By NY Editorial Board
Damon Winter/The New York Times
Donald Trump’s claim that he was smart for figuring
out how not to pay federal income taxes was obnoxious when he said it, at least
for the millions of Americans who pay their fair share. Now we learn that he
was able to avoid some of those taxes decades ago with a tactic that is illegal
now and was highly dubious even then.
In the 1990s, with his Atlantic City casinos and other
businesses tottering on the verge of collapse, Mr. Trump negotiated a deal
under which his creditors — investors and banks — would forgive part of the
debt in exchange for equity in partnerships he controlled. Without such swaps,
Mr. Trump would have had to report the forgiven debt as income, offsetting a
big portion of the $916 million loss he claimed on his tax return in 1995. That
loss allowed him to avoid paying taxes for up to 18 years.
It is impossible to know whether the Internal Revenue
Service challenged Mr. Trump’s use of the swaps because, unlike every major
party presidential nominee for nearly 40 years, he refuses to release his tax
returns. But as The Times reported on Monday, the maneuver was so suspect that
his lawyers advised against it.
And it’s clear that even then tax officials and
federal lawmakers were hoping to end the practice because it allowed businesses
and rich individuals to avoid taxes by swapping forgiven debt with equity that
was worth little or nothing. Indeed, even as Mr. Trump’s lawyers were advising
him against this approach, one tax expert wrote that trying to find legal
support for it was like trying to find evidence for “the existence of the Loch
Ness monster.”
Congress barred such swaps by corporations in 1993,
and by partnerships, the business structure Mr. Trump uses, in 2004.
As is its habit, Mr. Trump’s campaign chose to regard
these latest revelations as yet another display of his genius. But like any
other effort to game the tax system, his tactics imposed real costs by shifting
the burden to taxpayers who have no recourse to such strategies and must pay
full freight, including people whose taxes are withheld and cannot shelter
their income even if they want to.
It has become ever more difficult for the I.R.S. to
police the kind of tax avoidance Mr. Trump has engaged in. The
Republican-controlled Congress cut the I.R.S.’s budget by about $500 million in
2015, and last year the agency audited just 0.8 percent of individual
taxpayers, down from 1.1 percent in 2010. Its enforcement staff has shrunk by
23 percent since 2010, to 39,000 people, according to the Center on Budget and
Policy Priorities.
The latest disclosures about Mr. Trump’s taxes also
further undercut the argument that he is uniquely qualified to fix what he has
called a rigged system.
Why would a man who has spent most of his professional
life avoiding the shared responsibility of taxes all of a sudden care about
helping others, especially those less fortunate? The truth is, of course, that
he has no intention of doing so; according to a recent analysis by the
nonpartisan Tax Policy Center, Mr. Trump’s tax proposals would confer by far
the greatest advantages on the wealthiest Americans.
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