Columns » Ernest Dumas

Tax lies



If Aristotle's famous principle can be stretched from the theater of art to the theater of politics, we may soon discover whether the Republican tax cuts will challenge the public's "willing suspension of disbelief." Will people accept the fiction that the tax cuts will widely help ordinary wage and salary earners and not mainly the very wealthy, as ancient theater goers accepted obvious fiction over reality in order to experience Aristotle's catharsis and purification?

But let's leave the Greeks out of this, and fake philosophers, too, as Donald J. Trump might tweet.

Independent tax analysts with the Congressional Budget Office and the Joint Committee on Taxation applied each section of the Senate and House tax bills to the IRS' vast trove of data from 140 million individual tax filers and 1.4 million corporations and concluded that the great bulk of tax relief by 2027 would go to the richest corporations and individuals and that both the bills would add at least a trillion dollars to the national budget deficit while ultimately making millions in the middle class worse off.

Polls show that most Americans don't believe the hype that none of that will happen and that tax cuts favor the middle class, but 60 percent of those who identify themselves as Republicans do believe those claims.

Anyone is free to believe that sharply reducing the taxes of businessmen—both corporations and businesses that pass through profits to the owners—will cause a burst of economic growth that will reach down to workers and the unemployed, although there is no modern history of that happening. It happens that there is one simple way to measure the truthfulness of the claims: how it affects Trump himself.

"This is going to cost me a fortune," Trump said in Missouri last week. "This is not good for me."

No one can be sure of the effect on Trump's fortunes, because he has refused to authorize release of any of his tax returns, and he has suggested that he will fire the independent counsel if he subpoenas the IRS for his returns.

But we know enough from the single leak of three pages of his 2005 tax return and his financial reporting as a presidential candidate to figure out how the major provisions of the tax bills generally should affect his business. Lifting the deduction for state and local income and property taxes, which are high in New York state, might cost him some money if he pays any state and local income taxes now. Beyond that, it's hard to see where he would be hurt.

All the loopholes that help developers and big real-estate owners escape taxes remain intact and many more were created before both the House and Senate finally passed their bills.

Let's look at the major provisions of the bills.

The highest marginal rate on corporations is lowered from 35 to 20 percent. That will mean huge payouts to shareholders. By his own claims, Trump is a major shareholder in U.S. corporations. Seventy percent of corporations already pay no federal income tax after availing themselves of all the credits and deductions.

Most businesses are pass-through entities such as partnerships, sole proprietorships and limited liability companies, which are assessed under the individual income-tax laws. The top nominal rate of 39.6 percent will fall to 29.6 percent. Far from simplifying the tax code, the Senate bill was larded up with new credits.

Douglas Holtz-Eakin, the Republican economist who ran the Congressional Budget Office and now heads the conservative think tank American Action Forum, said commercial real estate — the bulk of Trump's empire — lost nothing in the tax rewrites and, in fact, got even more breaks in the Senate bill, like a shorter depreciation schedule.

Also, rental income, royalty payments and licensing fees, which became giant sources of wealth for Trump after he began renting the Trump name to hotel developers and manufacturers all over the world, get particularly favorable treatment under the new pass-through tax rates. Trump's financial summary shows income from more than 500 pass-through entities.

The most egregious loophole that benefited developers like Trump, that for carried interest, will remain virtually untouched.

Trump brags that he is "the king of debt" because his businesses have been highly leveraged by borrowing and interest. The House and Senate bills limit businesses' tax exemptions for the interest paid — unless the interest is for "any real property trade or business." Read: Trump enterprises.

The leaked three pages of Trump's 2005 return shows that most of the meager tax he paid was required by the alternative minimum tax, which was enacted to make rich tax dodgers pay something. The Republicans seek to repeal or reduce that tax.

Repeal of the 100-year-old estate tax, which taxes the unrealized and untaxed capital gains and other inheritance assets when they exceed $10 million for a couple, will hurt Trump or his heirs exactly how?

But he begs you to feel his pain. Millions will.

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