Thursday, November 30, 2017 10:50 am
President Trump says the tax bill will 'cost me a fortune.' That's false.
Glenn Kessler | Washington Post
"This is going to cost me a fortune, this thing, believe me. This is not good for me. . . . I think my accountants are going crazy right now."– President Trump, remarks on tax plan, St. Charles, Mo., Nov. 29, 2017
There have been many times when we have thrown patently ridiculous claims made by the president into our database of false and misleading claims, only to decide later that we need to do a full fact check because the president keeps repeating the falsehood.
With the tax bill passed in the House and pending in the Senate, this is one of those moments. Back in September, Trump claimed he would not benefit from the tax plan, twice in offhand remarks with reporters and once in a speech. "It's not good for me," he claimed. It seemed so silly that it was not worthy of a full fact check.
But now, Trump has doubled down on the claim – saying the tax bill would "cost me a fortune, believe me." He even asserted that his accountants "are going crazy now" but that he didn't care because he is now the president and "this is a higher calling."
If anyone believes this line, we have a bridge in Brooklyn available for them. Let's do a tour of Trump's taxes.
Oh wait, we don't have Trump's tax returns because he reneged on a promise to release them. He is the first president in four decades who has refused to release his taxes. Obviously, it would be easier to verify his claims if we had a current tax return to review. But a portion of his 2005 tax return was leaked – and the White House confirmed the bottom-line numbers were correct. So we will have to do our analysis based on that return.
In any case, it should not be a surprise that someone with Trump's wealth would benefit from the tax plan. The nonpartisan Tax Policy Center estimates that more than 70 percent of the taxpayers in the top 0.1 percent would get a tax cut under either the House or Senate versions of the tax plan.
There are differences between the House and Senate versions, so here's the impact on the president's finances in five key areas.
Alternative minimum tax
Both bills would repeal the alternative minimum tax, which is designed to make sure that the wealthy pay at least some tax. The 2005 return shows that the AMT increased Trump's tax bill from about $5.3 million to $36.5 million. So at least in that tax year, he potentially could have saved $31 million. (The capital gains tax for people in Trump's income bracket has been increased since then, so the savings would be lower now.)
The House bill would dramatically slash taxes from a top rate of 39.6 percent to 25 percent on "pass-through" entities, which are companies that direct income through the individual income tax code and not the corporate tax code. The Senate bill currently is less generous, allowing a deduction of 17.4 percent of their income from taxable income, but lawmakers are discussing increasing the deduction to 20 percent, which would increase the benefit to Trump. (Effectively, this would be akin to a 30.8 percent top tax rate.)
Trump's 2005 tax return showed that he had more than $109 million in income from businesses, partnerships and pass-through entities, which represented a large portion of his income. A letter by Trump's tax lawyers released by the Trump campaign stated that he was the sole or principal owner in about 500 entities, "almost exclusively through sole proprietorships and/or closely held partnerships."
So the House version of the tax bill in theory could cut the taxes on that much pass-through income by as much as $16 million, though in 2005 a lot of that income was offset by business losses. The Senate version of the bill could have cut the tax bill by about $9 million.
While the bills purport to close loopholes, there are provisions that offer better deals for real estate investors. The impact of these provisions is unclear, but it certainly raises an eyebrow.
"In terms of pass-throughs, there are anti-abuse rules to make sure that wages do not avoid the top two tax rates of 35 percent and 39.6 percent," a White House official said. "It ensures that tax relief is targeted to Main Street job creators and not wealthy individuals."
Income tax rates
The House bill does not reduce the top income tax rate, but the Senate offers a small reduction to 38.5 percent. The other rate changes would make only a modest difference to Trump, who at least in 2005 earned relatively little (about $10.8 million) from wages, interest and dividends. Under the Senate bill, he would see a reduction of about $100,000.
Here's one area where Trump's taxes would increase because the bills would eliminate the deductibility of state and local taxes. The House would still allow a deduction of $10,000 for property taxes, but that's a pittance for Trump's properties.
In 2005, Trump had itemized deductions worth $17 million, but we do not know how much represented state and local taxes and how much represented mortgage and charitable contributions. (The mortgage and charitable deductions are relatively untouched, but the House would reduce the cap on the size of new mortgages from $1 million to $500,000.)
If we assume roughly three-quarters of Trump's itemized deductions were from state and local taxes, the tax bill would increase his taxes by $5 million.
We would be remiss if we did not include the impact of possible repeal of the estate tax on the Trump family. While Trump would not personally benefit, it could make a big difference to his children.
The House would completely repeal the estate tax, even eliminating any tax on capital gains. The Bloomberg Billionaires Index says Trump is worth $2.86 billion, so at a 40 percent tax rate, that would be a savings of $1.1 billion. (If you believe Trump's questionable claim that he's worth $10 billion, that would be a savings of $4 billion.)
The Senate bill would only increase the amount of estate exempt from taxation, from about $11 million for couples to $22 million. That would save the Trump heirs only about $4 million.
The Pinocchio Test
When you add it up, Trump would have saved $42 million on his 2005 taxes under the House bill and $35.1 million under the Senate bill. A big part of the savings is from elimination of the alternative minimum tax, and of course we do not know how often he was subject to it.
But the fact that the president has refused to release his tax returns should not allow him to make claims about his taxes without offering documented proof. The information we do have – the partial 2005 return – shows his claim of losing a fortune on the tax bill is poppycock.