Bernie Sanders Vows to Close Tax Loophole That Lets Trump Avoid Taxes

Bryce Covert

Bryce Covert Economic Policy Editor, Think Progress

Over the weekend, the New York Times published pieces of Republican presidential nominee Donald Trump’s 1995 state tax returns, which showed that Trump reported a $916 million loss.

Thanks to the efforts of the real estate industry in the 1990s, including Trump himself, a provision of the tax code allows those who own real estate investments to count such losses from pass-through businesses against any other income they make, thus potentially canceling it out and allowing them to avoid paying federal income tax on it. (Because Trump has refused to release his tax returns, it’s impossible to say for sure how he treated that loss on his federal income tax returns.)

Now Sen. Bernie Sanders (I-VT) is vowing to crack down on the very provision that Trump may have exploited.

Earlier this week, Sanders promised to introduce legislation in the next session of Congress that would change a number of things in the tax code, including the exemption that the real estate industry carved out for itself from rules regarding passive losses.

Before Congress passed reform legislation in 1986, wealthy Americans in any industry could invest money in real estate partnerships and write off the losses on their personal tax returns to lower their tax obligations. Congress then cracked down on the practice and strictly limited the deductions such passive investors could use — but in the early 1990s, the real estate industry convinced lawmakers to allow it for “real estate professionals.”

That allows those in the real estate business to write off losses from basically any businesses they’re involved in to reduce income they may earn from other sources. Trump could have in theory used his $916 million loss to avoid paying any income taxes for 18 years.

Sanders also says he would end the practice of allowing investors to take deductions against their tax bills on the interest they pay on money borrowed for other investments or for the presumed depreciation of buildings they own. His bill would make sure that an investor wouldn’t be able to claim a business loss on his taxes that exceeds the amount of money he actually invested in the business in the first place.

Donald Trump has responded to the New York Times story by saying that it shows he knows the tax code and is therefore best suited to fix it. But he hasn’t put forward any proposals to address the parts of the code that he may have exploited. In fact, it’s possible that his tax package would give those who own real estate and other pass through businesses even bigger breaks.

Trump himself was one of the people who appeared before Congress in the 1990s to urge them to give the real estate industry a break.

Calling the crack down on passive investments “an absolute catastrophe for the country” perpetrated by “very foolish people,” he urged lawmakers to reverse course, arguing that it had thrown the country into a depression and brought construction in places like New York City to a complete standstill.

“We’re no different right now that the Soviet Union,” he said. “They have no incentive [to invest], we have no incentive. If something isn’t done to quickly put the incentive back, this country is going to be in very deep problems.”

Two years later, Congress passed some of the reforms Trump and the industry lobbyists had sought, although not everything he demanded.

While there are small business owners and middle-class Americans who own pass-through businesses, the benefits of these business structures overwhelmingly flow to the best off. Seventy percent goes to the richest 1 percent of Americans; 70 percent also goes to big businesses.

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This has been reposted from ThinkProgress.

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Photo from iStock.

Bryce Covert is the Economic Policy Editor for ThinkProgress. She was previously editor of the Roosevelt Institute’s Next New Deal blog and a senior communications officer. She is also a contributor for The Nation and was previously a contributor for ForbesWoman. Her writing has appeared on The New York Times, The New York Daily News, The Nation, The Atlantic, The American Prospect, and others. She is also a board member of WAM!NYC, the New York Chapter of Women, Action & the Media. Follow her on Twitter @brycecovert

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