Trump’s Tax Avoidance Was Perfectly Legal. That’s Why It’s an Issue.

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Photo: Jemal Countess/WireImage

On Tuesday, MSNBC’s Morning Joe turned its attention to the recent revelations of Donald Trump’s epic feats of tax avoidance. The ensuing discussion illustrated so much of what ails 2016 punditry, it’s worth quoting at length:

Joe Scarborough: Hillary Clinton is more in the pocket of Wall Street than anybody else who has run for president for years. So please, anybody who is looking at Donald Trump and going, “Oh, he’s so horrible, he’s so corrupt. Oh, we need to elect Hillary Clinton because she’s gonna fix the system.” No, it’s not gonna happen, so where do they go?



Mike Barnicle: I realize it’s hard to do, but has anyone taken a look at Donald Trump’s big tax plan that he announced about two weeks ago in New York City? Did he address any of the things that he took advantage of?

Mika Brzezinski: I totally agree with you, Mike. I agree with you. I’m just telling you, I’m watching these two candidates. And there’s one that’s just kinda doing this thing that penetrates the ether. The people are hearing, they feel, the truth from Donald Trump.

Barnicle: And that is on Secretary Clinton, that she hasn’t told us, really, where she wants to go, where she wants to take us.

Brzezinski: And I think the reaction to this New York Times story, on Donald Trump’s part, was brilliant. And the thing is, he didn’t even think twice about it. He just went there, while she has been hiding this speech money, hiding this foundation stuff, hiding this email stuff, and trying to get around it. Mistakes were made. And I’m telling you, people don’t, they are not feeling a complete connection with her. And this doesn’t help, to get all high and mighty, to get off your high horse. Unless laws were broken, it’s not an issue. You guys cancel each other out.

The copious problems with this analysis all flow from three basic premises:

1. Policy and reality don’t matter.

2. Personality and perception do.

3. The political media has no responsibility to try to change these facts.

First, let’s take Scarborough’s opening salvo: To say that Hillary Clinton is more “in the pocket of Wall Street than anybody else who has run for president” is to pretend that policy agendas don’t exist. Clinton has certainly collected a tremendous amount of campaign donations from the finance industry. As the front-runner — and the one remaining candidate whose election isn’t widely considered a threat to the global economy — it makes sense that Wall Street would invest in her.

But to say that she is more “in the pocket” of Wall Street than her opponent is to suggest that she is more likely to do the finance industry’s bidding once she gains power. This is factually wrong, as my colleague Jonathan Chait recently observed:

[T]he reality is that Clinton favors strengthening the already-tough regulations on Wall Street created by Dodd-Frank, by levying a risk fee on the largest banks and tightening the Volcker Rule. Trump, on the other hand, proposes “close to dismantling of Dodd-Frank,” which, he claims, “has made it impossible for bankers to function.”

One doesn’t need to personally trust Clinton to know she will be “tougher” on Wall Street than her opponent. For Clinton, the political price of repealing the Consumer Financial Protection Bureau and Dodd-Frank’s other reforms is immense — she would lose the support of an enormous swath of her party’s base. This is not the case for Trump, who has lost none of his base since calling for a moratorium on financial regulations.

Next, Barnicle, to his credit, tries to inject some substance into the conversation. Following the revelation that Trump had claimed a $916 million loss in 1995, and thus had likely avoided income taxes for more than a decade afterward, the GOP nominee offered this reply:

But as soon as Barnicle alludes to the fact that Trump has no intention of “fixing” the tax system (at least, not in the sense of “repairing” it), this reality is tossed aside so the panelists can return their focus to perception: “The people are hearing, they feel, the truth from Donald Trump.”

The panelists then promptly absolve themselves of responsibility for this misperception, faulting Clinton for failing to tell us “where she wants to go, where she wants to take us.”

But this is demonstrably untrue. On Monday in Toledo, Ohio, Clinton tied her attack on Trump’s tax avoidance to his broader policy agenda, which lavishes benefits on the wealthy. She then contrasted this with her own tax plan, which would raise the top marginal rate for high earners and close the carried interest loophole.

The Democratic nominee has presented her tax policy in more detail than her opponent. She has championed it on the stump, at the first debate, and over social media. If people don’t know “where she wants to take us,” the fault lies, at least in part, with the pundits who share their ignorance.

This failure to correct public misperceptions is even more glaring in Brzezinski’s ensuing suggestion that Trump has been forthright and transparent in reacting to scandals, while Clinton “has been hiding the speech money, hiding the foundation stuff, hiding the email stuff.”

The idea that Clinton has hidden speaking fees (which we know about from the tax returns that she has made public) whereas Trump has been charmingly transparent about his tax history (which he has broken decades of precedent to conceal) is mind-bending.

The Clinton Foundation does raise legitimate questions about conflicts of interest. But so does the Trump Organization. And Clinton has agreed to drastically scale back the charity upon her election, while Trump has offered no coherent plan for reducing the conflicts of interest his business will present. It’s true that some of Clinton’s emails from her time as secretary of State remain missing. But it’s also true that the public has gained access to more of the Democratic nominee’s professional correspondence than that of any major-party candidate in memory.

To be fair, Brzezinski is ostensibly offering an analysis of public perception, not reality. In a tonal sense, Trump appears to have “owned up” to the revelation, rebranding it as evidence of his unique qualifications for fixing the tax code he exploited. Clinton, by contrast, gets technical and defensive when confronted with her speaking fees or use of a private email server.

Trump’s response reads as more transparent. But only if one ignores that what he’s saying is often a lie.

Brzezinski concludes by advising Clinton to “get off your high horse” and abandon the tax issue, because “unless laws were broken, it’s not an issue. You guys cancel each other out.”

The Washington Post’s Greg Sargent makes a strong case that Brzezinski’s read of the politics here may be wrong. But as a substantive matter, the fact that laws weren’t broken is precisely why Trump’s tax avoidance is an issue — specifically, an issue of tax policy.

Should businesses be allowed to offset net operating losses against money earned in the future? Here, focusing on the substance of the matter may aid Trump’s cause — the argument for this arrangement is actually compelling.

But Trump’s return also draws attention to smaller — but less defensible — tax breaks exclusive to real-estate developers. As Allan Sloan writes in the Washington Post:

By my read of the Trump tax return published by the New York Times, he would have been tax-free because of a $15,818,562 loss reported on Line 11 of the return under “Rental real estate, royalties, partnerships, S corporations, trusts, etc.” It looks to me that this loss reflects the outrageous, special tax break that real estate developers … like Trump can get, but that the rest of us can’t.



To give you the brief version, people who qualify as real estate developers or managers can use depreciation deductions to offset non-real-estate income. But people who don’t qualify for this special treatment can’t do that.

In other words, by claiming that one of his real-estate holdings had depreciated in value, Trump could subtract that depreciation from his Apprentice paycheck. And as the New York Times’ James Stewart notes, “depreciation” itself is “largely an accounting conceit.”

“The theory is that real estate loses value over time and is eventually worthless,” Stewart writes in a recent column. “As everyone surely knows, most real estate has historically appreciated in value.”

Now, when a developer eventually sells a given property, the jig is up: If the asset has actually increased in value, then the mogul has to pay taxes on that appreciation. Except if that developer invests those profits back into another, more valuable real-estate property — then the gain goes untaxed.

The Obama administration has called for repealing this loophole. Trump’s tax plan retains it.

What’s more, while Trump has called for closing the “capital gains loophole,” his new 15 percent rate on corporate and business income would actually decrease the tax liabilities facing real-estate investors and hedge-fund managers.

The Republican nominee has also called for allowing real-estate investors to expense capital investments — and deduct interest on loans — a policy combination that even George W. Bush’s advisory panel on tax reform found absurd, as it would “result in a net tax subsidy to new investment … Projects that would not be economical in a no-tax world might become viable just because of the tax subsidy.”

All of which is to say: Trump has claimed that his past exploitation of the tax code makes him uniquely prepared to “fix it.” But his actual tax policy makes it clear that this is only true if he means that he is uniquely prepared to rig the system for his own benefit.

Clinton has claimed that Trump’s exploitation of the tax system reveals how the system is rigged for the wealthy — and that the Republican nominee will only make the system more generous for people like him.

Trump’s response to the New York Times story is false. Clinton’s is largely true. These positions do not “cancel each other out.”

To be sure, a morning roundtable is not going to be well-positioned to dig into the nitty-gritty of real-estate tax policy. And the hosts of Morning Joe are hardly the only pundits who often privilege perception over reality, and personality over policy.

But by relentlessly reminding voters of what they already believe — instead of working to bring their beliefs into better alignment with the reality of the choice they face this November — political commentators do their audience a disservice.

And when the horse race is over and reality asserts itself, the consequences of that disservice can be profound.