Is it genius or economic development or take-your-breath unfairness? That is the question.
Does the income-tax system exist to provide for equitable government funding based on the ability to pay?
Or does it exist to spare the richest on the premise that they stimulate commerce and create jobs — and take necessary entrepreneurial risks along the way — while the rest of us basically depend on them for our jobs?
Should a wealthy man who complains that his country’s infrastructure is Third World-quality bear a responsibility to contribute actual income taxes to the government?
Or should we gladly spare that man income taxes if the tax code permits, doing so with the understanding that not all business ventures work and that he pays plenty otherwise in employee payroll taxes and sales taxes and property taxes and fees?
These are fine questions, and we can thank Donald Trump and a leaker to The New York Times for the opportunity to consider them.
We have Trump, a born-rich and high-roller Manhattan developer, who ventured into the casino business in Atlantic City. He had a hunch he could make money from working stiffs who lack enough sense to keep their relatively meager earnings as far from a slot machine as possible.
Leaked documents to the Times show that, for one year in the ’90s, Trump claimed a $916 million loss in real estate and an airline deal as well as on his Atlantic City gamble gone bad. On that basis, he paid no income taxes. More than that, tax experts say he could parlay a business loss of that colossal magnitude into a write-off against his income taxes for income up to $50 million a year for 18 years.
Let’s run that by one more time. Trump ventures into the gambling business. He loses. He has an elite-level income otherwise. But the tax code permits him to consolidate all his Atlantic City and other losses, which means he pays no income taxes at all, maybe for nearly two decades, on income he’s reaping elsewhere.
That is to say that those who have a lot of money and make a lot of money can lose a lot of money in a compartment or two of their income stream and use that loss to avoid millions year after year in income taxes on their bounty from their other compartments.
Rudy Giuliani, a Trump supporter, says that’s genius, and that, by employing an accountant who served him effectively, Trump was able to keep investing and building and hiring … and, one might add, stiffing subcontractors from time to time.
So let’s consider for comparison and contrast a purely hypothetical case, but one surely reflective of many actual circumstances.
A fellow is self-employed, working on professional service contracts for a couple of enterprises that value what he does as a helpful element of the goods and services they sell to the public. He makes enough money to qualify as decidedly middle class, which means he can afford a mortgage on a decent house and keep the refrigerator filled.
He makes enough money to have to pay by himself all his family’s health insurance premiums. That means he pulls down a few tens of thousands a year in excess of levels qualifying for federal subsidies under Obamacare.
The fellow pays his income taxes along with all his employment taxes, doing so with quarterly remittances. He settles up each April after his accountant calculates the exemptions and deductions for which he is determined to be eligible.
Inevitably, year after year, his net federal income-tax rate comes to around, say, 17 percent. He’d like to put more into his IRA, which he knows to be the responsible thing, but those quarterly estimated tax payments keep popping up.
The middle-class man employs no one. He builds nothing. He sells to the public nothing.
Still, the people with whom he’s contracted sell to the public. The man contributes to the economy. By his own effort, he keeps himself and his family out of the government trough.
Is it fair that he pays 17 percent on maybe barely six figures and Trump zero percent on eight figures?
The fact is that the income-tax system was created to assess rates progressively based on the ability to pay. But another fact is that, along the way, policy amendments were imposed — perhaps on the influence of business lobbyists — that gave advantages to those with money who use it for economic risk by which general commerce and employment might be enhanced.
These are moral and economic questions. Your leaning depends on whether you weight toward morality or economy.
My answer leans more to morality, to fairness and justice, although it is formed by reason as well.
Trump was employing nobody and stimulating the general economy not a whit with ventures that went belly-up.
And as Hillary Clinton put it the other day: If his paying no taxes is “smart,” as he said in the debate, then what does that make the rest of us?
As others have asked: If everyone paid the rate of federal income tax that Trump seems to have paid in some years, then how Third World would this country’s infrastructure really be?
Oh, and one other thing: Trump says his understanding of the tax system would enable him to improve on it as a policymaker as no one else could. But mainly he proposes merely to lower tax rates on high incomes.
That’s not self-interest, though. Don’t accuse him of that. You can’t go lower than a zero tax rate.
John Brummett, whose column appears regularly in the Arkansas Democrat-Gazette, was inducted into the Arkansas Writers’ Hall of Fame in 2014. Email him at jbrummett@arkansasonline.com. Read his @johnbrummett Twitter feed.