CARES act, CARES check

Billionaires Got Much More Than That $1200 CARES Check

Reprinted with permission from ProPublica.

Do you want to see how legislation that was supposed to be a bailout for our economy ended up committing almost as much taxpayer money to help a relative handful of the non-needy as it spent to help tens of millions of people in need? Then let's step back and revisit parts of the Coronavirus Aid, Relief and Economic Security Act and look at some of the numbers involved.

The best-known feature of the CARES Act, as it's known, is the cash grant of up to $1,200 per adult and $500 per child for households whose income was less than $99,000 for single taxpayers and $198,000 for couples. These grants are nontaxable, which makes them even more valuable. Some 159 million stimulus payments have gone out, according to the IRS.

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The GOP Tax Plan’s Mega Gift To Some of Trump’s Richest Appointees

The GOP Tax Plan’s Mega Gift To Some of Trump’s Richest Appointees

Reprinted with permission from ProPublica.

There are times that you run across something that’s so preposterous that it’s hard to believe it’s true. But in this case, it is.

I’m talking about the multiple — and permanent — set of tax breaks that some of the Trump administration’s mega-wealthy appointees and their heirs stand to get if the estate tax repeal in the House Republicans’ tax bill becomes law.

The appointees I’m talking about are those with a net worth above $11 million (which is a lot of them) who sold assets that the Office of Government Ethics said would pose conflict-of-interest problems in their new gigs.

Combine the rules that cover such sales with terms of the proposed estate tax repeal, and these people get a multilevel, multigenerational bonanza. A gift that would keep on giving (and giving and giving).

I couldn’t believe what I was reading, and figured that I might be overly eager to uncover gifts to the ultra-rich in the House tax cut bill, which is by no means tax reform because it hurts millions of taxpayers in my home state of New Jersey and other places that aren’t reliably Republican, but bestows plenty of breaks on big businesses and the rich. So I asked tax expert Bob Willens of Robert Willens LLC, whom I’ve consulted for decades, to show me where I was making a mistake.

It turned out that Willens couldn’t believe what he was reading, either, when he parsed the proposed estate tax repeal provisions. “I had to read that about eight times,” Willens told me. “It defies description. It’s unheard of. It’s unbelievable.”

Now, let me show you why. And why mega-wealthy Trump appointees and their heirs would get level after level after level of tax goodies, even more than regular rich people would get.

Under Section 1043 of the tax code, enacted in 1989, eligible federal appointees (such as an energy secretary who owns oil stocks) who sell conflict-posing assets and reinvest the proceeds in something permissible, such as an index mutual fund, don’t owe any tax until the replacement asset is sold. At that point, they pay taxes on the total gain in, to use our example, the mutual fund they bought with the proceeds of the assets they had to sell. In other words, the only benefit they get under current law is a deferral in their capital gains taxes. They don’t get to permanently escape taxes.

I have no problem with this tax deferral, by the way. I don’t think people should have to shell out serious money in order to work for the government. If they happen to benefit by being able to diversify their portfolios on a tax-deferred basis, the way former ExxonMobil chief executive Rex Tillerson could diversify out of his Exxon stock and long-time Goldman Sachs executive Gary Cohn could diversify out of his Goldman holdings, that doesn’t bother me, either.

Besides, until now people who have gotten very large Section 1043 tax deferrals have been almost certain to be wealthy enough to trigger estate tax — no, it’s not a “death tax,” it applies to only about 1 in 500 estates — when they die. Some 99.8 percent of estates don’t pay tax because about $5.5 million of assets are exempt from estate tax for a single person, and about $11 million for a married couple.

Now, watch where the outrageous part comes in. Under current law, heirs have to pay estate tax based only on the value of the inherited assets on the day the person who bequeathed them died. They don’t have to pay a penny on the assets’ gains while the dearly departed owned them. (The adjustment is known as a “basis step-up” in tax jargon.) But of course, the estate has to pay estate tax of 40 percent of the amount by which the inherited assets exceed the $5.5 million/$11 million threshold. The tax-free basis step-up allows heirs to avoid having to pay both capital gains tax and estate tax on the assets they inherit, which strikes me as a reasonable thing.

However, under the Republican plan’s estate tax repeal, not only would heirs collect everything tax-free, but they would also get a tax-free basis step-up in the assets they inherit. By contrast, when the estate tax was repealed for a year in 2010 as part of the George Bush tax cut bill, the step-up in basis was largely negated, which stopped heirs from getting a mega-windfall.

I assumed that would be the case in whatever plan the Republicans proposed this time. In fact, I predicted that in a January article that I wrote with Cezary Podkul, then a ProPublica colleague, currently a Wall Street Journal reporter.

We felt that even if the estate tax were repealed, the heirs of Donald Trump’s appointees would be subject to capital gains tax when they sold the assets their benefactors had acquired to solve conflict-of-interest problems.

Besides, even Trump, who campaigned on eliminating the estate tax, wasn’t proposing that heirs get a totally free ride. He was proposing something — details of which were never made clear — that seemed to involve estates paying capital gains tax on unrealized gains above $10 million.

That idea of taxing estates in any way seems to have disappeared entirely from Trump’s public statements these days. And I realize now that I was naïve to think that Trump might ever promote anything that might cost him or his family any money.

To return to where I started, I’m just astounded by the multiple tax breaks Trump appointees and their heirs stand to get if the House version of estate tax repeal becomes law. So is Bob Willens, the tax expert.

“You get to diversify tax-free,” he said, a tone of wonder in his voice. “Then you get to bequeath your portfolio tax-free. And the most amazing part is that your heirs get to step up their basis in the inherited assets tax-free.”

A great deal for these people. A terrible deal for the rest of us, who would have to pick up the tab for it.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.

Did Trump Get A Big Tax Refund After 2005?

Did Trump Get A Big Tax Refund After 2005?

Reprinted with permission from ProPublica.
The pressure is growing to force President Trump to turn over his tax returns. The other day, for example, 200 Congressmen filed a suit in federal court, arguing that voters and lawmakers have a right to know whether Trump’s businesses are violating the Constitution’s emolument clause, which bars the president from accepting payments from foreign countries.

The lead Senate plaintiff in the suit, Sen. Richard Blumenthal (D-CT), said that the legal effort could force release of the president’s tax returns and other business documents during the discovery stage of the litigation.

“By failing to release his tax returns — reflecting payments and benefits from foreign powers — President Trump is thumbing his nose at the American people and the Constitution,” Blumenthal told my Washington Post colleague Tom Hamburger. “He is violating the Constitution by accepting foreign government payments and benefits without consent from Congress — which can’t consent to what it doesn’t know.”

But Trump hasn’t filed a tax return for 2017, which is the year he became president and the emolument clause began to apply to him. So even if we got his earlier returns, we wouldn’t know what he’s done since taking office Jan. 20.

As for the argument that seeing his returns would expose Russian connections, should they exist: I’ve written before, his old tax returns, should they ever see the light of day, are unlikely to tell us much about any possible personal foreign entanglements.

Those might show up, if they exist, in the filings of the hundreds of companies that make up the Trump empire. But Trump’s personal returns are unlikely to show them.

But seeing his old returns would tell us something especially relevant about a president who wants to radically reshape our tax code.

A lawsuit may finally bring the Trump tax returns to light, but it could be years before any of us lay eyes on them. Yahoo Finances Jen Rogers and Rick Newman discuss.

It would show us how much and in what ways Trump has personally benefited from the legal loopholes scattered throughout the current system. And what impact the changes he’s proposing would have on him personally.

Trump’s tax returns would also let us see, I suspect, that a good part of the tax payments that showed up on Trump’s leaked partial 2005 federal return was refunded to him in later years.

When the first two pages of that return became public in March, he and his backers took victory laps because the return showed him paying $36.5 million of income tax and having made about $153 million during the year.

Among the boasters was Donald Trump Jr., who tweeted about his father’s 2005 payments at least three times and at a May campaign rally in Montana told a heckler that his father’s 2005 return shows that, “You can do it all. You can be successful [and] you can pay your taxes.”

However, for reasons I’ll get to in a bit, I think there’s a very good chance that Trump got a major portion of his 2005 tax refunded to him in 2006 and later. If I’m right, it means that a good part of the 2005 payments that Trump and Trump Jr. and other Trump types boasted about amounted to temporary loans to the Treasury. Not tax payments as we normally think of them.

If so, that would be yet another example of how Trump has gotten a free ride — okay, in this case a reduced-fare ride — on his income taxes.

Getting refunds like the ones I think Trump got is perfectly legal. But for us to see the 2005 tax payments but not any subsequent refunds leaves us with a misleading picture.

Should these refunds exist — I think they do, but I can’t prove it — they would show up on post-2005 tax returns that we haven’t seen and that Trump refuses to disclose.

Seeing if he got refunds on his 2005 taxes is yet another good reason for us to want to see Trump’s returns, which presidents and presidential candidates had been providing since the days of Richard Nixon.

We’d find out about possible refunds of Trump’s 2005 taxes by looking at the “Other Credits” line on the second page of those returns and seeing if he took any credits on IRS Form 8801.

I emailed both Trump’s tax attorney and the White House several weeks ago asking them to respond to my theory about Trump having gotten refunds in subsequent years. The law firm to which Trump tax attorney Shari Dillon belongs sent a quick and courteous “no comment” response. My email to Trump spokeswoman Hope Hicks went unanswered.

So I’m relying on my own analysis, which is based on information and guidance that I got from about half a dozen tax experts, some of whom I’ve worked with for decades in the course of writing about taxes. Some of the experts I consulted for this column are tax practitioners, some are theoreticians. Their political preferences range from pro-Trump to socialist.

Okay. Now, here we go.

If you look at Trump’s partial 2005 return, which made its way to veteran tax journalist David Cay Johnson (with whom I worked at The Detroit Free Press in the 1970s), who gave it to “The Rachel Maddow Show” and put it into the public domain, you see three telling things.

First, you see the words “Client Copy” on the second page, which raises the possibility that the partial return was sent by someone in Trump’s camp with access to Trump documents. Because it puts Trump in a good light, this wouldn’t shock me.

Second, you see that most of the income tax Trump paid — $31.6 million out of $36.5 million — arose from what he owed as a result of the alternative minimum tax, a provision of the tax code intended to make sure high-income people pay at least some taxes.

Third, you see that Trump used $103.2 million of losses from previous years to reduce his taxable 2005 income. Those losses were lower than his total taxable income. This almost certainly means that he had no losses left to write off, because had more write-offs been available, Trump could have used them to lower his tax bill.

Now, let me try to make sense of all this for you.

The only other Trump tax filings that are public — partial 1995 New York, New Jersey and Connecticut state returns — show that back then, he had an astounding $915 million of losses that he could use in future years to offset income for federal, New York state and New York City income tax purposes.

The 2005 return indicates to me that Trump used up his losses in 2005 — he showed $48.6 million of taxable income after subtracting the aforementioned $103.2 million of losses. I’m assuming that from 1996 through 2004, he wiped out his taxable income for federal, New York state and New York City purposes by using the $915 million in losses, which were generated by the collapse of his real estate-casino empire in the 1980s and 1990s, and were probably supplemented with paper losses generated by a special tax code provision that benefits real-estate professionals such as Trump.

Now, I’ll give you a simplified version of why I think — but hasten to say, yet again, can’t prove — that Trump recovered a good part of the $31.6 million of alternative minimum tax that he paid for 2005.

The AMT, as it’s known, has become a plague to middle-income and upper-income types who live in states with high income and real-estate taxes. That’s despite the fact that when Congress created the AMT in 1969, its goal was to stop a handful of rich people from avoiding income taxes all together. Over the years, however, Congress failed to modify the AMT sufficiently to keep it from ensnaring millions of middle- and upper-middle taxpayers.

It turns out there are two separate types of alternative minimum tax. Most people — including me — who pay AMT on top of their regular income tax do so because state and local income taxes and the real-estate taxes on our personal residences aren’t deductible under the AMT the way they are for regular tax purposes. That leads to the AMT being higher than our regular tax, and the difference between AMT and regular tax gets added to what we owe Uncle Sam.

That kind of AMT payment — arising from what tax techies call an “exclusion preference” — isn’t refundable.

But judging from Trump’s tax return, it looks like the vast majority of the additional tax he paid as a result of the AMT arose from so-called “deferral preferences.” And that most of the $103.2 million of losses he carried over from previous years were deductible for regular income tax purposes in 2005, but not for AMT purposes.

Under the tax laws, Trump can get refunds, over multiple years, up to the refundable portion of the 2005 AMT that he paid. Which was probably the vast majority of his AMT.

For instance, let’s say that Trump had the same income in 2006 that he had in 2005, but didn’t have the $103.2 million of losses from previous years.

Because the AMT is assessed at a 28 percent rate and the top regular rate in 2006 was 35 percent, Trump’s regular income tax would probably have been $6.5 million to $7 million higher than his AMT would have been. This would have yielded him a $6.5 million to $7 million refund, with future refunds coming in future years when his regular tax was higher than his AMT.

To be sure, part of Trump’s 2005 AMT probably comes from not being able to deduct real-estate taxes on his personal residences. That “exclusion preferences” part of his AMT wouldn’t be refundable.

But the vast majority of Trump’s AMT appears to be from “deferral preferences” — especially since it’s unlikely that he paid any significant New York state or New York City income taxes from 1996 through 2004 because the losses he carried over from previous years would have been deductible for New York state and New York City purposes and would probably have wiped out all or virtually all of his New York income.

Given the size of the numbers we’re dealing with, his personal real-estate taxes and any personal income taxes he might have paid outside of New York are probably rounding errors, at most.

So unless Trump started running up big losses post-2005, when his losses dating back to the 1990s were all used up, it looks like his regular income tax (at a 35 percent top rate in 2006 and 39.6 percent in recent years) would have exceeded his 28 percent alternative minimum tax.

This means that a good part of the AMT that he paid in 2005 would likely have flowed back to him as credits in subsequent years. Hence my conclusion that although Trump paid $36.5 million of federal income tax in 2005, his ultimate income tax cost for the year was considerably lower. That’s the bottom line. Or at least, I think it is.

Of course, there’s only one way to find out for sure, and that’s to view Trump’s post-2005 tax returns. If they somehow show up at ProPublica, whose mailing address is 155 Avenue of the Americas, 13th floor, New York, NY 10013, I’ll be more than happy to look at them. Even if they prove me wrong.

I collaborated with Cezary Podkul of ProPublica on this story, and received reporting help from Alice Crites and Tom Hamburger of The Washington Post.

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