Opinion

Is Tax Law or the MSM the Problem?

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Posted: Oct 05, 2020 12:01 AM
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Is Tax Law or the MSM the Problem?

Source: AP Photo/Mary Altaffer

Editor's Note: This piece is co-authored by Loyd Pettegrew. 

Democrats and their mainstream media (MSM) enablers have been pushing for access to the president’s tax returns before he took office. In a September 27, 2020 salacious front page story, the New York Times screams,  “Long-Concealed Records Show Trump’s Chronic Losses and Years of Tax Avoidance?” The article accuses Trump of being both a billionaire who has failed to pay his fair share of taxes while also claiming he is a failed, deeply indebted businessman. Their schizophrenic analysis is irrational. Under our tax and bankruptcy laws the latter would owe no tax.  

The Times’ anonymous investigators allegedly obtained 10 of the past 15 years of tax returns despite privacy laws. Like the Clinton campaign fabricated Russian collusion scandal, no one has provided a single 1040 return. Consequently, the NY Times headline cannot be verified. Proving a negative is almost impossible and we know from these past four years the deep state and the MSM will commit any libel to denigrate our president. Why does this patriot tolerate such constant abuse? Given his amazing success, what could he have accomplished with a minute amount of support from his political enemies in the MSM and deep state?

Many real estate developers often pay no taxes in any given year or sequence of years. This doesn’t involve defrauding the government, but reflects federal tax law and the particular business cycles developers go through. When developing a property, like Trump’s hotels and golf courses, the cost of development vastly outweighs the developer’s income during the years of development and until the project is fully operational. Until revenues exceed the deductible expenses including depreciation and annual expensing of depreciation as dictated by the Internal Revenue Code (IRC), no profits exist and therefore no taxes are due. In fact, the losses incurred in these years may be carried back and forward under the IRC that Trump had no part in writing. His political opponent, former Senator and VP Biden, has had 47 years of participation in creating the tax laws. 

Operational income is only one source of revenues for a developer and resort operator. The second form of income or profits can be derived from appreciation and subsequent sales of property. If proceeds from one project are rolled over into a new project then the selling of real estate may be a deferred taxable transaction that allows postponing taxable gains legitimately under IRC section 1031. This deferral of income rule is another reason why developers’ income is inconsistent from year-to-year. A 4 year incubation period is typical for most development projects, where net positive cash flows are not expected 3-4 years and the selloff projected in years 7-10.

Deductions that may be disallowed in one year are typically allowed in later years, sometimes when the property is sold. The claim that Trump is deeply indebted to the IRS for disallowed losses and formerly refunded credits is likely a timing difference that would reverse itself over the life of the investment. Claims were also made about massive debt. Without balance sheets or other financial documentation, it is impossible to accurately glean the level of any other debt held by a taxpayer with only personal tax returns. In 2020, however, pandemic lockdowns have caused historic losses in the travel and leisure industry.

Developers create jobs in the development, construction and operation phases of their projects. Even after the project is sold or leased, the workers are still in demand. The hundreds of people employed in the shadow of the developer’s business is an economic boom to the surrounding community. Without these jobs, those taxpayers would have not accumulated Social Security and Medicare benefits that are matched by the employer that only an employer of workers can create. Maybe this why Trump identifies so well with workers, job creation and expanding industry?

If the president and his family are broke, how can they afford to voluntarily donate the president’s $1.6m salary back to the U.S. Treasury? This is a 100% income tax Trump has voluntarily paid on his government salary. Why do the polymath Trump children provide free services to their country? Jared Kushner was front and center in the Middle East, resulting in three Nobel nominations; Ivanka has been championing several working parent tax initiatives.  

We recall that the Clinton White House created and filled ‘travel-gate” positions with friends and relatives. The Obamas exploded the White House staff payroll for their personal benefit, because everyone needs a half dozen personal assistants. And how does a two-term president enter office with a net worth of $500,000 and leave office worth $28m?  

The Trumps have shrunk payroll and other federal costs for the American taxpayers. Thank you Trumps! Maybe next you could lower Congressional wages and equalize pensions and health benefits so they can realize the same 401K and Obamacare restrictions imposed on the citizens they represent. Make defined benefit pensions illegal for government workers at all levels and convert them to 401k plans using any excess government pension reserves to bail out the insolvent blue states. Obama said no one needs more than $3m to retire on, let Congress have what he pronounced. Career politician Biden’s $160k annual lifetime pension far exceeds that Obama declaration. Also remove the security protection and advance teams for Congressional members opposed to our Second Amendment rights, and are offended by the presence of any type of weapon and safety. This should save our country money while disincentivizing lifetime political careers. 

Serial IRS audits are indicative of a taxpayer’s exceeding the “average threshold” and not necessarily wrongdoing as implied in the Times’ story. Millionaires and billionaires are far more likely to be selected for audit than a middle class taxpayer. Given the propensity of the deep state, had Trump committed any infractions, it would have been leaked and headlined in every MSM world-wide. 

When asked at a 2016 presidential debate against Hillary Clinton if he used his $916 million loss to avoid paying federal income taxes, Mr. Trump replied, "of course, and so do all of her donors, or most of her donors.” Mr. Buffett volunteered, “My 2015-16 return shows adjusted gross income of $11,563,931. My deductions totaled $5,477,694, of which allowable charitable contributions were $3,469,179.” Like any developer properly utilizing the qualified deductions to reduce taxable income, Buffet applied the tax laws to his personal financial dealings and benefited greatly from his philanthropy at the expense of the U.S. Treasury.

Biden’s return reflects a strategic but legal maneuver to minimize his Medicare and Obamacare tax liability. He has set up an S Corporation to collect his personal service revenues . Absent this S Corporation his revenues less qualified expenses would be subject to federal and state income tax, Social Security, Medicare and Obamacare tax. Each year he avails himself of this strategy that deprives Medicare and Obamacare funds of at least $15,000. The latter is a program Biden holds “dear to his heart” according to his campaign ads. No doubt Biden intends to reverse limits on state tax deduction that prevents wealthy folks from insolvent but highly taxed states with very expensive homes from deducting those taxes in excess of $10,000. His law change could decrease his tax bill about $30,000 annually. More interesting than Joe Biden’s returns would be son Hunter and brother James’s returns. Were the Ukraine, Russian and Chinese payoffs brought back into the U.S. or do they live quietly offshore? Were taxes paid on the millions derived from these father-son and father-brother trips? What actual services were performed to justify the consideration these foreign governments and entities provided? A legitimate press would have investigated these questions.  

There are twin morals to this story. Trump as a property developer is allowed to lawfully deduct his considerable expenses while Buffett gains tax savings from his philanthropy and Biden shifts his speech giving/influence peddling revenues to an S Corp that allows him to legally avoid some Medicare and Obamacare tax. This difference is an example of legal tax avoidance utilized by an investor/philanthropist, career politician and property developer. Second, The New York Times has consistently devolved into a political gossip column no better than Pravda. No longer the paper of record, it has become the tabloid of trash during the Trump years. At what point will taxpayers demand that the media report it’s public relations activity as campaign contributions and at what point will we ever enjoy an objective free press again in our country?

If the MSM and Democrat elites don’t appreciate the legalities and calculation results of the tax code for the past 15 years they should look historically to those career lawmakers responsible for legislating these rules. They should be attacking the Obama and Bush administrations not the taxpayers who properly filed their returns. Be very careful, next the MSM and Democrat elite may be coming after you as they cheerlead for the neo-Marxists using the tax code as a blunt instrument.

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