NY Times expose reminds us upper-class tax evasion is and has been the norm

by Matt Taibbi Rolling Stone Oct 10, 2018

When New York Times reporters David Barstow, Susanne Craig, and Russ Buettner published their exhaustive, gazillion-word expose on the Trump family tax practices last week, there was only one word for it.

“Tax bombshell,” blared Yahoo!

By my count, this was roughly the 4,790th “bombshell” of the Trump presidency, but one of the few to deserve the title. The Times story is an extraordinary piece of investigative reporting and a monument to the kind of work we all should be doing.

The parts I found most interesting were less about the rapaciousness of the Trump family per se than the myriad opportunities for gaming the system one presumes is available to everyone of this income level. The ordinary person cannot hire an outside appraiser to tell the IRS what it thinks he or she is worth, but the Trumps could systematically undervalue their properties for tax purposes (and then go back and overvalue them when it served their public relations needs).

The timidity that enforcement officials show toward the very wealthy is also a running theme in the story. When the Trump family claimed a $17.9 million building had fallen to $2.9 million, supposedly losing 83 percent of its value in just 18 days, the IRS auditor who caught it made them push the value back up by just $100,000.

The infamous $3.35 million casino chip scheme — an illegal multi-million-dollar loan under New Jersey law — inspired just a $65,000 fine.

There is a lot in the piece that testifies to Trump’s keen understanding of the media and how he knew he and his father could exploit it. Donald Trump, the bold filthy-rich investor, has always been a media creation. At an early age he realized reporters were basically dupes (and, usually, poorly paid dupes) who were easily conned into thinking a person was fantastically wealthy just by taking a ride past a few construction sites.

Donald and Daddy Fred furthermore understood that you can win an accomplice for life in the press just by telling a reporter something he or she thinks is a secret. In this piece, they’re shown pulling various insider-trading/ greenmailing schemes, with Fred buying stakes in companies like Time, Inc. just before Donald would whisper to a reporter that he was “taking a sizable stake” in the company. Shares then jumped and Daddy cashed out with a $41K profit, which was probably enough for lunch, at least.

There is a lot in here that’s educational about how the wealthy are able to pass riches back and forth without being taxed the way you or I would be. The Times couldn’t find any paperwork explaining how Daddy Trump transferred 1,032 apartments to his children without incurring tax penalties. Tax records only showed that the “mini empire” had “shifted at some point from Fred Trump to his children.”

The expose is painstaking, incredible work. The late Wayne Barrett of the Village Voice — my old boss and one of Trump’s first biographers — kept a massive archive of Trump documents and spent years traversing this history. He would probably have shed a tear to see all this in print.

And yet, what will the impact be for Trump voters? I’m going to guess not much.

On the 2016 campaign trail, I couldn’t find anyone at Trump rallies who was bothered by the candidate’s multiple bankruptcies. That tale was also about a dynastic family manipulating the financial system to socialize losses and hoard assets. Trump’s excuse — that he had “brilliantly” manipulated the bankruptcy system to stay rich _ impressed most of the Trump voters with whom I spoke.

If they read the Times piece, Trump supporters are sure to seize on sentences like, “The line between legal tax avoidance and illegal tax evasion is often murky.” They will take that, add it to the fact that whatever Trump did, he clearly got away with it for a long time, and silently pump a fist: “Right on.”

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What Trump sells to voters is a vicarious fantasy. He shows off his appalling gold-leaf interiors and shows his selfies with celebsand talks up his tacky empire, and people think: “Man, if I had a billion dollars, that’s how I’d live!”

Since most people don’t like paying taxes, Trump fans will probably applaud his family’s multi-generational avoidance. And they will look at stories like this and say, “Those reporters are only doing this because it’s Trump.”

They might have a bit of a point.

Where was this kind of hardcore investigative firepower into the brazen tax avoidance of the rich before?

There have been a few dedicated journalists like David Cay Johnston who, long before Trump, tried to evangelize for real tax collection from the super-wealthy. Johnston detailed horrific and brazen avoidance schemes and won critical acclaim, but not the same kind of attention. (see below for David Cay Johnson’s most recent take on this)

I would describe Johnston’s explanation of how 61 percent of American corporations paid no taxes at all over a five-year period between 1996 and 2000 as a “bombshell,” but most of the journalism world did not agree.

Many of the biggest tax evaders are major media advertisers and sponsors of both parties — like Apple, for instance — which pioneered techniques like the “Double Irish with a Dutch Sandwich,” in which profits are sent overseas to tax havens.

Five years ago, the Senate Permanent Subcommittee on Investigations laid out in painful detail how Apple in one year paid an effective tax rate of five-hundredths of one-percent. There were similar gruesome tales about other tech companies.

The private equity business similarly has produced many politically active multi-millionaires and billionaires who have spread money across both parties. For this reason, some truly repulsive systemic tax-avoidance schemes have gone without requisite attention. It’s one of the reasons the absurd and indefensible carried-interest tax break (which helped people like Mitt Romney pay an effective 14 percent tax rate in 2011) was allowed to persist for so long.

Trump, of course, is likely far worse than the bulk of these actors. As the Times piece shows, his family’s whole business model was founded on a kind of scam. The key illusion involved a media-generated myth of self-generated opulence, when in fact what Trump mostly did is spend decades playing keep-away from the IRS with dollars inherited from Daddy.

But the time to sound the alarm about this was decades ago. Trump voters might have been more receptive to this kind of reporting back then, before we institutionalized corporate and high net-worth individual tax avoidance. In fact, the longstanding inattention of both parties and the commercial media to this kind of behavior perversely became part of Trump’s messaging in 2016. 

This was what he meant by, “Nobody knows the system better than me. Which is why I alone can fix it.” People cheered that line.

I manipulated this corrupt nation to get rich at your expense wasn’t even the subtext there, but the primary meaning. America hates the IRS (although along with hemorrhoids and witches, they like it better than Congress) and Trump sold himself as an outlaw savior.

The Trump era has produced some stellar investigative reporting, but some of it yields an uneasy feeling. The relentless focus on Trump as the center of our media universe has left huge segments of the population with the impression he’s a cause, not a symptom, of our problems. He is a rich scumbag who cheats on taxes, not the rich scumbag who cheats on taxes.

If anything, the awesome amount of ink spilled about him as a symbol of upper-class impunity has furthered the deception described in this Times story as having begun in the Seventies, when he took reporters on tours of his quasi-fictitious “jobs.”

Trump is a person with a lot of money, but compared to tax-renouncing firms like Microsoft, Bank of America and Facebook — and even the executives running them — he’s a nobody, a putz. It’s great that we’re unmasking at least one person from that world. But please, let it be just a start.

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We need tax police – and they should go after the likes of Donald Trump

A staggering New York Times report on Trump family tax payments proved it: Congress must let the Internal Revenue Service do its job.

When the New York Times exposed decades of tax cheating and “outright fraud” by the sitting president, it prompted people to ask important questions about the corrupt practices of the Trump family. The answers are central to the future of America.

Where was the Internal Revenue Service? How did the Trumps get away with decades of schemes the Times said allowed them to evade close to a half-billion dollars of income and gift taxes? Is Donald Trump continuing these practices? Is that why he refuses to make his own tax returns public? Can anything be done about it?

I’m in a unique position to answer those questions. I am the Times’ former tax reporter, the journalist who has covered Trump longer than anyone else, more than 30 years. And my next book will propose an entirely new tax system for the US and other advanced nations.

The answers to the first and second questions are as easy as they are awful.

Congress, which makes tax law, has never properly supported the IRS, which I like calling the Tax Police Department.

Since 1992, the American population has grown 27% but the IRS staff has shrunk by 34%, to less than 78,000 people. At the same time, Congress has added enormous complexity to the tax code. On top of this, the big accounting and law firms have devised all manner of complex new tax shelters. A few years ago, the IRS told Congress it lacks the expertise to thoroughly investigate such shelters and determine which are within the law and which are frauds that should be demolished.

The Trumps benefited from complex ownership structures that, among other strategies, let them inflate invoices for such things as new stoves in rental units. This meant they got bigger income tax deductions than were lawful. It also helped Fred Trump, Donald’s father, pass money to his children without incurring income and gift taxes or reducing the amount paid. Fred Trump created 295 separate revenue streams to funnel money to his children without incurring gift or income taxes.

They did it with buildings too, reducing the value of more than a thousand apartments by more than 94%.

I have held in my hands real estate transfer records for more than a $1bn of real estate that parents owned in the morning but after lunch belonged to their children. I’m sure these were tax crimes but Congress makes gift tax returns secret so I have no way to prove it unless someone leaks me those documents.

One reason for my certainty: a government court filing stating that gift tax cheating in real estate is rampant, ranging from a low of 85% of gifts in the most honest states to 100% in others.

So if the Times is right and some of the Trump tactics were criminal, why weren’t they indicted?

In the US last year, just 865 people were pursued for tax cheating that did not involve drug dealing, bribing politicians or criminal enterprise profits. That means the odds of being pursued were one in 377,000. Add in those crooks and the risk of prosecution rises, but only to about one in 100,000.

Those figures, from the latest IRS Data Book, concern IRS recommendations for prosecution, not actual indictments. That number would be smaller, though just how much smaller is unclear.

The IRS also focuses heavily on the working poor who collected the Earned Income Tax Credit, a get a kind of negative income tax that Ronald Reagan championed. At the turn of the century the working poor were more likely to be audited than those prosperous enough to enjoy incomes of more than $100,000, or almost $150,000 in today’s money. It’s not that bad now, but the working poor still get extra scrutiny under a 1994 deal between Bill Clinton and the then House speaker, Newt Gingrich, now a Trump supporter.

The Times’ masterly, 4,000-word investigative report was based on more than 100,000 documents, many leaked from Trump family files, and interviews over 18 months by three top reporters. Every arcane aspect of accounting, business practice and tax was explained with exquisite accuracy.

So if we assume the paper’s report is accurate, can the Trumps now be indicted?

No. The Times exposé covered the 1950s to roughly the turn of the century. The statute of limitations for both state and federal criminal tax fraud is six years.

However, there is no such limit on civil tax fraud. That means the surviving Trumps can be pursued for every penny with penalties and interest, assuming there is the political will to do so.

What are needed now are Donald Trump’s tax returns in this century. All we have seen of his federal taxes are the two pages I received in the mail in March 2017.

You can expect to see Trump’s returns within about a year if the Democrats win control of the House or Senate. That’s because Congress has granted itself the authority to see tax returns.

The returns would not just be thrown out there. The Democrats are likely to employ skilled auditors and investigators to go over the returns and hold public hearings at which the returns would be examined.

Let’s hope Congress does not limit itself to the issue of whether the sitting American president is engaged in ongoing tax crimes.

Let’s hope it decides to work on equal enforcement of the tax laws. Every dollar of tax evaded adds to America’s debt. It means less money to invest in basic scientific research, education and modernizing crumbling infrastructure. Taxes are at the core of democracy. The power to tax is the specific reason the American constitution was adopted, replacing the government-by-bake-sale financing under the Articles of Confederation.

Wage earners and others whose income is independently verified and whose taxes are withheld before they get their money are fully taxed. But people who control businesses can cheat with abandon. Their risk of detection is small only because the tax police are intentionally handcuffed. They need to be set free to do their job.

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