This was a tough choice to make, for a Thursday column. After all, this was a fairly big week in punctuation news, which normally would be catnip for a pedant such as myself. Not only was the president's spokesman trying to use the old "it was in quotes" defense (or should that be the "it was 'in quotes'" defense?), but there was a recent court ruling which actually hinged on the "Oxford comma." The plaintiffs won because they (correctly) argued that absent the final comma in a list, the final two items have to be taken as a single item, at least legally (it hinged on the phrase "loading for transport or delivery" -- which is different than "loading for transport, or delivery"). As you can see, I could easily have gotten a fun (to me, at any rate) column out of those juicy grammatical items alone.
Instead, we turn to the scintillating world of tax returns. Rachel Maddow has gotten some heat for her usual pedantic opening to the scoop on her show, but the only ones really surprised by it seem to be people who have never watched Rachel Maddow ever before. Putting that aside, I thought it'd be fun to go through Trump's 2005 tax return item by item. If that sounds to you like a less exciting prospect than watching paint dry, well then I'd have to advise you to stop reading right this very minute and go do something more interesting (hint: there are lots of very funny cat videos on the internet, for your endless enjoyment). Plus, this is going to be a fairly long article, even for me. You have been duly warned.
OK, who's still with me? Ready? Then let's dive in. I should mention that the actual origin of the scoop was DCReport.org, who has PDF versions of the Trump's Form 1040 available for viewing and download, if you want to play along at home. I should also warn everyone that I am by no means any sort of tax expert (nor do I play one on the web), but I have seen a tax form or two over my own long experience of filling out taxes. So this is all either from personal experience or sheer speculation.
The big problem with attempting any sort of analysis of Trump's tax form is that we only have Form 1040, which is really nothing more than where you add up the numbers from all the other (more-detailed) forms and schedules you fill out. It's a summary, at best -- the real meat of several issues (i.e.: "How much foreign involvement do Trump's businesses have?", "How much does he donate to charity?", etc.) cannot be determined from just Form 1040 alone.
There are a few interesting tidbits that do appear on Form 1040 and nowhere else, though, such as the interesting split between Donald and Melanija (that's how it's spelled on the form) over donating three bucks to the presidential election campaign fund (he did, she didn't). Humor aside, though, let's take a look at the real numbers on Trump's taxes.
Donald Trump made a cool million bucks in wages. This is money you get from a paycheck, as an employee. He likely pays this to himself as a cost of doing business, or maybe it was from a salary from his television show (When did The Apprentice begin? I have no real idea, and am too lazy to look it up). But once you get to a certain point up the income scale, wages become one of the smallest portions of your income, because it's a lot easier to write stuff off from other types of income. This is why many corporate bigwigs make a big public show out of getting paid "one dollar per year in income" -- because they're still comfortably making millions off things like stock options. In Trump's case, he could have worked the deal for his television show so that the money came to him as royalties rather than wages. But I digress.
Trump, like many tycoons, makes much more money in other ways, as you can see on Line 8a, which is interest income. This is usually what people make on bank deposits, although I'm sure there are other creative ways to earn interest when you've got a pile of money to do it with. Trump clocks in at $9.5 million in interest. Now, an enterprising accountant might be able to roughly figure how much Trump had in the bank during 2005, by reverse-engineering that figure (figure the prevailing interest rate, then work backwards to find the deposit amount, in other words), but we'll leave that as an exercise for the types of people who have calculators which do this sort of thing on a regular basis (which, I have to say, mine doesn't).
Trump doesn't seem to own much stock, as Line 9a is fairly small (for his level of income), at only $314,000 in dividends. What's really tiny in proportion to his income is how small an amount Trump has in tax-exempt interest and dividends, though. I guess Trump doesn't have a whole lot of need for a 401K plan, in other words. Only $50,000 of almost $10 million in interest and dividends was tax-free.
Trump didn't have to adjust for his state income taxes, which is kind of curious, but we'd have to see "STMT 2" and "STMT 4" to find out why. Likewise "STMT 6" for the line about alimony.
But now we get to the real meat of Trump's income. So far, he's only made roughly $11 million through wages, interest, and dividends. But he made a whopping $42 million as a self-employed business (one assumes). Line 12 comes from Schedule C, which is the form self-employed people use to figure their profit (or loss). Note that: profit -- not income. When you are a business, the tax code starts working for you instead of against you in many ways, one of which is taking all the money you make on your own and then subtracting everything that is a valid "business expense." Whatever's left over is what is taxed -- again, the profit the business makes, not the income it generates. The categories of business expenses are wide and varied. The first time I ever filled out this form (I was 19 years old and an independent contractor for Apple Computers, so it was quite a while ago), I remember the instruction booklet used, as an example, how to write off a Super Bowl luxury box as a business expense. That was just their example, so you can easily see what else you can lump into this category. So while Trump made $42 million in profit, he easily could have made tens (or even hundreds) of millions more and then written them off.
Line 13 comes from Schedule D, which figures capital gains and losses. This is how rich people make money, for the most part, as opposed to peons. Making a killing on the stock market is "capital gains," not "income." Selling a big, beautiful building (with or without your name out front in gold letters) is also capital gains. Even getting in a cash-flow pinch and having to sell off valuable artwork (oh, the shame!) is capital gains, if you make a profit on it.
The biggest key to the disparity in our tax code -- the main reason why the income and wealth gap is getting wider and wider, in other words -- is the simple fact that, in the United States, capital gains are taxed at a much lower rate than income. This is not true in every country, I should add. Want to know how the rich screw the poor into paying twice the tax rate they do? It's right there for all to see. The "Warren Buffet problem" between a tycoon's tax rate and his secretary's? There it is. Schedule D.
Now, a real estate developer is going to make money from selling buildings, one assumes. But there's another big giveaway for landlords buried even deeper. The concept of "depreciation" means that -- unlike anything average people own, like a car or their own house -- when you own a building and rent it out, you are essentially allowed to claim it is worth less and less over time. Eventually (after 15 years or even 30), the property is worth nothing. What this does is convert a whole lot of rent (which would normally be straight income) into capital gains, over time, until the entire purchase price has been written off as a loss against rental income (it does later have to be claimed as a capital gain, but remember you pay a much lower tax rate for that).
Of course, all of this isn't totally obvious on Form 1040. They do try to make it as obscure as possible, in case the general public ever really caught on to the scam. More on that in a bit, when we get to how taxes are figured. For now, capital gains are totted up on Schedule D and entered as income.
Line 17 is where landlords report their earnings, as well as things like royalties (which Trump surely must charge for the use of his last name on various different products). Schedule E also adds up money from partnerships (of which I hear Trump has a few) and other entities like trusts. Not surprisingly, this is the largest category of income for Trump -- an impressive $67 million.
Line 21 is also an intriguing one, because we'd have to see "STATEMENT 1" to find out what it's all about. Trump writes off $103 million, which is about two-thirds of his overall income of $153 million. Think about that for a second. Two-thirds of the income Trump had to claim on his taxes was made to legally disappear, on a line marked "Other income."
This is where the Trump tax return that was leaked during the campaign (from back in the 1990s) comes into play, it is assumed, because Trump is probably using a tax dodge that very few average Americans even know about. If you have one spectacularly bad year, as a rich person, you are allowed to lessen your income taxes for the next twenty years. No, really. Say you make $50 million in income in one year, but you also have $750 million in losses (say, your casinos go bankrupt). Well, you can write off your entire income for that year, but it still leaves you with an extra $700 million in loss. Since you've written off your entire income, you won't be paying any taxes that year. But you can also "carry forward" the rest of that loss for up to two decades, and apply little pieces of it to any income you make in subsequent years. So Trump could still be writing off losses in 2005 that he incurred in the late 1980s. No matter when these losses actually happened, he still was carrying $100 million of them forward in 2005. Again, most Americans simply have no concept that things like this exist in the tax system, as written.
Line 27 was created by Congress a while back to address a real inequality in the tax code. It didn't fully do so, but at least it helps. If you are self-employed, then you have to make your own "payroll deductions" as your business pays you what is essentially a salary. This means you have to pay your own Social Security and Medicare/Medicaid taxes. When you are paid as an employee (something few are even aware of), you pay only half of these taxes from each paycheck, because your employer also matches this amount. When you are self-employed, you pay the full amount. This is somewhere (haven't checked the exact figures recently, these may be a tiny bit high) around 6.5 percent for the employee, 6.5 percent for the business, or the full 13 percent for self-employed people. Because wage-earners never even see this tax (the employer's half of it) even on their paycheck, many find this a big surprise when doing their first taxes as a self-employed business. But because you pay double the amount of wage-earners, you get to write off half of it against your income. Trump paid $1.9 million in self-employment taxes, so he wrote off half, or just under a million.
Trump filled out a Schedule A -- the most common schedule that average taxpayers are familiar with -- to itemize his deductions on Line 40. He wrote off $17 million in deductions, which (for his total earnings) isn't all that remarkable. Journalists would really like to see a Trump Schedule A, because this is where charitable giving is listed (how miserly is he?). Since we don't have the form, though, all we know is he gave from zero to $17 million in charity -- but this form also has things on it like property taxes and state taxes and mortgage interest paid, so Trump's charitable donations are probably nowhere near the full $17 million. Proportional to his total earnings, $17 million isn't that much; but proportional to what he's paying taxes on, Trump has written off 36 percent of his adjusted gross income here. That's more than a third of what's left after he already wrote off two-thirds of it on line 21.
One of the two bits of fairness on Trump's tax form is that he made too much money to claim any exemptions on line 42. This meant he had to pay taxes on $6,400 more in income (since he's married), which would be a substantial amount for most American families to bear -- but for Trump it's more like a rounding error.
Line 44 is pretty straightforward for most people. You look at the total taxable income on Line 43, then you get out the tax tables and find the correct line and column, and there is the total amount of income tax you should have paid. If you make more money, you figure the same amounts (using the same rates) on a worksheet. Pretty simple.
For people with capital gains, though, you take a special detour, lined with velvet ropes. What basically happens is you separate your income into capital gains and everything else. You then use the "everything else" figure and look up this portion of your taxes in the tax tables. But all your capital gains are treated completely separately, meaning even if you made a million bucks in other income, the first $74,900 you made in capital gains are completely tax-free (at the zero percent rate, in other words). The top tax rate for capital gains is a political football that changes over time (and depending on which party is in charge of Congress), and has been as low as 15 percent, at times (while income taxes go above 39 percent for the top bracket). Currently, the top tax rate for capital gains is only 20 percent -- less than half the highest income tax rates.
This is largely hidden from view. There is no line on Form 1040 for "capital gains tax" -- because that might make people wonder, I suppose. Easier to shuffle it off to the "Qualified Dividends and Capital Gains Worksheet," which doesn't even need to be filed with the I.R.S. This is why if you attempted to figure Trump's taxes by just calculating it the way the tax tables do, you'd get a different figure. Trump has $31.5 million taxable income, but paid only $5.3 million in taxes on it. You have to figure the capital gains in to come up with that figure, otherwise it'd be a lot higher.
Line 45 is the second (and much more important) bit of fairness in the tax code. Today, you often hear stories of gigantic corporations paying exactly zero taxes, even though everyone can see how successful and prosperous they are. Many decades ago, this was also the case for people like Donald Trump, who could get away with paying next to nothing (or even absolutely nothing) in taxes on their incomes. Trump, after all, up to line 44, would have paid $5.3 million on revenue totaling $153 million -- a tax rate of less than 3.5 percent. Thankfully, to solve this problem, the "Alternative Minimum Tax" was created, for the Trumps (and the Romneys, for that matter) of the world. Trump is hit with an extra $31 million in tax, because he has written off too much, in essence. Trump, not surprisingly, is in favor of completely getting rid of the Alternative Minimum Tax.
There are a few other footnotes to Trump's taxes. He made some foreign income and paid some foreign income taxes, so he had to fill out the devilishly-hard Form 1116, where he claimed a relative pittance of $24,000 as a foreign tax credit. While this was subtracted, the full $1.9 million in self-employment taxes was added in to Trump's tax bill.
Trump filed for an extension in 2005, which isn't all that unusual, especially if your taxes are fairly complicated. This used to automatically give you until August 15 to file your taxes, just for filling out a single form saying: "I'm going to be late this year." It now is even more generous on the calendar, giving people until October 15 to file. But, importantly, while you have an extension of time to file, you don't get an extension of time to pay anything you owe. When the extension was requested, Trump sent in a check for $22.4 million. This got him fairly close to the final total (relatively, of course), and he only wound up owing $2 million out of his total tax bill of $38 million -- so he was off by less than ten percent.
But because he was months late in paying the last $2 million, you can tell at the very bottom -- in an addition made to his form by his accountant -- that he owed $88,000 in interest and $68,000 in penalties for 2005. Again, to any average American that's a whopping amount to pay the I.R.S., but for Trump it's a fairly small amount.
So that's my take on Trump's taxes. No real insights that other, more experienced people haven't already pointed out, but just wanted to write down my own reactions from reading over Trump's Form 1040. Because unless you've ever had to file some of these schedules and forms, you may have had no idea what most of the numbers on Trump's form even refer to. While I'm definitely not good enough to interpret Trump's taxes as whole, and while there are still enormous questions about Trump's business dealings (that only a full copy of his taxes would answer), at least I thought I'd share my own reactions to Trump's 2005 taxes. Hope it wasn't too mind-numbingly boring, but then again the subject was tax forms. I can tell you're now thinking that a column ranting about the Oxford comma wouldn't have been so bad, would it?
-- Chris Weigant
Follow Chris on Twitter: @ChrisWeigant