newsweek, contributing editor at Vanity Fair. His cover story for Newsweek is headlined "Donald Trump’s Castro Connection."

So, in these last few minutes we have together, Kurt, can you just lay out what you found?

KURT EICHENWALD: Well, very simply, that Donald Trump violated the Cuban embargo, and did so with a lot of planning. They did a business trip. They spent many, many thousands of dollars, which is completely illegal, visited—this is not Donald Trump personally. They sent someone from an outside company and reimbursed him for all the costs, but that was the way to do it. They met with government officials, financiers, businessmen, came back, plotted on how to make it look like this was actually a humanitarian effort sponsored by a charity. And then, after that, no deal came out of it, but seven months later, Trump was on the campaign trail running for the nomination of the Reform Party. And he said spending money in Cuba is giving it to Castro, and he’s a murderer. And, you know, while he’s standing there, he knows that he had just done that.

JUAN GONZÁLEZ: And the reason he did that, Kurt—

KURT EICHENWALD: So, it’s really—it’s shocking.

JUAN GONZÁLEZ: Kurt, the reason he did that at the time was just looking out for potential casinos in Havana, at the time that his own company was in financial trouble?

KURT EICHENWALD: Yes. There was—there were rumblings that the embargo might be about to be revised. And so Trump was trying to get, you know, a foot in the door. He was trying to get people on the ground in Havana who would help—you know, help with the government aspects, help with the financial aspects, help with the partnership aspects, and basically was getting braced to, like, dash through the door as soon as it started getting opened. It didn’t get open, and you’re not allowed to do that. It was illegal to begin with. And so, it was a—you know, it was a financial decision for what was then a very financially struggling company. And it just—you know, to me, what’s so shocking about it is how casually they broke the law, how casually—you know, the motivation of it was so—was so based in, you know, just financial calculations, trying to pull a lousy business out of the fire.

AMY GOODMAN: Now, Kurt, you have a lot of people who—a lot of—there are a lot of people who were opposed the embargo, who felt it was wrong, except Donald Trump would not be in that category publicly, because, as you point out in the Miami Herald, he said, "I would rather take a financial hit than become a financial backer of one of the world’s most-brutal dictators." How do you know, in this last minute, that Donald Trump directly knew about this $68,000 expenditure?

KURT EICHENWALD: Well, two things. First of all, the $68,000 was coming out from the very highest reaches of the company. It wasn’t like there was some accountant doing it. The president and chief executive officer were in charge. The chief financial officer was involved. And I know from people who were directly involved in the circumstances, who were there, that Trump knew and was fully on board. You know, you don’t write a $68,000 check and not—and it was actually a $100,000 check, because they were paying for other things, too—with a consultant that Trump is dealing with personally, and have nobody know about it. But, yes, he knew.

AMY GOODMAN: And the investigation that you did of the cover-up afterwards, of—

KURT EICHENWALD: With the—well, what that entailed was, after the money had been paid, there are ways for a humanitarian effort to be expended in Cuba that are legal. And it was: "Well, maybe we should try and make it look like this. Maybe we should get a charity to have sponsored our trip." It doesn’t work that way, and you can’t do a business deal or a business transaction or a business trip and then say, "Oh, let’s make it look like it’s a humanitarian trip."

AMY GOODMAN: Well, we’re going to have to leave it there. Kurt Eichenwald, thanks for joining us. We’ll link to your piece at Newsweek, Vanity Fair.

How Donald Trump Turned the Tax Code Into a Giant Tax Shelter

Common Sense

By JAMES B. STEWART  

Now we know: Donald J. Trump racked up losses so huge in the early 1990s that he wouldn’t have had to pay federal or New York State income tax on nearly a billion dollars in income.

None of this seems to have made the slightest dent in Mr. Trump’s opulent lifestyle over the years. At the nadir of his personal financial crisis in the early 1990s, his lenders put him on an annual “budget” of $450,000 in personal expenses — more than enough to sustain his lifestyle of lavish homes, private jets, country clubs and golf courses — even as he was using the tax code to avoid paying any federal income tax.

It’s hard to imagine a starker contrast with the vast number of Americans who struggle to both pay taxes and make ends meet, or a more damning indictment of a tax code that makes that possible.

“If it wasn’t clear before, it is now: The tax code is tilted toward the rich in its statutory framework, its exceptions, and in how it is enforced and administered,” said Steven M. Rosenthal, a real estate tax specialist and senior fellow at the Urban-Brookings Tax Policy Center.

“The American public,” he said, “needs to wake up and send a message that the tax code should be written to generate revenue and enforced to collect it, not to favor wealthy real estate developers and other special interests and their lobbyists.”

If Mr. Trump’s pattern of generating losses and using them to offset other income has continued, as seems likely, it’s obvious why he has not released his tax returns: not because he is being audited, or because the returns are too complicated, but because he hasn’t paid any taxes.

The latest revelations, in an article published by The New York Times, make a “compelling” case for more disclosure, said Michael Knoll, professor of law and real estate at the University of Pennsylvania Law School. “If his loss was so massive that he didn’t pay federal income tax for 15 to 20 years, that’s surprising. It’s even more surprising that someone in that situation would run for president.”

Even if Mr. Trump was correct when he asserted that he only took advantage of what the law allows, such a huge loss undermines one of his central campaign themes, which is that he is an astute and successful businessman.

Given the size of the loss that Mr. Trump reported, “it’s clear he was a spectacularly disastrous businessman,” Mr. Rosenthal said.

Douglas Holtz-Eakin, an economist who served as director of the Congressional Budget Office and is now president of the American Action Forum, a conservative pro-growth advocacy group, agreed: “It’s either a unique combination of bad luck or he’s a terrible businessman or both. I don’t understand how you can lose a billion dollars and stay in business.”

All of this makes it even more imperative that Mr. Trump disclose more tax information, including more current returns as well as earlier returns that would explain how, by 1995, he had a huge operating loss carried forward from earlier years that approached a billion dollars.

“This absolutely strengthens the case for disclosure,” Mr. Rosenthal said. “A loss of that magnitude raises all kinds of red flags.”

Mr. Trump’s records indicate that there was an attached statement that explained the net operating loss being carried forward. “That’s so tantalizing,” Mr. Holtz-Eakin said. “I’d love to see that statement.”

Mr. Trump, of course, is free to release it. It would probably answer many questions about the source of the losses. It would also help explain whether these were legitimate business losses or “accounting gimmicks and abusive tax shelters,” as Mr. Rosenthal put it.

There are a number of accounting tactics that Mr. Trump might have used to generate such a huge loss, some of them considered highly aggressive and of dubious legitimacy, accounting experts said.

Given the dire state of Mr. Trump’s businesses at the time, he might have been able to record write-downs of assets under a doctrine known as “abandonment,” an aggressive accounting tactic used when an investor walks away from a worthless or nearly worthless asset and writes off the entire capital investment in the property.

There is also the question of Mr. Trump’s debt. Mr. Trump personally guaranteed $832 million of debt related to his casinos and other assets. Under tax code provisions available to real estate developers, he could take the full amount as a deduction even if he didn’t invest a dime of his own money.

Ordinarily, that deduction would be recaptured when the debt was forgiven or the underlying assets sold. If the debt were forgiven, Mr. Trump would have to report that as income. But there are various exceptions. If Mr. Trump was insolvent at the time — if his debts exceeded his assets — he might have avoided having to report the forgiveness of debt as income. Of course, if that was the case, it further undermines his claims to being an astute businessman.

There are other provisions, too, that might have allowed Mr. Trump to deduct the loans but never have to report them as income.

Real estate developers are also uniquely able to realize losses as soon as they occur, but defer gains, often indefinitely, through such tactics as like-kind exchanges. “It’s heads Trump wins, and tails the government loses,” Mr. Knoll said.

Large as the loss was, Mr. Trump didn’t even need to use any of his loss carry-over in 1995. As I previously suggested, he was also able to use the tax breaks available to active real estate developers to report a loss of nearly $16 million from “rental real estate, royalties, partnerships, S corporations, trusts, etc.,” which are the forms in which Mr. Trump holds most of his assets.

Mr. Trump’s records show that he used that loss to offset his ordinary income. Mr. Trump reported $3.4 million in business income, $7.4 million in interest and a paltry $6,000 in wages and salaries, all of it sheltered from tax by his loss.

The rest of us can’t do that, unless we fit the narrow criteria for active real estate developers.

“There’s probably no special interest that’s more favored by the tax code than real estate,” Mr. Rosenthal said. In examining the often-lauded tax reforms of 1986, he found “all these carve-outs for real estate interests.”

“It’s a monument to lobbying and the influence of real estate” interests, he said.

Mr. Holtz-Eakin added: “It’s unbelievable. It’s due to the unique weirdness of the American love affair with homeownership,” which was used to justify these tax breaks.

As Mr. Trump has said, he should be uniquely positioned to reform the system. “Mr. Trump knows the tax code far better than anyone who has ever run for president and he is the only one that knows how to fix it,” his campaign said in a statement to The Times.

Hope Hicks, a Trump spokeswoman, declined to comment beyond the campaign’s earlier response to The Times.

Mr. Trump hasn’t hesitated to castigate corporate executives and Wall Street money managers for taking advantage of tax loopholes, and has proposed eliminating the favorable treatment of their income, a tax benefit that pales in significance to the magnitude of his.

Yet Mr. Trump chose not to release his returns, and his tax proposals would not close a single loophole that benefits him. On the contrary, he would make the tax code even more favorable to real estate developers like himself. He would lower the tax rate to 15 percent for limited liability companies and partnerships, the very entities in which Mr. Trump holds most of his assets.

“He hasn’t proposed anything to address these loopholes,” Mr. Holtz-Eakin said.

At the broadest level, Mr. Trump’s tax avoidance undermines the entire tax system, which rests on the foundation that every citizen pays a fair share.

“Our whole system is based on voluntary compliance,” Mr. Rosenthal said. “How will people react when they see a self-proclaimed billionaire like Trump pays no tax? Why should they pay?”

Mr. Rosenthal said it reminded him of the famous quote attributed to the hotel owner Leona Helmsley: “Only the little people pay taxes.”