Donald Trump is America’s poorest billionaire

Former President Donald Trump loses large sums of money. Yet he lives a gilded lifestyle and never runs out of cash to pay the lawyers who perpetually defend him against charges large and small. How does he do it?

We’re gradually discovering that, now that Congress has obtained six years of Trump’s tax returns from the IRS. Democrats investigating Trump’s finances have not yet released the full returns, but they have released two reports that provide an overview of Trump’s income and reveal how he keeps his tax bill remarkably low. Ordinary taxpayers may feel enraged. Or envious.

From 2015 to 2020, Trump reported income positive in two years and income negative in four years. His losses far outweigh his gains. For the six years total, Trump had negative revenues of $52.6 million, or put another way, losses of $52.6 million.

A typical worker cannot live on a negative income. Yet Trump succeeds. This is because he uses corporate losses to offset real income and reduce the amount of taxes he owes. To a large extent, this is legal given the multiple provisions in the tax code that provide relief to business owners, and especially real estate developers like Trump. The details of Trump’s full tax returns will go much further as to whether he cheats.

There is considerable evidence that you cheat. “Trump avoids paying taxes by creating a lot of losses, both real and false,” said tax attorney Steve Rosenthal of the Tax Policy Center. “It’s often under water from a tax perspective, but that’s an artifact of the tax system and not that real.” Rosenthal calls Trump’s financial statements “tax aggressive.”

Two New York Times articles, based on 20 years of Trump’s financial data leaked by his niece Mary Trump, detailed many possible cases of tax fraud. The New York State Attorney General is suing Trump over a number of “dubious tax schemes … including cases of outright fraud.” One practice under scrutiny is valuing properties significantly lower in tax returns than in other business records. Tax experts studying the two congressional reports point to several red flags that suggest fraud, including undocumented charitable donations and payments to family members that might actually be gifts.

Trump has repeatedly derided investigations into his finances as politically motivated “witch hunts” and described himself as “smart” for using tax breaks to boost his take-home pay. Yet he has never released his tax returns, even though he has pledged to do so so many times. The Internal Revenue Service is supposed to audit every president’s tax returns, but it has never finished an audit of Trump while he was president. There is evidence that Trump or his advisers lobbied the IRS to back down.

Trump earns large sums of money, although the exact sources of his income are not defined in the two congressional overview reports. From 2015 to 2020, for example, Trump earned $59 million in interest and dividend payments, from a low of $6.8 million in 2017 to a high of $11.4 million in 2019. Most of that income comes from interest payments, although it is not clear whether that is simple interest on financial assets or something more complex.

From 2015 to 2019, Trump made $86 million in capital gains. The source of these earnings is unclear, but Trump is known to make a lot of money by licensing his name for use on commercial properties and other types of products. No capital gain is expected for 2020, for unknown reasons.

For most Americans, the primary source of income is wages, otherwise known as the wages you earn for going to work. Not Trump. His salary income was $14,141 in 2015 and a measly $978 in 2016. Once he became president, his salary income jumped to nearly $400,000, due to his presidential salary. Trump said he didn’t need the money and would donate his presidential pay to various federal agencies.

Add that in, and Trump’s income from those sources was about $147 million for those six years, or $24.6 million a year. This would have placed Trump in the top 0.1% of earners and collected millions in taxes each year.

Yet Trump paid just $1.8 million in income taxes, or $300,000 a year. As a percentage of these three sources of income, it is only 1.2%. In 2020, Trump paid no income taxes. In 2016 and 2017, he paid just $750. President Joe Biden, by comparison, paid $150,000 out of $568,000 in income in 2021, for an effective tax rate of 26%.

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Unlike most people, Trump uses huge losses to cut his taxes to near zero. Compensating for its income of $147 million for those six years is $221 million in losses, for net income during those six years of -$52 million, or a loss of approximately $8.7 million annually. But Trump almost certainly doesn’t end up $8.7 million poorer each year, as the numbers suggest. Instead, he spreads business losses over many years, as the tax code permits, to offset income in years in which he may not have suffered any losses.

Some of these trade losses are undoubtedly legitimate. Trump’s hotel in Washington, DC, for example, reportedly lost $70 million during the four years he was president. These losses could help offset Trump’s income for years into the future, while keeping his taxes low. Trump, who prides himself on his business savvy, says the loss report isn’t accurate, but his company is private and doesn’t have to make his numbers public.

The bigger question regarding Trump’s taxes is whether he overstates or invents business losses to avoid paying even more taxes. There are many ways Trump could do this, such as inflating the cost of maintenance or other expenses on his properties or using loans for income and then defaulting. Trump’s finances are housed in a trust that includes more than 500 business entities, making his tax reporting extremely complex. Many tax experts say an underfunded IRS is sadly defeated by wealthy filers like Trump, whose lawyers and accountants can create endless streams of money to track and simply burn out the IRS auditors.

One of the congressional reports, by the Joint Committee on Taxation, raised a number of questions about the IRS’ deferential handling of Trump’s tax returns while Trump was president. The committee criticized the IRS for accepting the accuracy of Trump’s records without question and for failing to appoint specialists to look into unusual elements of Trump’s returns. The committee also listed several red flag items the IRS should look into more closely, including the validity of a $105 million loss carried forward from year to year and unsubstantiated charitable deductions of at least $21 million.

The House Ways and Means Committee says it will soon release Trump’s comprehensive returns for 2015 through 2020, which will provide tax investigators with reams of information that will help piece together Trump’s broader tax strategy. These returns will most likely list the sources of all of your claimed trading losses, which will help establish whether or not they are legitimate.

The release of Trump’s tax returns, which has taken years and resulted in several court challenges, is a political windfall for Democrats, who certainly don’t mind embarrassing Trump just as his political fortunes are waning. But Trump’s tax disputes also highlight some gaps that Congress could fill if he decides to act. One thing Congress could do is pass a law requiring the IRS to audit every president’s tax returns, instead of just complying with domestic policy that a given president might reject. The House of Representatives swiftly passed such a bill on Dec. 22, but the Senate is unlikely to get there this year, meaning a restart of the measure in 2023. Trump’s taxes also raise important tax fairness issues , such as the lower capital gains tax rates that are the main source of income for many wealthy people compared to the earned income that middle-class workers rely on.

Trump’s returns also make it public that Trump likely enjoyed very favorable IRS treatment for years, probably well before he became president. That doesn’t mean anyone will necessarily prosecute Trump for tax fraud, but the IRS is now in the position of having to prove that he’s not a lapdog who flips over when a pushy president puts pressure on. The IRS will now appoint all the specialists needed to properly vet Trump’s complicated returns, which could cost Trump big money if the agency doesn’t grant millions in deductions. Trump will never be poor, but he always knew a public look at his tax return would make him less wealthy.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman

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