When the New York Times exposed decades of tax cheating and “outright fraud” by the sitting president, it prompted people to ask important questions about the corrupt practices of the Trump family. The answers are central to the future of America.
Where was the Internal Revenue Service? How did the Trumps get away with decades of schemes the Times said allowed them to evade close to a half-billion dollars of income and gift taxes? Is Donald Trump continuing these practices? Is that why he refuses to make his own tax returns public? Can anything be done about it?
I’m in a unique position to answer those questions. I am the Times’ former tax reporter, the journalist who has covered Trump longer than anyone else, more than 30 years. And my next book will propose an entirely new tax system for the US and other advanced nations.
The answers to the first and second questions are as easy as they are awful.
Congress, which makes tax law, has never properly supported the IRS, which I like calling the Tax Police Department.
Since 1992, the American population has grown 27% but the IRS staff has shrunk by 34%, to less than 78,000 people. At the same time, Congress has added enormous complexity to the tax code. On top of this, the big accounting and law firms have devised all manner of complex new tax shelters. A few years ago, the IRS told Congress it lacks the expertise to thoroughly investigate such shelters and determine which are within the law and which are frauds that should be demolished.
The Trumps benefited from complex ownership structures that, among other strategies, let them inflate invoices for such things as new stoves in rental units. This meant they got bigger income tax deductions than were lawful. It also helped Fred Trump, Donald’s father, pass money to his children without incurring income and gift taxes or reducing the amount paid. Fred Trump created 295 separate revenue streams to funnel money to his children without incurring gift or income taxes.
They did it with buildings too, reducing the value of more than a thousand apartments by more than 94%.
I have held in my hands real estate transfer records for more than a $1bn of real estate that parents owned in the morning but after lunch belonged to their children. I’m sure these were tax crimes but Congress makes gift tax returns secret so I have no way to prove it unless someone leaks me those documents.
One reason for my certainty: a government court filing stating that gift tax cheating in real estate is rampant, ranging from a low of 85% of gifts in the most honest states to 100% in others.
So if the Times is right and some of the Trump tactics were criminal, why weren’t they indicted?
In the US last year, just 865 people were pursued for tax cheating that did not involve drug dealing, bribing politicians or criminal enterprise profits. That means the odds of being pursued were one in 377,000. Add in those crooks and the risk of prosecution rises, but only to about one in 100,000.
Those figures, from the latest IRS Data Book, concern IRS recommendations for prosecution, not actual indictments. That number would be smaller, though just how much smaller is unclear.
The IRS also focuses heavily on the working poor who collected the Earned Income Tax Credit, a get a kind of negative income tax that Ronald Reagan championed. At the turn of the century the working poor were more likely to be audited than those prosperous enough to enjoy incomes of more than $100,000, or almost $150,000 in today’s money. It’s not that bad now, but the working poor still get extra scrutiny under a 1994 deal between Bill Clinton and the then House speaker, Newt Gingrich, now a Trump supporter.
The Times’ masterly, 4,000-word investigative report was based on more than 100,000 documents, many leaked from Trump family files, and interviews over 18 months by three top reporters. Every arcane aspect of accounting, business practice and tax was explained with exquisite accuracy.
So if we assume the paper’s report is accurate, can the Trumps now be indicted?
No. The Times exposé covered the 1950s to roughly the turn of the century. The statute of limitations for both state and federal criminal tax fraud is six years.
However, there is no such limit on civil tax fraud. That means the surviving Trumps can be pursued for every penny with penalties and interest, assuming there is the political will to do so.
What are needed now are Donald Trump’s tax returns in this century. All we have seen of his federal taxes are the two pages I received in the mail in March 2017.
You can expect to see Trump’s returns within about a year if the Democrats win control of the House or Senate. That’s because Congress has granted itself the authority to see tax returns.
The returns would not just be thrown out there. The Democrats are likely to employ skilled auditors and investigators to go over the returns and hold public hearings at which the returns would be examined.
Let’s hope Congress does not limit itself to the issue of whether the sitting American president is engaged in ongoing tax crimes.
Let’s hope it decides to work on equal enforcement of the tax laws. Every dollar of tax evaded adds to America’s debt. It means less money to invest in basic scientific research, education and modernizing crumbling infrastructure. Taxes are at the core of democracy. The power to tax is the specific reason the American constitution was adopted, replacing the government-by-bake-sale financing under the Articles of Confederation.
Wage earners and others whose income is independently verified and whose taxes are withheld before they get their money are fully taxed. But people who control businesses can cheat with abandon. Their risk of detection is small only because the tax police have been handcuffed. They need to be set free to do their job.