Originally appeared in the New York Times.
TYPE “Trump system rigged” into the Google search bar and you’ll get more than 500,000 hits. I didn’t inspect all of them but the first 50 were variants of Donald Trump complaining that the Republican primary process was tilted against him.
That’s beyond ironic. Mr. Trump and his family have been the beneficiaries of a great rigged system: the tax code, which bestows huge advantages on the real estate business. Throughout his career, Mr. Trump has not only grabbed for every loophole and legal lever he could find, he’s boasted about it.
“I’ve taken advantage of the laws of this country, like other people,” Mr. Trump has said.
The Republican front-runner has been dodging releasing his returns on the specious grounds that he was being audited. On Tuesday, he told The Associated Press that he wouldn’t release them before the election — period. On Wednesday, he denied saying this, reversed course and said,“Hopefully before the election I’ll release.”
“There’s nothing to learn from them,” he said in the Associated Press interview.
I’ll bet there’s plenty to learn. More likely, Mr. Trump doesn’t want us to know how small his tax hit is, something that he bragged about earlier in the campaign, before realizing that it could come back to bite him.
“I fight like hell to pay as little as possible,” Mr. Trump said last August.
Real estate guys can take advantage of the best loopholes left in the tax code, thanks in part to some aggressive nudging of lawmakers. For starters, real estate investors can take deductions for the ostensible depreciation of the value of their buildings, even though the point of owning buildings is that they generally appreciate.
For another, they often borrow against those properties, and because they hold these investments in partnerships or limited liability companies, the interest payments are tax-deductible.
“If you get close to paying taxes, you just buy another building,” a real estate friend told me.
If Mr. Trump were to sell a property, the profits would be taxed as capital gains at far lower rates (23.8 percent) than those imposed on ordinary income (39.6 percent). But real estate owners often don’t even pay capital gains taxes. They can take advantage of a provision known as Section 1031 to swap a piece of real estate that they are ready to part with for one that they would like to add to their portfolio — all tax free. There is no limit on how many swaps they can make, deferring capital gains taxes indefinitely.
Section 1031 is among the real estate operators’ favorite provisions — and it’s a break not readily available to other kinds of investors. No wonder that attempts to rein in or eliminate Section 1031, including a recent one by the Obama administration, have been met with fierce resistance from the industry.
The tax benefits don’t stop, even at death. If an investor dies holding appreciated properties, the heirs get a step up in basis, which means that they can sell the real estate and pay no taxes on the gain in value.
Mr. Trump’s quest for loopholes ranges far. In 2005, he got a $39.1 million tax deduction for donating a conservation easement on a New Jersey golf course, meaning that any further development on the property is restricted. On top of that, he installed goats on two of his New Jersey golf courses as part of a plan to get them designated as agricultural properties, thereby vastly lowering his property taxes.
Meanwhile, according to Mr. Trump’s campaign, from 2010 to 2014, he “donated” more than $102 million to charity — without giving away even $1 of his own money. More conservation easements constituted the biggest source of deductions, but the “gifts” included items like free rounds of golf for charity events. Many of these “charitable contributions,” of course, gave rise to more tax deductions.
Taxes are far from the only way that Mr. Trump has gamed the system. He’s added materially to his net worth by pushing the edges of the bankruptcy laws.
By arguing that his name had huge commercial value, for example, he managed to retain more ownership in his Atlantic City hotel and casino projects than is customary in an insolvency, thereby minimizing his losses while his creditors lost billions.
Finally, by his own admission, Mr. Trump has used our broken campaign finance system to achieve private gain by giving generously to politicians of both parties (including to Hillary Clinton) in order to gain influence. Since 1989, he has donated more than $1.5 million to political causes, 62 percent of it going to Republicans, according to PolitiFact.
“When they call, I give,” Mr. Trump said in the first Republican debate. “And you know what? When I need something from them, two years later, three years later, I call them. They are there for me.”
Among the ways that politicians have been there for him and his brethren has been developing a tax system in which real estate moguls pay little or no taxes. “The Declaration of Independence tells us that all men are created equal, but the government definitely favors real estate investors!” wrote one such investor, David Lindahl. Where did this appear? “Trump University Commercial Real Estate Investing 101.”