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The Tax Evasion Conundrum: Is My Home Office Deduction an Evasion?

October 26, 2018

I read a recent New York magazine article on Donald Trump’s inheritance by Eric Levitz that urged the Democratic Party to use this as a means of garnering support in the upcoming election. As Levitz explains, Donald Trump didn’t really earn his fortune, he inherited it from his father and, like his father, he accumulated it mainly by taking advantage of tax loopholes. How much did he garner from these loopholes?

On Monday, the New York Times revealed that this wasn’t just false in the Obamanian, “actually, social institutions made your entrepreneurial triumphs possible” sense, but in a much more literal one: Donald Trump “built what he built” with $413 million of his father’s money — much of which Fred Trump effectively stole from the federal Treasury.

Drawing on a “vast trove of confidential tax returns and financial records,” the Times demonstrates that Trump leaned on his father’s largesse for the entirety of his career. Shortly after he was out of diapers, Donald Trump was “earning” $200,000 a year from the family business. By the time he was 8, the mogul was a millionaire. From that point until his father’s death, Donald used his dad as a piggy bank, financing a series of failed business ventures with “loans” from Fred that he only occasionally repaid. And when his father went up to the great, garish penthouse in the sky, Trump used a variety of schemes to cheat the U.S. government out of roughly $500 million in estate taxes.

Mr. Levitz sees this cheating as a potential wedge issue in the 2018 election… but I’m not so sure. In 2016 several news sources reviewed Mr. Trump’s tax returns from decades earlier and determined that he had used all kinds of ruses to avoid paying taxes. His response? Here’s the campaign statement that followed:

Mr. Trump is a highly-skilled businessman who has a fiduciary responsibility to his business, his family and his employees to pay no more tax than legally required. That being said, Mr. Trump has paid hundreds of millions of dollars in property taxes, sales and excise taxes, real estate taxes, city taxes, state taxes, employee taxes and federal taxes, along with very substantial charitable contributions.”

Mr. Trump’s subsequently boasted that avoiding taxes made him “smart” because the money would be “squandered” by the government. This, like many of Mr. Trump’s statements, is a crude re-hash of former President Reagan’s shibboleth that “Government is the Problem”, and that aphorism still carries the day with voters. Why?

Because most voters engage in some form of tax avoidance. When I prepare my taxes I make certain to deduct for my home office, the space I am sitting in now as I write this post. When I was working as a school administrator and as a consultant the deduction was defensible. But this past calendar year I’ve done very little consulting… so… should I take the deduction or not? I DO use the space as an office, but for different purposes. I am the treasurer of a non-profit, serve on two non-profit boards, and do the work associated with those non-profits in my “home office”. I am also scheduled to offer an adult education course early next year and will spend hours preparing for that class in my “home office”. This “home office” scheme will hardly yield me $500,000,000, but it will deny the government some marginal funds that I could argue are being squandered in misbegotten wars.

I offer this disclosure as evidence that every citizen who files his or her tax return looks for as many ways as possible to pay no more tax than legally required,which makes them more inclined to overlook Mr. Trump’s egregious use of tax loopholes. And alas, the Democratic Party is unlikely to seize on this for fear of alienating their donor base.

Until we disabuse ourselves of the notion that “government is the problem” and that the taxes we pay are needed to provide for the common good we will be hard pressed to argue against “smart businessmen” like Mr. Trump who pay no more tax than legally required.

 

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