‘Real Estate Investors Should Be Treated Like Any Other Businessmen’ – CounterSpin interview with Richard Phillips on Trump's taxes

Janine Jackson interviewed Richard Phillips about Donald Trump’s taxes for the October 7, 2016, episode of CounterSpin. This is a lightly edited transcript.

Richard Phillips (image: Al Jazeera)

Richard Phillips: “The problem is that lots of people have figured out ways to make their income a little more complicated.” (image: Al Jazeera)

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Janine Jackson: In case you somehow managed to miss it, Republican presidential candidate Donald Trump acknowledged in the most recent debate that, for at least some period of time, he paid no federal income tax, explaining, characteristically, “That makes me smart.”

The statement revealed nothing we didn’t know about Trump, but it did raise a few questions for some folks about taxes—who pays what and why. Richard Phillips is senior policy analyst at Citizens for Tax Justice and the Institute on Taxation and Economic Policy. He joins us by phone from Washington, DC. Welcome to CounterSpin, Richard Phillips.

Richard Phillips: Thanks for having me on.

NYT: Donald Trump Tax Records Show He Could Have Avoided Taxes for Nearly Two Decades, The Times Found

New York Times analysis (10/1/16) of Donald Trump’s tax return

JJ: Well, the New York Times did some looking at what tax return information they could get about Trump, and a lot of eyes are on the fact that in 1995, he claimed more than $900 million in losses. And this, we’re to understand, could be claimed against earnings in future years, such that it’s possible his taxes could have been zero for maybe 18 years. Now, no doubt there’s much more to it than that, but as a point of information, this whole idea, this basic idea, of deducting your losses from your future income—not everybody is allowed to do that.

RP: That’s definitely true. And the most common example, for middle-income families, if your house loses value, as a lot of houses did in the 2008 financial crisis, then you don’t get to subtract out the loss of that to your income in a given year, but Donald Trump got to subtract out the losses of his real estate assets going downhill.

JJ: Now, the reason for that phenomenon—some would call it a loophole—but there’s a reason for it, and I understand that that’s because the idea was that it would spur investment, or that it would spur job creation. But has that been borne out?

RP: So the whole idea of net operating losses, which is what he experienced, doing this for business makes a lot of sense, because if a business in one year makes $100 and the next year it loses $200, it seems a little strange to hit them with more taxes when they’re not actually making money.

JJ: Uh-huh.

RP: So we don’t have a huge problem with net operating losses, to some extent, but I think there’s two unique ways that Donald Trump—we know, because he’s in the real estate industry—is taking advantage of this. One way is that he gets to use a lot of his business losses to cover his own personal income losses. So it’s not that, oh, well, within his business itself, he can subtract out the losses from other income in his business, but he can actually use that to wipe out his earnings from, say, the money they paid him to be on The Apprentice. And that’s something that not all businesses and not all people can do.

And then the second unique thing about the real estate industry is that in many cases—and for Donald Trump, we know this is true—that they actually get to take losses based on loans that they are not actually invested in. So in many cases, Donald Trump wasn’t putting up all the money to build the building, he was actually taking out very large loans. And so he gets to take the losses on those investments, even though he wasn’t necessarily making the full investment.

JJ: And the rules that allow for that, I think some people may believe, well, yes, they happen to benefit individuals like Donald Trump, but they’re in place because they also benefit the economy as a whole. And I guess my question is, does that seem to be the case?

RP: We don’t think that these kinds of rules for real estate investors are uniquely helpful to the economy. We think that real estate investors should be treated like any other businessmen, you know, just be required to pay the taxes they owe, not get these kinds of special tax breaks. So, no, I don’t see any reason for us to be disproportionately benefiting the real estate industry. In fact, I think the real estate industry is profitable enough on its own that it doesn’t need special tax breaks to enhance it.

JJ: Well, recognition that the tax code can favor the wealthy, and can favor businesses and particularly real estate, has kind of morphed in the public conversation into, the tax code is too complicated. In which light, I was really intrigued by a comment from CTJ’s Bob McIntyre, who said, “The complexity comes from trying to stop people who have found ways around the simplicity.” What is he getting at there?

RP: I think people have this sense that it’s really easy to figure out what income is—we should just have your income and then multiply it by a rate and that’s all that you have to do. But the problem is that lots of people have figured out ways to make their income a little more complicated.

And just using the Donald Trump example, it’s actually a little hard to figure out, year to year, exactly how much Donald Trump is making or losing and, thus, what his income is. And so what people like Donald Trump or other wealthy people do is, they figure out ways to make what could be income look like losses. Or, because the tax code in some cases treats different types of income differently, to shift all of your income to be the less-taxed version. The issue is, it’s inherently hard to get at what income is. And, thus, it can’t be as simple as people want it to be, because the accountants always try to figure out ways to get around them.

Ivanka Trump in the documentary Born Rich

Ivanka Trump in the documentary Born Rich

JJ: Yeah, I’ll never forget, no matter how hard I try, a scene in the movie Born Rich, in which Ivanka Trump is describing her father pointing to a homeless man and saying, “That guy has eight billion more dollars than me.” You know, because Trump was in debt at the time.

And I feel like you can explain about how certain things are on paper and they’re not real, but those stories hold a lot of meaning for people. You know, tax code, whatever—this guy was in a hole deeper than a homeless guy, and he made it all back! I think it’s kind of hard sometimes to translate this information.

RP: Yeah, absolutely. I think one of our hardest tasks in explaining the tax code, and also one of the reasons why the tax code has become so rigged, is because it’s become this place for different accountants or tax lawyers to argue. And at that point, it’s hard for the American people to kind of engage and figure out, well, what is the loophole and what is the legitimate deduction?

JJ: The corporate tax rate has come up in debates, and we’ve heard “offshoring,” it’s presented by Republicans in the main as being the result of the fact that corporate taxes in the United States are too high. I feel like I’ve been hearing that for a very long time. It seems like something you ought to be able to say, well, here’s the answer to that, relatively. I mean, how much credence do we give this line about corporate taxes being too high, and about that being the reason for offshoring?

RP: I think the No. 1 talking point from corporations is that the corporate tax rate is too high, but what they tend to focus on is the statutory tax rate, which is 35 percent, rather than the effective tax rate that companies are actually paying. And the reality is that that rate is a lot lower than 35 percent. In fact, a study by Citizens for Tax Justice found that it was around 19 percent for major profitable companies. So we push that out there and say that, yes, the rate is lower; but it doesn’t stop the corporations from claiming, over and over again, that they’re actually paying 35, or that the 35 rate is the rate that everyone should be paying attention to.

JJ: And I guess if you asked those corporations about paying that lesser rate, they would say that makes them smart. I mean, after all, that is what they have tax lawyers to help with.

Well, a lot of the problem, it seems like, that you’re laying out has to do not so much with the information not existing, but with a certain kind of opacity, with the inability to get at that information, or to use it in an accessible way. So what is this Financial Accounting Standards Board, and how hopeful should we be about that?

The Cayman Islands (cc photo: Lyn Gateley)

The Cayman Islands (cc photo: Lyn Gateley)

RP: So the Financial Accounting Standards Board, and also the Securities & Exchange Commission, have both been kind of reviewing their standards on what companies are required to disclose, in terms of how much they’re paying in taxes, and how much income they’re earning in every country. And so we recently put out a report called Offshore Shell Games, where we took a look at how much companies were holding offshore. And although we could get some pretty good estimates, in terms of showing that Fortune 500 companies have about $2.5 trillion offshore, we were only, in many cases, able to estimate how much they actually owe in taxes on those things. And, actually, we have no sense of where and how much money a given company has in, say, the Cayman Islands versus Germany.

And so what we’ve been trying to push the Financial Accounting Standards Board to do, and the Securities & Exchange Commission to do, is require companies to list out the information on a country-by-country basis, things like income, their tax, how much revenue, and that way the public and investors would just have a better sense of what’s really going on.

JJ: And I guess we would also know what could be invested in the US economy. In other words, kind of what the mass amount is that’s missing that could be put to work doing lots of other things.

RP: Yeah, absolutely. I mean, this is a tremendous amount of money they have offshore. Our estimate, based on the numbers we do have, is that companies, on that offshore stash, owe about $718 billion, and that’s a lot of money that could go to building roads, go to investing in childcare and healthcare, and go to all the different priorities that we have.

JJ: We’ve been speaking with Richard Phillips of Citizens for Tax Justice and the Institute on Taxation and Economic Policy. You can find their work online at CTJ.org. Richard Phillips, thank you very much for joining us this week on CounterSpin.

RP: All right, great. Thanks for having me.

This piece was reprinted by RINF Alternative News with permission from FAIR.