Donald Trump paid $0 in taxes in 2020. He’s not alone: ​​60% of households paid no federal income tax that year either, but for other reasons.

[ad_1]

By Quentin Fottrell

Democrats released six years of Donald Trump’s income-tax returns on Friday, providing further insight into the former president’s tax situation.

This is unusual.

Democrats released six years of Donald Trump’s income-tax returns on Friday, providing further insight into the former president’s tax situation, and the tax strategies he used as a real-estate mogul.

Trump and his wife, Melania, paid $0 in income taxes for 2020, according to a report released late Tuesday by the congressional Joint Committee on Taxation. The nonpartisan committee’s findings also raised several red flags related to the filings, such as Trump’s carryover losses, loans to his children that may or may not also be considered taxable gifts, and tax write-offs related to deductions.

That year, when the COVID pandemic hit, the Trumps reported a loss of $4.8 million. For 2018 and 2019, the former president’s reported income increased and they pay about $1.1 million in federal taxes each year.

Furthermore, the Internal Revenue Service only began auditing Trump’s 2015 tax filings on April 3, 2019, more than two years into his presidency, revealing strained IRS resources.

“Auditing the income taxes of the President of the United States is not like auditing the income taxes of any other American,” according to an internal IRS memo. “No one else has the power to sign bills into law–bills that could affect the President’s personal financial situation. Nor do they have the power to personally direct every department, agency, bureau, and branch office of the government executive- – opening unlimited opportunities to affect the President’s personal finances

“Unlike many countries, we operate a large voluntary tax compliance system, supported by oversight and auditing,” the IRS said in an internal memo. “That means our revenue system– and therefore our democracy–depends on the public’s belief that our tax laws are administered fairly and impartially.”

This year, about 72.5 million US households, or 40%, will not pay federal income tax, up from a pandemic high of 100 million households, or 60%, two years ago, according to estimates from Tax Policy Center. By 2021, nearly 56% of households, or 99 million, will pay no federal income tax, the nonpartisan think tank said in a report released earlier this year.

But the reason the Trumps paid nothing in taxes — that is, their reported loss of nearly $5 million — is very different from the reason most of the other 60% of Americans paid nothing in 2020 .

People who earn less than the standard deduction — which for 2022 is $12,950 for individuals and $25,900 for married couples filing jointly — owe no federal income taxes (although experts tax says it’s still a good idea to file a return to access tax credits such as the earned tax credit and the child tax credit).

Of course, people who don’t pay federal income tax still pay sales taxes, property taxes and other types of taxes. And many people who work and don’t owe any federal income tax still have money taken out of their paychecks for Social Security and Medicare.

In fact, many low-income and below-average income families pay more in payroll taxes each year than they pay in federal income taxes, according to Gary Burtless, a senior fellow at the Brookings Institution, a centrist research group founded in 1916.

For the most part, Burtless said, the US individual income tax is progressive, with heavier tax liabilities as you move up the income distribution scale, and very low or negative income tax liabilities under measure.

“The logic of our income tax system, is that Americans’ income tax liability should fall heavily on those with the greatest ability to pay,” he told MarketWatch. “Almost all US residents with no income taxes or very low taxes have relatively little current taxable income. Many of these people are retired, and have moderate current taxable income.”

“Remember, however, that many of them paid positive income taxes earlier in their careers when they had wages, self-employment earnings or other taxable income,” Burtless added. “Other non-taxpayers are young and have very low taxable incomes (although many of these people owe payroll taxes for Medicare and Social Security).”

“And the rest who don’t pay are very poor and/or have a lot of dependents,” he added. “Under the logic of our income tax system, we expect and consider it fair that these people with low current incomes owe no federal income tax.”

In his own analysis, Don Fullerton, a professor of finance at the University of Illinois at Urbana-Champaign, also found that older individuals are more likely than younger individuals to not pay taxes or receive tax transfers.

Older people receive most tax transfers through Social Security benefits, while younger people are more likely to receive transfers such as unemployment-insurance benefits.

“The federal income tax has always exempted a large portion of households through a combination of personal exemptions, the standard deduction, zero-bracket amounts, and more recently, tax credits,” says Tax Policy Center.

-Quentin Fottrell

(END) Dow Jones Newswires

12-31-22 2015ET

Copyright (c) 2022 Dow Jones & Company, Inc.

[ad_2]