The New York Times’ contention that President Donald Trump’s tax returns “undercut his claims of financial acumen” does not hold water.
Trump, however, is not doing himself any favors by not clearly explaining why he says his accountants figured he owed just $750 in taxes in 2016 and 2017—and not explaining that he actually paid millions in taxes for those years.
A headline in the Associated Press summary of the Times story declares: “TRUMP PAID JUST $750 IN TAXES IN BOTH 2016 and 2017.”
But that’s not true. According to the Times, Trump initially paid $1 million to the Treasury in 2016 and $4.2 million in 2017.
The Washington Post also made the false claim:
President Trump paid just $750 in federal income taxes in 2016 and the same amount in 2017, and paid no taxes at all in several previous years, largely because his business empire has reported losing more money than it made, according to a new report in the New York Times.
According to the New York Times, Trump paid millions when he filed for an extension in those years and later used business investment tax credits to reduce his tax bills to just $750. The paper says the president did not get a refund for the overpayment. Instead, the extra money will get applied to future tax bills. So the real story here is Trump apparently overpaid his taxes in his first years in the White House.
By the way, Trump has been donating his entire presidential salary back to the government. And this does not reduce his taxes for that income. So Trump is taxed on income he sends back to the government. But he had tax credits in 2016 and 2017 that essentially reduce his tax liability to zero.
Unfortunately, the New York Times mucked up this straight-forward story by claiming that the 18 years of tax data raise doubts about whether Trump is a successful businessman.
The paper reports that Trump paid little or no federal income tax in several of those years — largely because he has often reported losing more money than he has made. This is very similar to a story the Times ran back in 2019 about a different set of Trump tax documents dating back to the 1990s—and it was flawed in the exact same way: it confuses taxable income and losses with real-world income and losses.
“But the returns, by his own account, undercut his claims of financial acumen, showing that he is simply pouring more money into many businesses than he is taking out,” the Times wrote.
This set off a media frenzy declaring Trump a failed businessman. The Associated Press said:
A New York Times report that President Donald Trump paid just $750 in federal income tax the year he entered the White House — and, thanks to colossal losses, no income tax at all in 11 of the 18 years that the Times reviewed — served to raise doubts about Trump’s self-image as a shrewd and successful businessman.
CNN was even more extreme. “A stunning New York Times exposé of the President’s tax returns Sunday revealed a pitifully inept businessman and a serial tax avoider,” CNN declared.
To begin with, investing more money into a business than is taken out is not a sign of a lack of business acumen. If it were, Amazon founder Jeff Bezos would be regarded as the world’s biggest business failure. Amazon lost money in the first 17 quarters—four and one-quarter years—after it went public. In 2017 and 2018, Amazon paid no taxes because it had so many loss carry-forwards and other tax credits.
As well, it is not unusual for a successful commercial real estate developer to have a very low tax bill. The tax code grants developers enormous write-offs for interest payments on debt used to finance the acquisition or construction of commercial buildings and the ability to carry-forward losses to offset future income. Developers are also allowed to reduce their income by the amount of depreciation of their properties for decades after they are purchased, creating paper losses that reduce taxes owed but do not have a real financial cost.
Here’s how the Associated Press explained this in a story about the New York Times report:
Eugene Steuerle, a tax expert at the Urban Institute, said he wasn’t surprised that it turns out that Trump had paid almost no federal income tax. Most commercial real estate developers deduct large interest payments on their debts from taxable income, thereby lowering their tax bills. Typically, they also often avoid capital gains taxes by plowing profits from the sale of one building into the purchase of another.
“Most tax experts expected you would find little in the way of tax payments by President Trump,” said Steuerle, who served as a Treasury Department official under President Ronald Reagan.
The Times noted that Alan Garten, a lawyer for the Trump Organization, said of the Times report that “most, if not all, of the facts appear to be inaccurate” and asked for the documents on which the reporting was based, which the Times declined to provide in order to protect its sources. The Times said Garten then directly disputed only the amount of taxes Trump had paid.
Under our tax code, ordinary business expenses can be deducted in the year they are incurred. But when a business pays for a long-lasting item expected to produce income–like machinery, vehicles, or an apartment building–it is considered a capital investment. Instead of getting to write-off the cost all at once, the business is required to write it off over the course of decades. After the 1986 tax reforms, this was set at 27.5 years for residential real estate. In tax lingo, this is called “depreciation.”
Importantly, an asset is not necessarily losing value just because it is “depreciating.” The depreciation gets recorded as a reduction to income but this is just a time-delayed recouping of the original price paid for a business asset, not an indication of an economic loss.
When MarketWatch’s Francine McKenna looked at that earlier New York Times story about a different set of Trump tax documents, she found that depreciation was likely playing a large role in reducing his taxes.
Losses shown on the tax return are not the same as cash losses or even financial losses, according to Andrew Schmidt, a professor of tax and accounting at North Carolina State University.
Financial losses, or the “bottom line,” is the net income that results after subtracting all business expenses from revenue and other income.
Cash losses result when a company, or taxpayer like Trump who runs many businesses, spends more cash than it takes in. Negative cash flow is like overdrawing your checking account.
Tax calculations of losses or profit, however, uses a hybrid of cash and non-cash expenses, or deductions, and apply different rules and estimates than companies or complex investors are required to use to put together the statements that portray their financial health to a bank or other lender.
Schmidt told MarketWatch, “Depreciation is going to significantly lower Trump’s tax liability because he is in the real estate business. But he is also notorious for carrying high debt loads, which generate high interest expense. Interest expense would also add to tax losses since it is a deductible expense, but unlike depreciation it’s a cash, out-of-pocket expense.”
How much of Trump’s losses in the years covered by the tax records the Times reviewed were produced by tax deductions rather than cash going out the door to pay creditors, employees, and contractors? It’s not possible to tell based on what the Times reported.
But the Times’ story does indicate that Trump made enough money between 1995 and 2005 to have “burned through” $1 billion of tax-loss carry-forwards stemming from the New York City real-estate crash. Those losses could have been applied to reduce income for up to 18 years, but Trump made so much money that they were exhausted in just a decade.
Then he made even more money.
“For 2005 through 2007, cash from licensing deals and endorsements filled Mr. Trump’s bank accounts with $120 million in pure profit. With no prior-year losses left to reduce his taxable income, he paid substantial federal income taxes for the first time in his life: a total of $70.1 million,” the Times‘ wrote.
According to the Times, however, most of Trump’s income comes from his “fame” rather than his business skills. The fame money includes income from his 50 percent share of The Apprentice and income from contractors who pay to use Trump’s name. Why this doesn’t count as evidence of “financial acumen” is never really explained. But it allows the Times to focus on “chronic losses,” even as Trump reported fame income of $427.4 million through 2018. (The Times also reports “$176.5 million in profit came to him through his investment in two highly successful office buildings.”)
The Times reports that Trump initially paid $95 million in taxes over the 18 years of tax returns it reviewed.
He poured a lot of that income back into his real estate business – building his collection of golf courses from just four back in 2004 to 15 – and turning the Old Post Office building in Washington, D.C., into the Trump International Hotel, according to the New York Times. These investments would generate considerable non-cash depreciation deductions as well as deductions for actual cash expenses for mortgage payments and operational expenses.
The Times‘ story said that Trump has earned enough to invest hundreds of millions of dollars into his properties. The Times wrote:
Consider the results at his largest golf resort, Trump National Doral, near Miami. Mr. Trump bought the resort for $150 million in 2012; through 2018, his losses have totaled $162.3 million. He has pumped $213 million of fresh cash into Doral, tax records show, and has a $125 million mortgage balance coming due in three years.
The Times also claims, without evidence, that Trump is under pressure because mortgages on his properties are coming due. This is a strange claim, because businesses frequently have debts that mature. Typically, they just get refinanced with new debt. If the Times is right that Trump has personally invested $213 million into Doral, it’s likely worth far more than when lenders provided the original mortgage back in 2012. Rolling the debt into a new mortgage should not be a problem.
One of the biggest things the tax records reveal is that in 2010 Trump received a $72.9 million federal tax refund and has been fighting with the I.R.S. over that for a decade. It’s very likely that refund is related to the huge losses he likely suffered when he lost control of his Atlantic City casinos in 2009 amid the financial crisis, the destructive housing meltdown, and the ensuing recession.
This isn’t a scandal and there’s nothing improper about the ability to carry-forward losses or receive refunds following losses. The point of these is to tax businesses and individuals on their average profitability, making sure they aren’t penalized for having volatile incomes over different tax years. Without them, businesses that suffered losses and gains in one year would be treated much better than businesses whose gains and losses were divided between tax years.
One of the stranger aspects of the New York Times story is that is attempts to argue that (in David Corn’s summary) “Trump was not a successful business genius, and he apparently had conned the US government.”
Both of these things cannot be true. If Trump is an incompetent businessman who doesn’t make much money, then there’s no scandal about his failure to pay taxes. If he “conned” the government out of millions with illegitimate claims to tax breaks, then he must have had substantial income.
One thing the story makes clear is that Trump has not enriched himself through his presidency. Even his D.C. hotel, supposedly heavily patronized by wealthy foreigners looking to curry favor with the president, is losing money.
The truth is likely more pedestrian. Trump is a real estate investor who has both made and lost great fortunes over the years, often with borrowed money, and our tax laws have always been very favorable to this line of business.