I know a lot of people don’t like Donald Trump. I don’t care for him, either. But it is unclear to me exactly what they think he should have done differently regarding his income taxes.
By now, you’ve probably read or heard about the New York Times’ story, based on a leak of one portion of one year of Trump’s tax returns. The Times reports that Trump in 1995 claimed a net operating loss of almost $916 million — and that, because of that loss, he might not have paid federal income taxes for up to 18 years. No one knows how many years, because only one year’s return was leaked.
Hillary Clinton pounced on the news, blasting Trump for the sin of … not paying more income tax than he legally owed. That’s where this episode goes off the rails.
Trump of course could have avoided this revelation, or at least gotten out front of it, by releasing his returns on his own, as previous candidates have done. But only the specifics here are any kind of revelation. It is a well-known provision of tax law that individuals and companies can carry forward losses from one year into succeeding years.
As the AJC reported, Delta Air Lines has done this for several years. Heck, the Clintons themselves carried forward hundreds of thousands of dollars of capital-gains losses, as their tax returns indicate. This is not some secret loophole only “the rich” have ever heard about. President Barack Obama and a Democrat-controlled Congress actually expanded the length of time some net operating losses could be carried over.
The question is: What would you have these individuals and companies do differently? Companies already must pay taxes on their profits (at the expense of their investors, workers and/or customers). Should they also pay taxes on their losses?
If Trump’s loss for 1995 remained at $916 million — and it’s possible the IRS reduced the amount after auditing his returns — it’s not as if it entitled him to wipe out any number of gains for all 18 years. He would have offset only the same amount of gains. The net amount of the losses and gains in question would be zero.
How much in taxes should Trump have paid on that long-term zero? How much should Delta pay for its long-term zero? How about the Clintons for theirs? After all, it’s not as if the ill effects of a big loss simply disappear the next year. If you lose $100 today but make $5 tomorrow, it’s not as if you’re ahead by that $5; you’re still $95 in the hole.
There’s a reason tax laws intentionally allow taxpayers to carry losses forward: Doing so encourages entrepreneurs and investors to take risks, put money into American businesses, and ultimately spur economic growth and job creation. Both parties want this. Or at least, they say they do. Or at least, they used to.
Now, if Clinton merely said this showed Trump isn’t as successful a businessman as he claims, that’d be fair game. But to claim that Trump somehow cheated Uncle Sam and the rest of us by observing tax laws that Democrats helped write and also use to their own benefit is not just preposterous and deeply hypocritical. It risks throwing out sound policy with the partisan bathwater.
If Hillary Clinton believes everyone should pay taxes on their losses as well as their gains — starting with herself — she should come out and say so. Something tells me she won’t.
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