Every US president since Richard Nixon in the early 1970s has voluntarily published at least some tax returns. When President Trump refused to publish his return as a candidate in 2016 and since taking office in 2017, it became an elusive scoop for the news media. On Sunday, the New York Times received a comprehensive survey of Trump’s tax return data over a two-decade period.
There have been many revelations, perhaps the greatest, as The Times writes, “Mr. Trump paid no federal income taxes in 11 out of 18 years the Times studied. In 2017, after he became president, his tax bill was only $ 750. “And that he cut his tax burden with a tax refund of $ 72.9 million. (At the presidential debate Tuesday night with Joe Biden, when asked if he paid $ 750 in federal income tax, Trump said, “I’ve paid millions of dollars in taxes, millions of dollars in income tax.”)
Christina Rice (LAW’07, ’13), Lecturer at the School of Law and Director of LAW’s Graduate Tax Program, answered three questions from BU Today about the Times story about Trump’s taxes and how the details of his tax returns might be used in classrooms to help students better understand the intricacies of tax law.
With Christina Rice
BU Today: How could you use the New York Times story of President Trump’s taxes in classroom discussions with students?
Christina Rice: I encourage my students to put politics aside and just focus on the facts to understand what is happening from a tax perspective. One of the subjects I teach is income tax accounting, where we will specifically focus on how tax laws allow taxpayers to defer their income tax liability. In plain English, how do you pay less tax today, even if it means that you will pay more tax in the future? Real estate investors like Trump have many options under the law to expedite deductions like depreciation and postponing income recognition until a property is sold or even later by using similar exchanges or the new Opportunity Zone laws.
It is common to see landlords with little or no tax liability as depreciation on the building exceeds rental income in any given year. It is far less common for people with significant income from other sources, such as Trump’s television and licensing businesses, to have no income tax liability if they only employ tax deferral strategies. That requires actual losses. In my class, we also talk about how tax losses can be brought forward or backward to offset future or past taxable income. This is another topic that is covered extensively in the New York Times article.
“I encourage my students to put politics aside and just focus on the facts to understand what is happening from a tax perspective.”
– Christina Rice
Much of the debate and discussion after the Times story was published has centered on whether there has actually been a violation of tax laws or whether Trump was simply using the tax laws to his advantage. How are these questions discussed in tax law classes – Laws versus Ethics?
One of the main topics I’ve talked about is whether this is an example of tax avoidance (legal) or tax evasion (not legal). Taxpayers are free to use whatever means permitted by tax laws to reduce their taxes, even if that means no tax will be paid. Many very talented tax attorneys make a living finding new and creative ways to legally lower tax bill for their clients.
In a legal classroom, the question of ethics and morals usually arises when we talk about tax policy. Why are these laws written this way and do they achieve the desired result? Do we think taxpayers who make hundreds of millions from one company should be able to cut their tax burden to zero by using losses from a completely separate second or third company to offset the income from the first? In one of the few years Trump paid taxes, it was due to the Alternative Minimum Tax (“AMT”), which was designed to prevent the very wealthy from taking advantage of business losses to completely eliminate tax liability.
We saw this in debates over Amazon’s tax expense for 2018 last year. People were outraged that such a profitable company appeared to be unable to pay federal income tax in a year that exceeded $ 11 billion in annual financial statements, despite the fact that there was no evidence that Amazon had violated tax laws. Some political candidates have instead called for taxes to be levied on a company’s reported profits, which is completely against tax law. For what it’s worth, Amazon reported a current tax expense of $ 162 million for 2019 and an effective tax rate of about 17 percent.
Of all the things you read in the coverage of the New York Times, what was the only thing that shook you the most, or perhaps surprised you?
I was very pleasantly surprised at the level of detail in the NYT article. I have a lot of respect for the Times reporters, but I am naturally skeptical about how the media as a whole covers tax issues because they often get it wrong. Tax law is complicated, and even the most seasoned journalists usually don’t have the background to fully understanding what is really going on.
For example, when I started reading the Times article, I figured they weren’t going to discuss how much of the “losses” in Trump’s returns were actually related to depreciation, which isn’t actually a “loss” when you are Considering that the property being depreciated is unlikely to lose value in an economic sense. So I was shocked when they devoted several paragraphs to explaining depreciation and even quantified a total loss of $ 150.3 million “from 2010 to 2018 excluding depreciation as an expense.” This is important because it moves the story from something that can be explained by “good tax planning” to a conversation about real economic losses. The length of the article has likely prevented many people from reading to the end, but these additional details are critical to understanding the whole picture.
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