The recent illegal release of three pages of Donald Trump’s tax returns from 1995 shows he reported business losses of nearly $916 million due to adverse changes in the airlines and casino industries. The New York Times, no friend to Trump, published this illegal disclosure and speculated that Trump could have avoided taxes of an equivalent amount over the next 18 years.
Democratic presidential candidate Hillary Clinton and her minions quickly seized on these illegally released documents, undoubtedly advised of this by whoever released the report, to paint Trump as a tax cheat, hypocrite, immoral, unpatriotic, and unfit to lead our country. Is this a fair criticism?
The U.S. Tax Code
To answer this question it is necessary to have a basic understanding of the complexities of our tax code. The primary purpose of the tax code as written by Congress is to raise revenues to run the federal government. But the secondary purpose is to encourage behavior of taxpayers that benefits the country.
Tax deductions are allowed for donations to charitable organizations that qualify and for interest on home mortgages. Congress didn’t permit this out of sympathy for these charities nor for the home building industry. They did it because there are benefits to encouraging taxpayers to donate to charities since the good works these charities do benefit the country. Without these deductions to encourage private support of these charities, most would cease to exist, creating a void in the many services these charities provide. The government would undoubtedly have to pick up the pieces of the broken social network so it chooses instead to permit tax deductions that support these charities.
They allow interest deductions on mortgages because it encourages people to purchase homes. This benefits not only those who build homes but those who sell home furniture, interior decorating, appliance makers, insurance companies, banks and every other industry connected to home ownership. Millions of jobs are created by this tax code encouragement of the home building industry. These millions of jobs stimulate the economy, creating even more jobs, resulting in greater tax revenues for the government.
Deducting Business Losses
No one has even remotely suggested that Donald Trump did anything that is illegal. Taking deductions for business losses is a standard practice by every business in America and rightly so. The tax code encourages this for a very good reason – it gives businesses a chance to recover from a bad year so they can continue to offer jobs to their employees and services to their customers. This leads to more employees making money that leads to more tax revenues when those employees pay their individual taxes. The government gets more tax revenues in the long run when businesses succeed. They get nothing when businesses go bankrupt.
CNNMoney did an analysis of the number of jobs the Trump Organization has created. They turned to PrivCo, a firm that researches and tracks privately-held companies. According to PrivCo, the Trump Organization has 22,450 employees. But that doesn’t measure the full picture. Many other jobs wouldn’t exist without the jobs of the Trump Organization. This “multiplier effect” creates jobs for other companies. CNNMoney estimates with this “multiplier effect” that the Trump Organization is responsible for between 34,000 and 67,000 jobs, depending on whether you consider it a “leisure and hospitality” business or a “financial services or management company.”
According to 2014 date released by the U.S. Census Bureau, the average American income is $51,939. The average American pays federal income taxes of 19.8 percent. That means the average American pays federal income taxes of $10,284 per year.
If the Trump Organization employees 22,450 employees that pay an average federal income tax per year of $10,284, the federal government receives $230,874,049 from Trump employees per year. If the Trump Organization is responsible for as many as 67,000 jobs, those jobs produce an average annual tax revenue to the federal government of $689,028,000 per year.
Now, if the Trump Organization had failed to take the legal tax deduction of $916 million in 1995 and instead filed for bankruptcy, how much might the federal government have lost in tax revenues over the next 18 years? The federal government might have lost $12.4 Billion in tax revenues!
While these numbers are speculative, this mathematical exercise explains why the Congress wants businesses and individuals to take losses on their tax returns. Successful businesses increase federal tax revenues through the impact of their business on their employees and the employees of related businesses.
Hillary Clinton and Tim Kaine are trying to say Donald Trump is unpatriotic because by taking the tax deduction for his business losses he is failing to support our military. The truth, however, is that by following the intentions of the tax code passed by Congress the Trump Organization possibly contributed $12.4 Billion to help pay for that military. Now that’s not only legal and smart – it’s patriotic!