Many of us are focused today on the details of President Trump’s tax returns as released and explained by the New York Times. Twitter is abuzz with all of the things that cost more than the $750 Trump paid in taxes 2016 and 2017. Many of us ordinary people know that people with far less wealth pay far more in income taxes each year. And indeed, the idea that a man with many hotels, office buildings, golf resorts, and other real estate properties with millions in revenue could pay less than a bartender or nanny is ridiculous. But that is not even the worst of it. 

I have not seen Trump’s tax returns and am not in a position to make legal judgments. However, after reading the entire NYT piece, I can tell you that there are a lot of things that appear to be quite suspicious and potentially illegal. Once President Trump leaves office he will certainly have to face the IRS and other governmental investigations into things like money laundering, inappropriately high property valuations, and receiving a 5% stake in Atlantic City casinos after recording them as a total loss when they went through bankruptcy. 

Although we will need to wait until the courts and the IRS present more evidence and decide the legality of Trump’s actions, there is plenty to indicate illegal activity. The bigger issue, however, is that extremely wealthy people are playing a different game than the rest of us, and much of it is perfectly legal. 

Many Republicans (including Trump himself) are claiming that Trump is actually a brilliant businessman making use of business deductions (shoutout to everyone’s favorite Rich Dad Poor Dad, Robert Kiyosaki). And to some extent, that is true. I’ll let you decide the accuracy of the word “brilliant” but there is no doubt that he’s making use of perfectly legal business processes to minimize his taxes. 

Do you know why there are so many legal ways to reduce taxes? Oh, that would be because rich people hire lobbyists to get legislators to enact laws that benefit rich people. Or even worse, the rich people are themselves the ones making the laws. With wealth comes enormous power and privilege. 

If you want evidence, look no further than the tax rates on the wealthiest Americans. Just look at this chart from the Tax Policy Center showing the highest marginal tax rates (paid only by those with the highest income). Notice that after the Great Depression ended all the way up until 1980, the lowest tax rate paid by the wealthy was a whopping 70%. After that, taxes decreased significantly through the Reagan and Bush Sr years. Although they’ve gone up and down a bit since then, they’ve never once crossed over 40% since then.

In fact, the 2017 Tax Cuts and Jobs Act that was purported to have helped the middle class has in fact helped the 400 richest families in the U.S. pay a lower tax rate than middle-class Americans. How? In part, because the wealthy are able to channel their income into corporations and have it taxed at the corporate tax rate. And now that corporations are people, they can use that money to write more laws aimed to make the wealthy even wealthier. 

The CARES Act of 2020, designed to help people weather the economic storm caused by COVID 19, included some lesser-known provisions removing limits on tax deductions for the wealthy.

And here we return specifically to the NYT analysis of Trump’s tax returns and the real problem: tax deductions. Corporations and other business entities are allowed to take deductions on all kinds of things, including but not limited to start-up costs, rent, insurance, interest, employee wages, and taxes paid. Anything that is deemed “ordinary and necessary” to the business can be deducted as a business expense. 

For example, technically, Mar-a-Lago is now Trump’s home. You can’t take a tax deduction on a home. But you can if it is used for business. How about all the trips he makes “home”? Is he just going home for a few days or is he “conducting business”? If he’s conducting business and all his meals are “business” meals, he can basically deduct all the costs related to food and travel and who knows what else. 

You can also deduct as a business expense the amount paid to consultants who work on projects with you. According to the Times article, there is a distinct lack of evidence that consultants were actually involved on certain of Trump’s projects despite them being listed as a deduction. But let’s for a moment just assume that all of the consultant fees were for actual work that was completed by a consultant. There is a wide range of what could be considered a reasonable fee for that work (let’s remember that rich people are in charge of this, so they can set the “normal” standards for what is an acceptable fee). You could, hypothetically of course, pay your daughter hundreds of thousands of dollars in consultant fees and deduct them as business expenses. 

Depreciation is another way businesses take tax deductions. Small businesses of course benefit from this too. How it works is that you allocate the cost of a business expense (say a building or piece of equipment) over the course of the usable life of the item. This amount is deductible for tax purposes. 

Want to increase the amount of the tax deduction? It’s easy! Just inflate the value of the asset. If the IRS actually examines it, they might not agree on your valuation so you have to be careful, but if the IRS doesn’t notice, bigger tax deductions for you! (Hmm… I wonder why IRS funding is on the decline…)

From deducting tens of thousands in “ordinary and necessary” haircuts, to hiding assets in off-shore tax havens, to taking on debt just to get more tax deductions, there are countless ways in which a business can rack up losses (where the deductions exceed the tax bill). All these losses can make a business that is actually extremely profitable appear as though it is losing money. If Trump’s golf courses really are losing as much money as he claims, one wonders, as tweeted by @mattyglesias, if he’d be willing to part with them at a modest sum.

I can’t even begin to explain or even understand the myriad ways in which the rich have set up the system to make themselves richer, but there is no doubt that it is happening. As small businesses across America are struggling to survive, large corporations are getting millions in tax deductions from the CARES Act. As everyday Americans are struggling to work safely (or at all), the wealthy continue to make money hand over fist because their income is passively generated. American families are struggling to feed themselves, pay their medical bills, and avoid losing their homes. Meanwhile, the stock market ploughs ahead because wealthy people and large corporations continue to invest. 

Perhaps Trump really has engaged in illegal ways of avoiding taxes, but the larger takeaway from the NYT analysis is that rich people are legally avoiding taxes and are getting richer while the rest of us struggle to survive. To change the system, we’re going to need more investigations, enforcement of laws through proper funding of the IRS, and massive political change to ensure that rich people can no longer avoid following the same laws as the rest of us.