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December 3, 2020

Trump, Taxes, and the Rich

“Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” ~ Judge Learned Hand, Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934)

The Trump tax bombshell, according to the New York Times, is that the president only paid $750 in federal income taxes in 2016 and 2017 and “paid no income taxes at all in 10 of the previous 15 years—largely because he reported losing much more money than he made.”

Ho-hum.

First of all, Trump didn’t write the tax code, Congress did.

Secondly, if Trump is cheating on his taxes, then it is up to the IRS to uncover the fraud in an audit.

Third, it is not illegal to legally pay as little in taxes as possible.

Fourth, Trump legally avoiding paying millions of dollars in taxes to the government is old news that is only being brought up again because of the upcoming election.

And fifth, the New York Times is, as usual, not telling the whole truth. As the Times article states:

Each time, he requested an extension to file his 1040; and each time, he made the required payment to the I.R.S. for income taxes he might owe — $1 million for 2016 and $4.2 million for 2017. But virtually all of that liability was washed away when he eventually filed, and most of the payments were rolled forward to cover potential taxes in future years.

And that is just the money that Trump paid when he filed his extension of time to file. It doesn’t include quarterly estimated tax payments.

In other words, Trump did what many rich businessmen do every year.

But Trump is an anomaly. “The rich” are the ones who pay the bulk of the income taxes in the United States.

According to the latest figures released by the Internal Revenue Service (IRS), as reported by the Tax Foundation:

  • In 2017, the bottom 50 percent of taxpayers (those with AGI below $41,740) earned 11.3 percent of total AGI. This group of taxpayers paid $49.8 billion in taxes, or roughly 3 percent of all federal individual income taxes in 2017.
  • In contrast, the top 1 percent of all taxpayers (taxpayers with AGI of $515,371 and above) earned 21.0 percent of all AGI in 2017 and paid 38.5 percent of all federal income taxes.
  • In 2017, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. The top 1 percent of taxpayers paid roughly $616 billion, or 38.5 percent of all income taxes, while the bottom 90 percent paid about $479 billion, or 29.9 percent of all income taxes.

“The rich” are also punished through the phase-out of tax exemptions, deductions, and credits as their income rises. And not only do “the poor” pay little or no income taxes, they receive tax refunds of money they never paid in, in the form of refundable tax credits.

The maximum Child Tax Credit (CTC) is $2,000 per child, of which $1,400 is refundable as the Additional Child Tax Credit (ACTC). The ACTC is the refundable portion of the CTC that is available if the CTC reduces one’s tax liability to zero.

The maximum amount of the Earned Income Tax Credit (EITC) is

  • $538 with no qualifying children
  • $3,584 with one qualifying child
  • $5,920 with two qualifying children
  • $6,660 with three or more qualifying children

This means that a single woman with three children who makes between about $13,000 and $15,000 a year can pocket almost $11,000 a year. Twenty-nine states plus the District of Columbia and Puerto Rico have their own version of the EITC on top of the federal EITC. And refundable tax credits, like other welfare benefits, aren’t counted as income when determining if one is eligible for benefits or assistance under any federal or state welfare program.

Of course “the rich” benefited from the Reagan tax cuts, the Bush tax cuts, and the Trump tax cuts. They are the ones who pay the bulk of the income taxes collected, and always have.

The income tax began in 1913 with a 1 percent tax on taxable income above $3,000 ($4,000 for married couples) followed by a series of surcharges of up to 6 percent applied to higher incomes. The maximum rate of 7 percent was applied to taxable income over $500,000. The top rate has fluctuated widely over the years, and was near or above 90 percent from 1950–1963.

“The rich” don’t need to pay their “fair share,” they are already paying the greatest share.

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