From Boston Globe
A bare handful of pages from Donald Trump’s 1995 tax returns has sparked feverish speculation that the Republican nominee may have avoided federal income taxes for the better part of two decades. Whether this counts as a scandal depends on your view of tax fairness.
Trump lost $916 million in 1995, according to partial tax returns which were leaked to the New York Times. It was a low point in Trump’s career, when the real estate market was depressed and his casino businesses collapsing.
But in the byzantine world of tax law, gigantic business losses aren’t always a bad thing. You can actually use those losses to avoid future taxes. Lose $100 this year, and next year your first $100 is tax free.
In Trump’s case, the whole thing is just magnified. A $916 million loss could mean years and years without a tax bill.
Using one-time losses to offset gains is a standard practice with an utterly banal name: “loss carryforward.” What’s more, it has a perfectly sensible rationale: sometimes, a one-year timeframe just isn’t the best way to assess the appropriate tax-liability of a business.
Picture a young startup, just trying to find its footing. Maybe it loses $500,000 in year one, before turning a $100,000 profit the next. Should the company pay taxes on that $100,000? Even though it’s still $400,000 in the hole?
Reasonable people can disagree about how to handle these situations, but there’s nothing nefarious about weighing good years against bad ones when figuring out how much businesses should pay Uncle Sam.
But this doesn’t mean Trump is in the clear. The touchy question in Trump’s case is whether his losses are real losses — or fictive. Was Trump actually $900 million poorer at the end of 1995, or was there a funny-money calculation specially prepared for the IRS?
To know for sure, we’d need more of his tax returns. Then we’d have details about the deductions he claimed, information for individual businesses, and more ways to check his numbers against market conditions in the mid-’90s.
Absent that, we’re left with tantalizing hints and lots of speculation.
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