The Lesson of Trump’s 1040

Teresa Tritch

TAKING NOTE MARCH 15, 2017

Donald Trump’s Form 1040 for 2005, disclosed by Rachel Maddow on MSNBC on Tuesday night, left political questions unanswered about the president’s Russian ties and business conflicts. But it clarified an important policy question: Should the alternative minimum tax be repealed? Answer: No.

In a world of honest policymaking, that clarification alone would be enough to change the trajectory of the tax debate now unfolding. Instead, it highlights how dishonest the debate has become.

If not for the alternative minimum tax, a part of the code that applies to wealthy taxpayers, Donald Trump would have paid just 4 percent of his reported $150 million income in federal taxes in 2005.

But thanks to the AMT — which disallows excessive deductions so that the very rich pay something closer to a fair share — Mr. Trump paid tax equal to 25 percent of his income. That’s still too low; the merely affluent, who earn six and seven-figure incomes, are subject to similar rates and rules. But it’s better than it would be if there were no AMT.

So, of course, a linchpin of the tax reform plans by Mr. Trump and congressional Republicans is to get rid of the AMT.

That is not policymaking. It is a type of con in which Republicans change the tax law  to further personal and special interests, rather than the public interest, while claiming that tax cuts will spread prosperity. They won’t. Repealing the AMT would result in a loss of nearly $460 billion in revenue over 10 years. It would be akin to another Republican goal — repealing the estate tax, which would also benefit the very wealthiest Americans, at a revenue loss of $226 billion over 10 years. Those tax cuts would occur as roads crumble, bridges weaken, school buildings deteriorate and tens of millions of people suffer from otherwise avoidable want and fear.

To understand how deep and gratuitous the Republican tax con is, you have to watch what Republicans do, not listen to what they say.

A case in point: In 2015, congressional Republicans made a big show of clamping down on fraud in tax breaks for low-income taxpayers. The I.R.S. had estimated that it paid $3.1 billion in fraudulent refunds to identity thieves in 2014, much of it connected to the Earned Income Tax Credit and the Additional Child Tax Credit, which are used by low- and middle-income working families.

The low-income tax credits are the inverse of the AMT. The AMT recognizes that wealthy taxpayers have so many ways to avoid taxes that measures must be taken to ensure they don’t reduce their tax bills to ridiculously low levels. The tax credits recognize that low-income working families have virtually no way to cut their tax bills, even for work-related expenses, and so measures must be taken to ensure that their taxes are not unduly large.

So what do Republicans do? They maneuver to repeal the AMT, while they crack down on low-income tax credits.

When the low-income tax credits came up for renewal in 2015, Republicans refused to permanently extend them unless something was done to combat the identity fraud. The result was a law, which took effect on Jan. 1, that forbids the I.R.S. from paying any refunds before Feb. 15 to anyone who claims the credits. The delay is supposed to give the I.R.S. more time to detect fraud, but a better and far less disruptive approach would have been to ensure that the I.R.S., whose budget has been cut deeply in recent years, has the resources it needs to do its job in a timely way.

Delayed refunds have caused real financial pain for low-income families. The tax credits boost refunds by about $100 billion a year for about 40 million taxpayers. When refunds are delayed, necessary purchases are postponed and families fall further behind on their bills.

The law to delay refunds is named the “Protecting Americans from Tax Hikes Act of 2015.” The idea is that by deterring a $3 billion fraud, lawmakers have shielded Americans from tax increases that would otherwise have to be enacted to make up for the revenue lost to fraud. Think about that as Republicans proceed with their plans to repeal the AMT and the estate tax. To offset the hundreds of billions of dollars of revenue that would be lost if these taxes were repealed, lawmakers would have to raise other taxes, or more likely, cut federal spending deeply. Who will protect Americans from that fraud?

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