Revelations that President Donald Trump paid no federal income taxes for years could energize Democratic efforts to hike taxes on the wealthy, should former Vice President Joe Biden capture the White House in November.
But Democrats on Capitol Hill don’t plan to go after the tax provisions that allowed Trump to pay virtually no taxes — instead they plan to focus on using Trump as the poster child for why Washington needs to hike taxes on the rich, and to push the IRS to crack down on the president and other wealthy taxpayers who they believe are clearly abusing the system.
“One of the key lessons that has to come out of this is about the need for enforcement to prosecute precisely this kind of avoidance, which probably slides into evasion,” said Jared Bernstein of the Center on Budget and Policy Priorities, who was Biden’s top economic adviser when he was vice president and is now a campaign adviser.
A debate over a particular preference Trump has used to escape taxes “is a distraction,” Bernstein said.
Top Democrats on the Hill have largely echoed those thoughts, pointing to years of budget cuts at the IRS forced by Republicans, particularly during the Obama administration.
“Funding key priorities for middle-class families like health care depends on cracking down on wealthy tax cheats like Donald Trump, and that will be one of my top priorities if Democrats retake the Senate,” Sen. Ron Wyden of Oregon, the top Democrat on the Finance Committee, said after the New York Times’ disclosures about Trump’s taxes.
Wyden’s statement notably didn’t delve into any tax policy changes he would seek because of the revelations that Trump paid little or nothing in taxes for most of this century.
After decades of largely playing defense on tax policy, Democrats have been pushing aggressive plans to boost taxes on the wealthy to fund programs for lower- and middle-income people, and they’re betting that Trump’s tax practices will allow them to press that message.
Biden has floated trillions of dollars in new taxes on the rich to pay for policies like student debt forgiveness and expanded childcare for middle- and lower-income people. His biggest-ticket items include boosting the top income tax rate to 39.6 percent, from 37 percent, for those earning more than $400,000, and the corporate tax rate to 28 percent from 21 percent.
He also wants to boost payroll taxes for higher earners and tax capital gains and dividends at the same rate as ordinary income for those making more than $1 million.
In all, the conservative Tax Foundation says that Biden’s tax plan would raise around $3 trillion over a decade.
Still, there are some Democrats itching to piggyback on the news about Trump’s tax practices to roll back the ability of businesses to use losses from one year to offset profits in another — a tactic that Trump has leaned on heavily.
Rep. Lloyd Doggett of Texas and Sen. Sheldon Whitehouse of Rhode Island, both Democratic tax writers, were the loudest critics of provisions in March’s bipartisan coronavirus relief package that gave businesses a greater ability to use losses to lower their tax bills.
Doggett successfully pushed to include a repeal of those preferences in the House’s latest pandemic response measure, and both he and Whitehouse now say that the new details about Trump’s tax history only add urgency to their efforts.
“In addition to learning that President Trump was a failed businessman, his tax returns show he’s exploited loopholes to avoid paying taxes while maintaining a life of luxury,” said Whitehouse. “In particular, he used a loophole to use his enormous business losses in certain years to cancel out the taxes he owed in the few years he made money.”
But there are plenty of tax experts who believe that it would be a policy mistake for Democrats to go after the tax provisions employed by Trump, which are a long-standing part of the tax code and help businesses even out profits and losses from one year to the next.
“I don't think there is anything too obvious one could change about the income tax that would have a meaningful impact on Trump's taxes or taxpayers in a similar situation,” said Kyle Pomerleau of the conservative American Enterprise Institute.
It’s perfectly reasonable to give companies more latitude to spread around their losses, he said, especially in down times like after the 2008 financial crisis and during the current pandemic.
Trump, in fact, did benefit after the 2009 stimulus, which Biden played a big role in crafting and gave businesses more ability to use red ink to get a break on their taxes.
For many of the party’s tax writers, the stories about Trump’s low tax bills and questionable accounting methods also point more to the failures of IRS enforcement than any particular holes in the tax code. Democrats and a range of experts believe more funding for the IRS would help to squeeze more revenue out of rich people who might be too aggressive with their tax planning.
“There’s no magic formula to stop people from putting in fake [deductions] that are personal” expenses, said Daniel Shaviro, a law professor at New York University. “Auditing is the response to that.”
“The systemic scandal here is that people just aren’t being audited,” he added.
In fact, the IRS’ audit rate has plunged in recent years, falling to 0.33 percent for individuals in 2017 from 1.01 percent in 2010. For corporations, the rate dropped to 0.44 percent from 1.55 percent.
The amount of revenue agents has tumbled as well, down from almost 14,000 in 2010 to 8,500 in 2019.
Brian Faler contributed to this report.
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