The Internal Revenue Code provides that if you have losses that exceed your income, those losses can be used to offset future taxable income for 20 years. In those future years, an individual can use those losses to offset 90% of his/her current income in their calculation of alternative minimum tax. Those who are in this position pay a 2.8% income tax on their current taxable income.
Donald Trump has said: (1) "I pay a lot of taxes", (2) "I wouldn't mind paying more", (3) "I fight like hell not to pay tax", and (4) "We are going to get rid of the estate taxes." It is an interesting collection of quotes that can mean whatever the reader chooses them to mean. For certain, those comments would make more sense if Mr. Trump released his 2012, 2103, and 2014 tax returns.
There are so many interesting questions about Donald Trump's tax returns and his plan to eliminate the estate tax. Ultimately, the underlying political issue is whether in the public's view, his tax history and his plans for tax reform are "fair." Mr. Trump needs to provide his own tax returns to demonstrate that his plans are "fair" in terms of "fair" for everyone. Everyone in this case includes the candidate, Donald Trump. Has he and will he pay an amount of Federal income and estate taxes that seems "fair" to voters?
If it turns out that Mr. Trump has been paying minimal taxes through age 69 and believes he should pay no estate taxes after he has told the voters he is worth $10.0 billion, he could lose 50 states in the upcoming presidential election. Most voters would be pained to see one of the richest of the rich paying no taxes and literally planning to pay no taxes during or after his lifetime while they pay significant percentages of their income in taxes.
There are so many interesting questions about his tax returns. Will his tax returns reveal taxable income that is a reflection of business activities that are not as successful as advertised? Given Mr. Trump’s casino losses, Trump University, Trump Steaks, Trump mortgage etc., if there was a general lack of successful business activities, it will leap out of his tax returns.
A holistic approach to fairness in taxation looks towards how much tax an individual will pay during their lifetime and then at the time of their death. In that approach, the individual who has current tax planning that avoids current income taxes will ultimately pay an estate tax upon death under the current law. For Mr. Trump, under current law, unless he plans on leaving significant portions of his estate to charity, his estate tax would approximate $4 billion. If Mr. Trump has paid very little income tax during his lifetime and he is successful in eliminating the estate tax as he proposes, he would be a lifetime non-taxpayer.
Why is this holistic approach to lifetime taxes important in the development of tax reform proposals? It is important because assets that appreciate during life and not sold during life are never exposed to income taxation. They are only exposed to estate taxation. And, these assets are only taxed if the decedent has a net worth over $5.45 million. What is a "fair" tax amount during a lifetime and at death for any individual?
Two interesting questions with respect to Mr. Trump's 2012, 2013 and 2014 tax returns: (1) Who paid more federal income taxes, Mr. Trump or Mrs. Clinton? (2) Did Mr. Trump pay more in foreign taxes than he did in U.S. taxes? - My guess: Clinton and Yes.