James Henry says that though Trump’s use of tax loopholes should not be forgiven, the Democratic Party has also been complacent with corporate tax benefits
Story Transcript
DHARNA NOOR, TRNN: Welcome to The Real News Network. I’m Dharna Noor. This weekend, the New York Times released records that exposed a loophole in Donald Trump’s tax history. The records from 1995 show business losses of 9 hundred million dollars. The tax deduction that resulted could have legally exempted Trump from paying any taxes for up to 18 years. With us to discuss this is James Henry. James is a leading economist, attorney, and investigative journalist. He’s a senior advisor to the Tax Justice Network and a senior fellow at Colombia University. Thanks for joining us today. JAMES HENRY: You’re quite welcome. NOOR: So James, according to the Times, Trump took advantage of a tax provision that dates from 1918 which states that losses in one year can be carried over into later years and deducted from one’s income in the later years. Could you explain to us this logic behind this loophole and why it is that businesses are allowed to do this but ordinary individuals are not? HENRY: Well business are treated very differently, especially real estate investment companies like Trump has had from ordinary people. So the rest of us if we got losses in one year typically in our jobs for example or if we are in the nonprofit sector there’s no way we can take advantage of these over time. But the notion here is since businesses are economic institutions that are long lived that are making investments that we try to give them some chance to depreciate the investments they have over time and then also if they have losses to hang on to them and keep on deducting them against future income. So the special thing about real estate is that it’s allowed to as in this case take an advantage of a number of very technical provisions where Trump was allowed to have massive losses in his real estate operations and then essentially use them to shelter income from other sources of activities like licensing brands and some of his other ventures in the Universities and so forth. So he had one particular stock venture that he launched here which generated some income for him and that generated him another body of income that he sheltered. I think the big picture here though is very important for us to understand. These kinds of provisions have been on the books for all wealthy investors and big real estate investors in particular, literally for decades. The real scandal here and I know a lot of my journalist friends are treating this as a gotcha moment; we got these documents, finally we have Trump’s tax returns. But these are provisions in the real estate tax code and business taxation in general that first of all are very, been on the books for a very long time. Both parties have supported them and Trump so far we know is not anything that’s clearly illegal about this activity. The bigger scandal is in the fact that these provisions have been allowed to persist and they’re sort of like also I think dwarfed by the kind of tax benefits the companies like Apple and Google have been generating by offshoring a lot of their profits. The Obama administration has been in power for 8 years here. They’ve done nothing about this corporate offshoring to any great extent. Hillary hasn’t said much about what she’s going to do about it. Tim Cook of Apple is holding big fundraisers for her. And the scale of tax revenue lost to the US treasury facilitated by those multinational tax dodges is vastly greater than the amount of money that Donald Trump has evaded. While I’m not apologizing for Trump’s behavior, it’s aggressive and pretty contradictory for him to be talking about trying to help other ordinary Americans, many of whom have no chance but to pay the withholding taxes that are withheld against their wages. He’s paying virtually nothing in taxes as far as we can tell. That’s hypocritical. But I also think it’s hypocritical for the democrats to stand back with their hands on their hips pointing the fingers at him as if some of their biggest donors are not engaged in ultimately in exactly the same thing. NOOR: Now most people actually found this news rather astounding about Donald Trump despite the fact that as you’re saying, such tax evasion methods essentially are quite common place among the corporate sector. So how is it possible that such a provision has never gotten attention before and has anyone ever moved to prevent such an abusive attack system? HENRY: The real estate industry in general has one of the most influential lobbies in Washington. One of the jokes common around the tax practice community is to say, we would actually do far better if we just eliminated all taxation on real estate investments and real estate industry because after all the tax dodges they get, they actually end up getting huge subsidies from the federal government. So this is a powerful influential industry. It’s probably right up there with banking or defense in terms of their impact on tax law and their size of their lobbying in Washington. Those eighteen hundred tax lobbyist in Washington. Many of them are employed by real estate and finance. So you know there’s no accident that this is a problem. What we should be doing is not necessarily just pointing the finger at Trump but saying, Hillary what’s your plan to correct these abuses. In fact, Trump could do us all a favor here by saying, yes I took advantage of some of these provisions. I eliminated my taxes completely. This is outrageous. It shouldn’t be available to rich people like me. We need a progressive income tax. I doubt he’s going to say that but it could be a very teachable moment if he were to say we need fundamental progressive tax reform that makes this system as William Simon once said, it would be nice to have a tax system that looked like it was designed for a purpose. So he has an opportunity to hear him say time for reform. I don’t think he’s going to do that but I think that would be an opportunity for him. NOOR: I do want to come back to what both candidates have proposed or haven’t proposed to reform these sort of tax loopholes. But I want to know first what you think can be done to close loopholes like this. What should be done? What steps can actually be taken right now? HENRY: Well on the real estate front, a lot of these deductions that we allow to go forward for 20 years for example, forward and two years backward and 20 years forward in this case and to be able to transfer losses from whole are of the economy, real estate, over to shelter income from completely different activities, that is unconscionable and ought to go. On the offshore front, there’s lots of things we could do to clean up the offshore end of corporate income by the top multinationals in the country. The OECD is a whole elaborate project on this. We’ve been working on it for 3 years and lots of specific proposals country by country reporting like ultimately a formulary kind of proportionate system for allocating taxes across countries according to real activities rather than allow tax havens to be places where they can book income and fundamentally getting rid of sort of excessive tax competition that is really going on among countries in a kind of race to the bottom in corporate sectors. So there are lots of things that we can do the issue is political will. Right now we frankly have two candidates that are both guilty for turning a blind eye to aggressive tax abuse. NOOR: Now Trump openly admits that’s he’s beneficiary of tax laws that favor real estate and favor the super-rich. Let’s take a look at an example. DONALD TRUMP: The unfairness of the tax laws is unbelievable. It’s something that I’ve been talking about for a long time. You’ve heard me talking about it despite being a very big beneficiary, I must admit. I am. I am. I’m a big beneficiary. But you’re more important than my being a beneficiary so we’re going to straighten it out and make it fair for everybody. NOOR: And Hillary Clinton has often attacked Trump for his plans to reduce taxes on the super-rich. Here he’s saying he’s going to make tax law fair for everybody. So let’s compare their plans for taxes on the super-rich. She plans to cap deductions, instate a new millionaire tax, and most recently she said that she’ll increase the estate tax. Trump openly says that he wants to reduce taxes on the super-rich sometimes. He’s talked about reducing individual taxes on the corporate tax rate. He wants to reduce the corporate tax rate by a 2.4 trillion dollars. He wants to abolish the state tax. So how did the two candidates really compare and who should folks be supporting if they do want reform? HENRY: I think that Hillary’s plan is very good on the individual side. It’s a good step in the right direction. She’s a lot less specific about what she would do with corporate tax reform and that’s not surprising given some of her largest donors being from Silicon Valley and the pharmaceutical industry. I’d like to hear much more of her on the corporate tax reform front. Obama had a plan proposal that would fundamentally slash US corporate income taxes to 19% in exchange for getting rid of the offshoring of corporate income. I think that’s going too far. But we can have a healthy debate about that. Trump goes way over in the direction of much more of a aggressive race to the bottom and the slashing of corporate taxes to 15% basically would I think favor a lot of wealthy Americans and our largest companies as opposed to small business. It essentially set off or accelerate the tax competition with other countries that’s already going on. Britain has just announced they’re cutting their tax rate to 15% potentially next year. So this is the kind of problem we have on the international front without largest companies that are generating most of our revenues and we really need to get a control over that and neither party has really addressed this problem of tax competition. I’m [fundamentally] agnostic about from the standpoint of these candidates. They’re tax plans. Neither one of them has a progressive tax plan as far as I’m concerned. NOOR: Okay. Thanks so much for joining us James and we hope to talk to you about this again soon. HENRY: Sure. Thanks very much. NOOR: And thank you for joining us on the Real News Network.
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