Oct. 10, 2020
By
While reading that
President Trump had claimed $70,000 in highly dubious tax
deductions for hair styling for his television show, I kept
thinking about a homeless African-American woman named Tanya McDowell who was
imprisoned for misleading officials to get her young son into a better school
district.
McDowell was sentenced to five years in prison in 2012, in part for drug offenses and in part for “larceny” because she had claimed her babysitter’s address so her son could attend a better school in Connecticut.
In some sense both Trump and McDowell appear to have cheated on their taxes. McDowell sent her son to a school district without paying taxes there. And according to The Times’s extraordinary reporting, Trump may have illegitimately claimed a $72.9 million refund that the I.R.S. is now trying to recover.
In
addition, my ace Times colleague James B. Stewart reported that hair styling is not a deductible expense
and that, in any case, Trump’s hair expenses for his “Apprentice” TV shows
should have been reimbursed by NBC — in which case Trump may have committed criminal
tax fraud.
The bottom
line: We imprisoned the homeless tax cheat for trying to get her son a decent
education, and we elevated the self-entitled rich guy with an army of lawyers
and accountants so that he could monetize the White House as well. (Sure
enough, Trump properties then charged the Secret Service enormous
sums for hotel rooms and other fees while agents were protecting Trump.)
The larger point is not
that Trump is a con artist, although he is, but that the entire tax system is a
con. The proper reaction to the revelations about Trump’s taxes is not to fume
at the president — although that’s merited — but to demand far-reaching changes
in the tax code.
We interrupt this column
for a quiz question: What county in the United States has the highest rate of
tax audits?
The answer is Humphreys
County in rural Mississippi, where three-quarters of
the population is Black and more than one-third lives below the poverty line,
according to ProPublica and Tax Notes. Tax
collectors go after Humphreys County, where the median annual household income
is $28,500, because the government targets audits on poor families using the
earned-income tax credit, an antipoverty program, rather
than on real estate tycoons who pay their daughters (that’s you,
Ivanka!) questionable consulting fees to reduce taxes.
The five counties with the
highest audit rates in the United States, according to Tax Notes, are all
predominately African-American counties in the South.
Meanwhile, zillionaires claim enormous tax deductions for donating expensive
art to their own private “museums” located on their own property. That’s the
kind of scam that works if you’re a billionaire, but not so well if you’re my
old friend Mike, who is homeless and once gave his food stamp card to a friend
to buy groceries for him. The government responded by suspending Mike’s food
stamps.
Tax cheats thrive because
Congress has slashed the I.R.S. budget, so that the risk of audits for people
earning more than $1 million per year plunged by 81 percent from 2011 to 2019.
The I.R.S. has opened audits on only 0.03 percent of returns reporting income
of more than $10 million in 2018 (that percentage probably will rise), according to the Center for American Progress.
Need more evidence of
systemic unfairness? Trump is still holding on to the almost $73 million that
he appears to have bilked out of the I.R.S. a decade ago, even though the
I.R.S. is contesting his maneuvers. For wealthy people like Trump, taxes become
something like a long negotiation.
An undocumented immigrant
housekeeper who had worked for the Trump Organization posted tax statements on Twitter showing that she had
paid more federal income taxes than Trump himself had in many years. And by one
estimate, the failure of wealthy Americans to pay their fair share forces
everyone else to pay an extra 15 percent in taxes.
At the same time, almost one-fifth of American families with children report
that they can’t afford to give their kids enough food.
A starting point for a
fairer system would be auditing the wealthy as aggressively as impoverished
Black workers in rural Mississippi. The economists Natasha Sarin and Lawrence
Summers estimate that 70 percent of tax underpayment is by the
top 1 percent and conclude that tougher enforcement
by the I.R.S. could raise $1 trillion over a decade.
Investing in the I.R.S. to
go after rich tax cheats not only promotes fairness but also pays for itself: Each
additional dollar spent on enforcement brings in about $24.
Remember Leona Helmsley,
the wealthy hotel owner who was prosecuted for cheating on her taxes? She sadly
had a point when she reportedly scoffed: “We don’t pay taxes. Only the little
people pay taxes.”
On the bright side,
Helmsley ended up in prison. I generally believe that in America we
over-incarcerate, but I’m appalled that we treat a man with a gilded life and
$70,000 in hair styling deductions more gently than a mom who cheats to try to
give her son a better future.
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