Moneybox

Angry About Trump’s $750 Tax Bill? Then Let’s Fix the IRS.

Donald Trump speaks at a podium in the White House briefing room.
Deploy this man’s tax bill like a rhetorical nunchuck. Brendan Smialowski/Getty Images

Democrats are pretty clearly about to spend the month until Election Day using Donald Trump’s $750 tax bill as a rhetorical nunchuck, whacking him with it whenever they get an opening. The morning after the New York Times published its blockbuster report on the president’s filings, Joe Biden was already selling buttons that read “I paid more income taxes than Donald Trump.” They cost $7.50.

In the longer term, though, our president’s adventures in tax avoidance should also provide a great opportunity to build political momentum for rebuilding our our battered, broken-down Internal Revenue Service, a policy item that should be high on Democrats’ to-do list if they retake power.

Right now is a great time to be a tax cheat in America. A decade of budget cuts and massive staff reductions have badly weakened the IRS, stripping it of the resources necessary to police frauds, and slowing audits to a trickle. According to the Center on Budget and Policy Priorities, millionaires are now 61 percent less likely to be frisked by the IRS than they were in 2010. There are manifold legal ways for rich business owners, and particularly real estate developers, to shield their income from the feds, especially with the aid of creative attorneys and accountants. But if you fudge your filings by leaving out some earnings or stretch the rules past their obvious breaking point, there’s an excellent chance that nobody will even check.

Fixing this situation would pay for itself, since each new IRS agent brings in more revenue for the government than they cost to employ. The Congressional Budget Office has suggested that stepping up tax enforcement a bit could yield an extra $35 billion over a decade. But that may grossly underestimate the potential return on investment: Former Treasury Secretary Larry Summers and University of Pennsylvania law professor Natasha Sarin argue, for instance, that a more ambitious and comprehensive approach to crack down on tax dodging could raise $1 trillion. Either way, enforcing the law would be free. That’s the beauty of the tax code.

But pouring money into the IRS could be politically tricky. Republicans have spent the better part of the past three decades demonizing the agency en route to shredding its budget and slashing its manpower. When presidential candidate Michael Dukakis complained in 1988 that billions in taxes were going unpaid each year and that the government should pump up the IRS’s resources, George H.W. Bush accused him of trying to unleash an “army of IRS agents into everybody’s kitchen.” In 1998, Republicans seeking to dynamite the tax code held a series of wild hearings about alleged IRS abuses that included febrile testimony about flak-jacketed, gun-wielding agents raiding businesses, much of which turned out to be either misleading or pure fiction. In the Obama years, the GOP drummed up a fake controversy about the IRS supposedly targeting conservative nonprofits for audits. Somewhat surprisingly, Trump’s own Treasury secretary, Steve Mnuchin, has been a voice of reason in recent years, making the case for restoring the IRS’s funding, telling Congress it was “understaffed” and “under-resourced.” But given the GOP’s history on the issue, it seems likely that any effort to seriously rebuild the agency will be met with conservative opposition and hysterics.

In response, Democrats can now point to the president’s taxes.

We do not know for sure whether Trump himself has broken any tax laws, though the New York Times’ investigation certainly raises the possibility over and over. The president paid no federal income taxes in 10 of the 15 years before he ran for office, and just $750 in both 2016 and 2017. He lowered his liability in part by reporting large losses on many of his businesses; some of that red ink may have only existed on paper, and some of it may have been the real result of his financial ineptitude. He is currently locked in an audit with the IRS, focused on a $72.9 million refund he may have improperly claimed after giving up his stake in his failed casinos. If he loses, he could be forced to pay back more than $100 million after interest and penalties are tacked on.

But Trump seems to have aggressively gamed the tax code in other ways too, by claiming deductions that the New York Times suggests he may not have been entitled to. He wrote off millions of dollars of property taxes for Seven Springs, his mansion in Westchester County, New York, as a business expense, even though his son Eric has described it as a family “compound.” Based on the paper’s reporting, it appears he paid his daughter Ivanka phantom “consulting fees” for projects she would have worked on as an employee of the Trump Organization, a move that could have lowered the president’s liability while simultaneously skirting gift taxes. He also treated aspects of his lavish lifestyle as a business expense, including $70,000 for hair styling during his Apprentice run, and more than $95,000 in makeup and styling for Ivanka.

Trump is now facing his audit because it was required by law. Tax refunds larger than $2 million have to be approved by Congress’ Joint Committee on Taxation, a somewhat obscure, nonpartisan panel that began reviewing Trump’s $72 million payday in 2011, and nearly reached a deal with his lawyers over it three years later. Instead, the JCT restarted the audit and expanded its investigation up through his 2013 return. But it’s unclear whether the investigation encompasses any of Trump’s other potentially rule-bending behavior. The Times writes, for instance, that there’s no evidence that the IRS has examined Trump’s ostensible habit of writing off consulting fees for his kids.

In a better, more reasonable timeline, businessmen like Trump would be scared out of these sorts of tax games, because we’d have a well-funded, aggressive IRS checking and double-checking their returns regularly for suspicious signs of fraud. If Democrats win in November, they have the power to make that a reality. The president’s tiny tax bill is the perfect symbol for the cause.