Where Clinton and Trump stand on real estate tax loophole
Hillary Clinton would close a real estate tax loophole that may have sheltered Donald Trump from paying federal income tax for the past 18 years. Mr. Trump would lighten a business tax that effects hedge funds and private equity partnerships.
A new analysis of the tax policies proposed by the major-party presidential candidates finds that the two plans are worlds apart.
Republican presidential nominee Donald Trump’s plan would decrease tax revenues by $6.2 trillion over a decade, cutting taxes among the top 0.1 percent of incomes by almost $1.1 million on average, according to an analysis by the Urban-Brookings Tax Policy Center, while Democratic presidential nominee Hillary Clinton’s plan would raise revenue by $1.4 trillion, almost exclusively through new taxes on the wealthy.
"In almost every meaningful respect these plans are mirror images," said Len Burman, the center’s director and former Treasury official under President Bill Clinton, in an interview with the Associated Press.
The candidates' tax policies may get extra attention this year, given Mr. Trump's refusal to release his own tax records, a practice that has been customary for presidential candidates from both parties since the 1970s. And in the second debate on Sunday night, Trump said he "absolutely" used a 1995 loss of more than $900 million – one uncovered by The New York Times after reporters obtained pages of the candidate's state tax returns – to avoid paying federal income taxes, as the newspaper suggested.
Mrs. Clinton's plan, it turns out, would close a loophole on one feature in tax-avoidance strategies of real estate investors like Trump.
Deductions stemming from losses can allow business owners to ride out tough times and encourage investment over the long run. But some can take advantage of loopholes to report losses that don’t reflect the nature of their revenues.
That's especially true in real estate, where property owners can claim losses in wear and tear even as buildings increase in value. Or they can swap properties with other investors until they're sold farther down the line, meanwhile avoiding taxes on increases in value. Clinton's plan would cap these swaps to $1 million in assets per year.
As The Christian Science Monitor’s noted earlier this month, Trump surrogates have sought to frame the candidate's apparent tax avoidance as proof of his canniness:
"He's a genius – absolute genius," [former New York Mayor Rudy] Giuliani said on ABC's "This Week." "This was a perfectly legal application of the tax code, and he would've been a fool not to take advantage of it."
"It shows you what a genius he is – how smart he is, how intelligent he is, how strategic he is," he later added. "I want that working for me. I want to see if he can produce these kinds of results for us."
[New Jersey] Governor [Chris] Christie, similarly, told "Fox News Sunday" that "this is actually a very, very good story for Donald Trump."
"What it shows is what an absolute mess the federal tax code is, and that's why Donald Trump is the person best positioned to fix it," Christie said. "There's no one who's showed more genius in their way to move around the tax code and to rightfully use the laws to do that."
The center's analysis also touched on another facet of the candidates' tax policies that surfaced in the second debate: a carried-interest loophole that allows financiers to pay a capital-gains tax rate on their income instead of the higher rate assigned to income taxes. Trump had highlighted a feature of his plan that would close that loophole, during Sunday's debate.
Clinton's plan would end that loophole, too. But the center found that her plan would offer no alternative benefits for those affected, while under Trump’s proposal, hedge funds and private equity partnerships would be able to pay a 15 percent business tax rate – less than the 23.8 percent they currently pay under carried interest rules.
"The question," center co-director Eric Toder, told Reuters, "is what else is there in the plan that affects hedge funds, and the reduction in the business income tax rate to 15 percent gives them a much better deal."
This report contains material from Reuters and the Associated Press.