Donald Trump Paid Just $750 In Federal Income Taxes — Is That Even Legal?

Nothing unites a nation like realizing we've paid more taxes than our billionaire president has. On Sunday, the New York Times released a report on over two decades of Trump tax returns that it had obtained. Though it contains a dirty laundry list of the Trump family's legally-questionable financial plays over the past two decades, one number, in particular, stood out: $750, the amount that Trump paid in federal income tax in both 2016 and 2017, the two most recent years of the returns obtained by the NYT.

Many people noted that this was much less than they, an ordinary non-billionaire resident of the U.S., had paid. A recent NerdWallet survey found that, while only 1 in 5 taxpayers expected to owe taxes this year, those who did, predicted they would pay an average of $2,667. For 2018 federal income taxes, the average amount an individual owed was around $2,000.

$750 is an amount that someone could cover with the single $1,200 stimulus payment Congress gave Americans since the COVID-19 pandemic began in March. It could be covered by a little over a week of the boosted unemployment benefits provided by the CARES Act. It's leagues below what many Americans spent this year on medical costs. The NYT report notes that Trump paid zero federal income taxes for 11 years of the period between 2000 and 2017.

The fact that the president, who is estimated to be worth $2.5 billion right now, has contributed so little to the tax base of the country he's running understandably feels like a slap in the face. Trump's taxes may have involved a lot of creative accounting — he's currently undergoing an audit for a $72.9 million tax refund he claimed — but many of us are wondering, is this actually legal? 

Often, it is. It's mostly par for the course for wealthy Americans and businesses. While individuals may be subjected to audits that investigate whether their tax returns were prepared accurately, it's important to note that tax evasion and tax avoidance are very different things. Tax evasion is when someone lies about their income or some other number that they must report — for example, not including cash you earned on your tax return. Tax avoidance is the legal practice of utilizing any and all deductions, credits, and tax code loopholes to reduce the amount of income you are liable for. That doesn't mean Trump's tax avoidance is above-board; in fact, the NYT report lays out many ways that it may have been done improperly, including by paying family members like Ivanka hefty "consulting fees" that could be written off as business expenses. 

Generally, it's wealthy people who employ tax avoidance tactics; after all, why would they want to pay more taxes than they legally have to? The rest of us might not be knowledgeable on the minutiae of the complex U.S. tax code, but the rich can hire the cleverest tax accountants in the world. It shows how, while Trump's tax returns are exceptional and newsworthy because he is the president, this was made possible because the tax system offers a wealth of opportunities to avoid taxes when you're a billionaire. 

In 2018, for the first time ever, billionaires paid a lower tax rate than the average American. But being taxed at a lower rate is just a part of the issue. Wealthy Americans manage to avoid taxes because their income comes in diverse forms — stock dividends or real estate, for example. According to the Center on Budget and Policy Priorities, roughly 41% of the income of the wealthiest 1% of Americans is capital income — money that's earned from your assets increasing in value. Capital income stands in contrast to labor income that comes from performing a job 40-plus hours a week. The value increases of your assets (called capital gains) are not only typically taxed at a lower rate and enjoy exemptions, you usually don't pay taxes on them until you sell them. Wealthy people can simply pass down assets like these to their children without paying capital gains taxes, and holding these assets allows wealthy people to have access to incredible amounts of credit. Amazon CEO Jeff Bezos, despite being the wealthiest person in the world with a net worth of $186.9 billion at time of writing, pays an income tax based on a reported salary of $81,840. As the NYT story notes, tax returns don't reflect your net worth.

When you run a business, there are even more ways to reduce your tax liability. A big reason why Trump managed to not pay taxes at all in some years, for example, was due to his businesses reporting large losses. These losses don't just reduce liability for that single year, but can be carried over to subsequent years. The NYT notes that the losses were real, but there are many ways that businesses take advantage of accounting tactics to minimize reported profits, including by claiming business expenses, credits, and moving their profits outside of the U.S.

Facebook is currently undergoing an IRS audit investigating whether it has avoided taxes by moving its headquarters to Dublin, Ireland. If the IRS wins its case, Facebook could be ordered to pay $9 billion. But the IRS has been severely underfunded for over a decade, making it difficult for the agency to pursue audits of powerful corporations and people. Trump's tax audit began in 2010 and still remains unresolved.

According to a report released by the Institute of Taxation and Economic Policy (ITEP), 91 major companies paid zero federal income taxes in 2018. In fact, many received a refund. Companies that either paid nothing or received money back for their 2018 taxes include Amazon, Netflix, Chevron, IBM, JetBlue, Prudential Financial, General Motors, and Halliburton. In part, corporate tax liability can be greatly reduced due to generous tax subsidies. The report notes that in 2018, Bank of America received over $5.5 billion in tax subsidies, JPMorgan Chase received $3.7 billion, and Wells Fargo around $3.2 billion.

The issue of who pays taxes in America is often leveraged to decide who gets to have a say in how the country is run — who are the hard workers and who takes handouts? Trump has long spread the myth that undocumented workers take advantage of the U.S. by living here and not paying taxes, but this is a lie that's made more absurd by the discovery of his tax returns. Vox reports that in 2014, which is the most recent data available, undocumented workers paid over $11 billion in taxes — far more than the president has paid.