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Donald Trump’s Tax Return Controversy: Part Two

Schechter Wealth

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June 8, 2016

What You Need to Know About Trump’s Tax Return Disclosure Controversy: Part Two

Bernie Kent, Chairman & Advisor for Schechter Investments and Forbes.com contributor, takes a closer look at the controversy regarding Donald Trump’s tax return in a two-part series written for Forbes. He discusses how a complex return like Trump’s can mean continuous audits by the IRS and that this may mean that Trump never releases his records to the public. Part two discusses what a tax return can reveal about Trump’s income and tax rate; charitable intentions and sources of income.

What might we learn from Donald Trump’s tax returns?

Much can be learned about a person from their tax returns. Here are some things to look for.

How much Federal income tax is being paid?

Many people feel that a candidate for president should pay his/her “fair share” of tax, but there is no common agreement on what that “fair share” should be. If a presidential candidate is not paying Federal income tax, even if through legal means, most people would say that the candidate is not paying their “fair share”. I believe that this should not reflect negatively on the candidate, but instead it is a reflection on our tax system. Judge Learned Hand famously wrote in Helvering v. Gregory, “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”

What is the tax as a percentage of total income?

Many people will look at this percentage and compare this to national average tax rates (or their own tax rate) and complain if the candidate is paying a lower percentage. This rudimentary analysis ignores legitimate and appropriate differences between taxpayers. The tax law allows deductions for many valid policy reasons. These deductions are expenses that reduce a taxpayer’s ability to pay tax. To me it doesn’t make sense to ignore deductions when calculating tax rates. Tax is applied to the taxable income after deductions. Why look at only part of the calculation in order to get a skewed result?

In addition to deductions, the other main reason why some taxpayers may pay a lower tax rate is that long-term capital gains are taxed at lower rates. There are many valid reasons for the lower rate on capital gains. These were discussed in the capital gains section of my article, Musings on Warren Buffett’s Tax Disclosure.