January 4, 2023
January 4, 2023
This op-ed was originally published in Newsweek on Dec. 29, 2022.
Despite bragging that he’s “very rich,” former President Donald Trump paid little or nothing in federal income taxes, year after year after year. The IRS never audited Trump as president, in contrast to its own rules, though it audited every other president from Jimmy Carter to Joe Biden.
Trump’s low tax payments illustrate his willingness to break the law. But there’s a bigger problem. The law itself is rigged in favor of the wealthy and against the rest of us. While Trump likely acted illegally at times, much of his tax avoidance was perfectly legal.
Congress should unite around a basic principle that Republican, Democratic, and independent voters support: the wealthiest, whether they are presidents, CEOs, or just rich heirs, should pay their fair share. Using Trump’s tax maneuvering as a guidebook could make the tax code much fairer for all of us.
For starters, the IRS should be adequately funded so nobody as rich as Trump can pull off tax bills of zero without auditors taking a closer look. Audit rates for those with incomes over $5 million a year fell to barely over 2 percent in 2019, from 16 percent in 2010.
Congress added significant long-term funding for the agency last summer. But Republicans have carped non-stop about that funding ever since. Trump escaping audits and paying little or nothing is all the proof we need that this funding is essential.
A well-funded IRS would be equipped to investigate the many likely illegal things Trump may have done like evading gift taxes on huge handouts to his adult children, writing off $70,000 in hair styling as a business expense, deducting expenses he did not actually pay, and classifying his personal residence as an investment property to dodge the cap on state and local tax deductions that his tax law created to punish taxpayers in liberal states.
But the legal shenanigans should dismay us at least as much as the illegal ones. Here are three simple reforms Congress could pass to make sure that people as rich as Trump claimed to be pay their fair share.
First, we should tax enormous estates and inheritances so that obscene wealth is not passed down from generation to generation. Trump at age 72 suddenly reaped a $14 million windfall by selling off his inheritance in a Brooklyn housing development (from a father who taught him to grow his real estate fortune through racial discrimination and slumlording, but I digress). America’s estate tax is weak and filled with workarounds that allow heirs to inherit un-earned millions. Among other reforms, the capital gains tax should be levied at the point of inheritance, a reform proposed in 2021 but killed in Congress.
Second, we should tax income from wealth the same as income from work. Very little of Trump’s money was earned by working—most was just “earned” when he sold assets he inherited that had grown in value. For example, in 2015 he had just $14,141 in wages but over $35 million in capital gains. But income from wealth that grows in value is taxed less than income from work even when it is finally sold and the gain is “realized.” This is backwards. Lawmakers should equalize these rates so that someone who wakes up at 6 a.m. and trudges to work in the rain doesn’t pay a higher rate than someone who sits in their inherited mansion watching the stock portfolio they were given grow.
Third, we should restore the real estate reforms that passed in a bipartisan way under former President Ronald Reagan. The Tax Reform Act of 1986 closed some loopholes and simplified the tax code—until the real estate industry clawed those loopholes back open. In 1991, Trump complained that Reagan’s reforms were “an absolute catastrophe” for the real estate industry and Congress eventually agreed to loosen provisions he didn’t like. That’s why real estate investors can use losses, as Trump did, to dodge capital gains taxes even more easily than other rich people, and can manipulate depreciation deductions.
This past summer, lawmakers showed that they can make positive tax changes that have eluded us for decades. They passed a minimum tax on the richest corporations to crack down on billion-dollar, zero tax companies, provided funding to the IRS to enable better enforcement, and narrowed the loophole for stock buybacks. Together these will raise hundreds of billions of dollars to invest in health, climate change prevention and more. Now let’s clean up the individual tax code, using Trump’s tax flouting to guide us toward bipartisan fixes.