Trump’s tax returns reveal a system that rewards all of America’s elite

The New York Times’s blockbuster report on US president Donald Trump’s long-sought tax returns has sparked outrage about his tax bill and business practices.

The Times, which says it obtained tax records for Trump and his companies over two decades, discovered that Trump had paid just $750 in federal income tax in 2016 and 2017, and paid none in 10 of the previous 15 years.

The revelations saw Twitter users blow up the president’s mentions following the claims, as people used the #BrokeA**President hashtag along with #TrumpCrimeFamily to air their grievances.

Tempting as it is to see him as a singular villain, the problem lies deeper than Trump. Until now, he has managed to get away with gaming a system that allows the wealthiest and corporations to rip off billions in unpaid taxes.

The report revealed enormous losses Trump has incurred on his businesses, many of which he used to later reduce what he owed to the government, an ongoing $100 million battle with the Internal Revenue Service (IRS), and more than $400 million in debt that is about to come due.

It also highlighted the president’s overseas entanglements, alleging that he made $73 million in revenue in his first two years in the White House, much of it coming from his golf courses in Scotland and Ireland, including licensing deals that netted him $3 million from the Philippines, $2.3 million from India and $1 million from Turkey.

In wake of the revelations, Senator Bernie Sanders accused Trump of being a “corporate socialist”.

Sanders’ criticism of Trump is rooted in how the relationship between corporations and the US government is reflected in the tax code, lobbying efforts and the revolving door between the world of big business and Capitol Hill, which allows corporations to effectively privatise their profits and socialise their losses.

The wealth-bias of tax avoidance

It is worth stepping back and examining the framework that has enabled Trump: one where a number of loopholes allow the wealthy and corporations to evade paying their fair share in taxes, and one that fails to enforce the laws in place to incriminate those that breach it.

Gaming the tax system is an age-old problem, but it has gained much greater concern in the digital age where financial and intangible assets can be instantaneously transferred at low cost to facilitate tax avoidance maneuvers.

Between 2011 and 2013, the nonpartisan Congressional Budget Office (CBO) found that $381 billion in taxes went unpaid every single year. Take that number and couple it with a Harvard University research showing the top 1 percent of income earners are responsible for 70 percent of the tax gap, and you arrive at $266 billion in owed annual tax revenue that the ultra-rich are depriving the American public of.

After the CBO report came out, the Tax Justice Network released a study revealing how instead of declaring profits in the countries where they were generated, US multinational firms operating overseas shift over $1 trillion in profits every year to corporate tax havens instead, depriving governments of $330 billion in tax revenue.

The study noted that four countries – the UK, Luxembourg, Netherlands and Switzerland – “are together responsible for half of the world’s corporate tax avoidance.” The US government loses around $60 billion of revenue a year because of such corporate tax evasion schemes.

Tax havens are not limited to just corporations of course, as the Panama Papers and Credit Suisse scandals made clear how wealthy individuals have exploited offshore schemes.

It doesn’t help that the IRS, which is supposed to collect and enforce taxes, is hamstrung either. The department’s budget has been slashed by almost 20 percent since 2010, making it tougher to deploy the resources necessary to police tax avoidance at the top.

Rather perversely, it is low-income Americans that are just as or even more likely to be audited than the rich.

Trump’s tax cuts

If the tax code wasn’t absurd enough, the Trump administration would institute unprecedented opportunities for tax gaming after taking office.

Trump’s most significant legislative achievement during his presidency, the $1.5 trillion tax cut bill he signed into law in 2017, disproportionately benefited corporations and the wealthy, including the types of businesses the president is often involved in.

Among the law’s various loopholes and ambiguities, it allows corporations to bring future earnings from foreign subsidiaries they control back to the US tax-free. By not taxing the profits of foreign subsidiaries, it incentivises US companies to earn their income offshore.

Real estate in particular is a tax-favoured industry, and so people like Trump get all sorts of deductions and perks.

The CBO projected that the cuts will drain federal revenues by $1.9 trillion over the coming decade.

The tax gap is conveyed in the starkest terms when you have Amazon earning over $10 billion in income but paying zero in income tax by taking advantage of tax credits, and even earning a rebate of $129 million in the process.

The tax cuts have only made it much easier for big corporations like Amazon, IBM and Netflix to avoid paying income taxes and in some cases benefit from a negative tax rate.

The Institute on Taxation and Economic Policy analysed SEC filings of Fortune 500 companies and identified 60 major corporations that didn’t report any federal income tax expenses in 2019.

The CARES Act, the stimulus bill passed in March to help boost the economy amid the pandemic, also had numerous tax breaks for the rich.

The result? A country where wealthiest families pay a lower tax rate than much of the middle class, while inequality continues to exacerbate.

It should come as no surprise then, that Trump boasted in the past of his ability to take advantage of every loophole in what he called a corrupt tax system – indicative of both one individual’s corrupt behaviour and a system that encourages such behaviour.