Weak Underfunded IRS Behind Trump’s Wealth and History of Avoiding Taxes
Investigative tax attorney James Henry talks about the New York Times’ investigation into the origins of Trump’s wealth, how it is related to tax evasion, and how the US tax system has systematically and increasingly favored the rich
GREG WILPERT: It’s The Real News Network, and I’m Greg Wilpert joining you from Baltimore.
The New York Times published an in-depth investigation into the early history of Donald Trump’s wealth this week. Contrary to Trump’s own mythology of being a self-made billionaire, the report argues that Trump made most of his early fortune on the basis of hundreds of millions of dollars that he received from his inheritance, and from gifts from his father. Also, the investigation shows how both Donald Trump and his father Fred Trump Sr. evaded millions of dollars in taxes through improper tax deductions, undervaluing real estate holdings, and repaying loans from from father to son, and unpaid gift taxes.
Here’s a brief clip of a video that The New York Times prepared.
VIDEO: I have all these people writing books about I got this, I got that. I got peanuts.
When my father died, by that time I had already built a great fortune. And my father didn’t leave a great fortune. It was Brooklyn and Queens real estate, and it wasn’t a great fortune. But now what they do is they they build it up like, oh, he left Donald money.
And my father never gave any money. When my father passed away he gave some. But by the time he had passed away I had already built my business.
I built this empire. And I did it by myself. Nobody did it for me.
GREG WILPERT: White House spokesperson Sarah Huckabee Sanders responded to the investigation on Wednesday.
REPORTER: Can you explain what is inaccurate about that story, if there’s anything that is actually inaccurate about it?
SARAH HUCKABEE SANDERS: It’s a totally false attack based on an old, recycled news story. I’m not going to sit and go through every single line of a very boring 14,000 word story. The only thing- I will say one thing the article did get right was it showed that the president’s father actually had a great deal of confidence in him. In fact, the president brought his father into a lot of deals. They made a lot of money together. So much so that his father went on to say that everything he touched turned to gold. The president’s lawyer addressed some of the specific claims, and walked through how the allegations of fraud and tax evasion are 100 percent false and highly defamatory. There was no fraud or tax evasion by anyone. He went on much further, and I would encourage you to read every word of his statement, which completely undercuts the accusations made by the New York Times.
GREG WILPERT: Joining me now to take a closer look at this investigation and its consequences is James Henry. He is an investigative economist and lawyer, and a Global Justice Fellow at Yale University, and a senior adviser to the Tax Justice Network. Thanks for joining us again, James.
JAMES HENRY: You’re very welcome.
GREG WILPERT: So first of all, what do you make of this New York Times investigation? As we saw, Huckabee Sanders said it was nothing new, and that it was completely false. What would you say? Does it reveal that it can be considered new, or previously unknown?
JAMES HENRY: Well, I’m sitting here in one of the world capitals of corporate tax evasion, which is South Africa, where the mining industries for years have contrived to not pay any taxes. And the president of the country we know didn’t pay any tax for the last eight or nine years. Former President Zuma.
From my standpoint, this is, to some extent- I mean, it’s nice to have more gory details about how President Trump acquired his wealth with the help of his family and his father. And you know, and that helped to sort of undermine the myth that he’s created for himself, that he was loaned $1 million by his dad and then turned that into $10 billion. Fortune’s latest estimate of his net worth, by the way, just this week was that it’s dropped from about $4.5 billion to $3.1 billion. The Times story suggests that it may be less than that.
I think the, you know, the value of the story to those of us who’ve been following Trump, the facts that he didn’t release his tax returns, the first president not to do so, and you know, a lot of other evidence that other journalists have produced, this provides more details. But it’s not really surprising that we have a president who acquired a lot of his initial wealth by virtue of real outright financial chicanery. The president’s spokesperson is obviously denying this at all.
But outside experts independent of any political party are looking at it and saying yeah, it really was tax fraud at the time. And the real mystery is why didn’t the IRS and the New York State tax authorities dig into that? And I think that’s a question that goes to the heart of the matter, which is that we have a relatively weak IRS and New York State tax enforcement effort. It’s gotten much weaker in the last decade, with real resources for the IRS being starved, mainly by the Republicans in Congress. And so this kind of tax enforcement effort that would have brought Trump to justice for tax fraud back in the 1990s.
You know, I think a lot of this activity these talking about he’s blaming on enablers like accountants and lawyers that were advising him. That’s another whole aspect of tax dodging in the modern era that we really have to look at. Professionals really have become facilitators of organized tax fraud. In this case we see Trump and his family sort of becoming all together, you know, using companies that they set up to generate bogus invoicing, where the value was transferred from the father to the children in the form of over-invoicing of charges to the parent company. That all avoided the estate tax, it avoided taxes that would have been paid for gifts. And so there’s no question that, you know, New York tax authorities are looking at this, and so is the city of New York. I don’t know if the federal IRS will do so. But at this point it’s probably too late to go after them for criminal tax fraud. But civil tax fraud is another matter. They may be able to go back and recover some penalties for this kind of behavior.
GREG WILPERT: Yeah, James, I want to dig a little deeper in some of the issues that you mentioned. I mean, you already said that we basically suspected and know of many of these shenanigans and tax evasions already. They’ve been reported before. But of course I guess what perhaps is particularly striking, which you mention as well, is the extent to which the IRS turned a blind eye to these actions, or did not see them. First, I’m just wondering- and you’re saying that a lot of this has to do with defunding of the IRS. I’m wondering if you could say a little bit more about that process, and maybe to what extent is the IRS perhaps also just looking the other way? I mean, to what extent is it actual lack of resources versus lack of interest?
JAMES HENRY: Well there’s a long one trend going way back to the 1980s where tax enforcement on the part of the IRS has been starved for resources, specifically since 2010 we’ve had something like a 30 percent reduction in IRS annual budgets for enforcement. And just this year we’ve seen a real sharp reduction in the number of corporate audits and audits for wealthy taxpayers under the Trump administration. He’s no fan of tax enforcement. That’s pretty clear. But you know, a lot of this, a lot of these returns were filed in the 1990s. So they would have been subject to New York taxes, as well. So we really have to go back and sort of do some due diligence on what the enforcement agencies were up to then.
You know, it’s a complicated kind of tax fraud that we’re dealing with here, where you have bogus shell companies being set up to channel funds under the table in the form of over-invoicing of charges. So they were billing pencils to Fred Trump, and then raising the price by 50 cents, and then channeling the money to the All County Building Supply Company owned by Donald and his younger brother and his sister, who happened to be a federal judge as of 1999, when Bill Clinton put her on the judiciary. You know, a lot of these documents came out of her, apparently came out of some of the documents she submitted in the course of being reviewed to be a federal judge. So the ironies are compounded.
I mean, I think the policy implication here, you know, Democrats have made a habit out of targeting President Trump for his particular behavior. I would, you know, I think this is no real substitute for having a progressive tax plan, or having a substantive discussion of some of the terrible properties of the tax cut that Trump enacted last year. And I think to some extent this is a little bit distracting, because you know, the major tax fraud in the U.S. economy in the last year and a half has been hiding in plain view, this huge tax cut giveaway of up to $800 billion to the largest MNCs in the country, based on the corporate tax reform that was passed and sort of stuffed through Congress in December of 2017.
So I hope this doesn’t distract us from the real issue here; going forward, how do we reform the tax system? We need tougher tax enforcement, and we also need to revise some of the giveaways that were enacted last year, like the fact that companies have eight years to pay any tax whatsoever on the $2.6 trillion that they’re supposed to repatriate from offshore earnings that they’ve stashed abroad. So you know, I think in the flurry of information about this- I appreciate the Times has spent months investigating Donald Trump’s taxes, and we now know more than ever. But you know, maybe the real issue that we need to get back to is what kind of a tax system do we want to have?
GREG WILPERT: Well, that’s, I think, a very important point. I want to get back to that point in a moment. But first I do want to look a little bit more as to what the consequences for Trump might be of this investigation. The Times itself, and you mentioned this as well, that there probably could be no real legal consequences, because tax evasion is too long ago to be prosecuted. But so what do you think can be the personal consequences for Trump if this proves to be true?
JAMES HENRY: You know, I suggested there’s a distinction between the criminal tax liability, where you know, he might end up going to jail for tax fraud at some point when he’s released from the presidency. But you know, the civil tax liability that the federal and state authorities might be able to go back- there’s no statute of limitations on civil tax fraud. So there’s nobody going to jail for that. But it might result in some hefty fines based on, if this, if these reports hold up, based on the fact that there are clear-cut diversions of income that avoided gift tax and estate tax.
I think the other big question, though, is does this change anyone’s opinion of Donald Trump? I mean, as I said, maybe five people in the country didn’t know that he was a tax cheat before this report came out. So will any of his base, any of his supporters in the Republican Party who stuffed this big tax cut through last year, you know, they’re not fond of taxes. And it’s not clear that they won’t look at him as something a champion here for having beat the system. Even the centrist Democrats have not been very proactive at taking on the enablers, the lawyers and the accountants and the banks that tend to facilitate this kind of tax fraud when it gets to be sophisticated.
So I think there’s a real question on the table right now with, you know, Steve Bannon has been making this argument that Americans really want lower taxes across the board. They don’t care that the rich aren’t taxed. And I think that’s an open issue. Certainly we haven’t had aggressive proponents of progressive taxation speaking out loudly in favor of progressive taxes or against the Trump tax bill last year. There is evidence that most Americans oppose that bill, but it’s not as if it’s front and center in the congressional elections right now.
GREG WILPERT: You raise two important related issues. I mean, one is the issue of tax evasion, and the other is the issue of just the taxation system in general and how it’s structured, how progressive it is. Just for a second, just finally, actually, I want to stick to the issue of the evasion. And I’m wondering, to what extent would you say is Trump an outlier in this area in terms of how he made his wealth, or to what extent is he just one among, so to speak, something that all rich, basically, are involved in?
JAMES HENRY: Well, the evidence that we’ve had is that on the tax system, the United States had relatively high tax compliance through the 1980s. When I first took a look at this for the American Bar Association in 1983 I was struck by how, relative to Europe, the United States basically had very strong tax compliance. There was a problem at the top, but we didn’t have much offshoring of income the way they have throughout Europe. I think that system has changed. I think there’s been a dramatic problem in the growth of non-compliance with U.S. income tax specifically, and a dramatic increase in the offshoring of income; people using havens, financial secrecy to hide money offshore.
So you know, Trump is one of, you know, I think a growing number of very wealthy people who just don’t respect the tax system. And we’ve had numerous cases in the last decade where there have been, you know, there was a case involving Credit Suisse where they had 20,000 American clients who were hiding money in Switzerland. They were fined $2.6 billion dollars in 2014. We’ve had, you know, if they bother to investigate some of the major private banking institutions in the country, they would probably come up with quite a few more cases. But at the moment, as I said, the resources for, you know, big-ticket audits have declined, both for individuals and for corporations.
GREG WILPERT: OK. We’re going to have to leave it there for now. I was speaking to James Henry, investigative economist and senior advisor at the Tax Justice Network. Thanks again, James, for having joined us today.
JAMES HENRY: You’re very welcome.
GREG WILPERT: And thank you for joining The Real News Network.