File, Deduct, Hide: Six Essential Stories About Taxes

A seasonal "Statue of Liberty" waver for Liberty Tax walks down the streets of Janesville, Wisconsin. (Anthony Wahl / The Janesville Gazette via AP)

Today is Day 85 of the Trump Administration, and like a sailor condemned to four years at sea we carry on, stooped and weary from the weight of this albatross around our necks—Donald Trump’s taxes.

We know they exist—but what does their existence even mean any more? We’ve seen a few pages here and there, sent as proof of life to the New York Times and waved around by Rachel Maddow. In a bid to bring attention to President Trump’s noteworthy silence on his financial position, a tax march will take place on April 15 worldwide in response to a single tweet by a Vermont law professor.

Taxes are at once no one’s business and everyone’s business. We all pay them: how we pay them, what they are used for, what we want them to be used for, and what the government would rather do with them instead, is the Great American Story.

1. “Tax Time” (Jill Lepore, The New Yorker, November 2012)

Lepore takes the long view on taxes with a history of how the U.S. decided to levy an income tax. It’s easy to dismiss taxes, she argues, and much harder to defend them. But that’s not a problem our ancestors shared—despite opposition to King George’s levy on goods like tea, the founding fathers had no problem squeezing the rich with large indirect taxes for market exchanges such as imports. More than a century later, the constitutional amendment that made income tax the law of the land wasn’t even an issue in Congress. But taxes have since become a bone of endless contention, especially as they concern how much rich and poor should pay. Lepore weaves a deft story to tell us exactly why.

Taxes dominate domestic politics. They didn’t always. Since the nineteen-seventies, almost all of that talk has been about cuts, which ought to be surprising, because more than ninety per cent of Americans receive social or economic security benefits from the federal government. Americans, though, find it easier to see what they pay than what they get—not because they aren’t paying attention but because the case for taxation is so seldom made.

2. “Too Rich to Live?” (Laura Saunders and Mary Pilon, The Wall Street Journal, July 2010)

One of the most hotly contested forms of taxation is the estate tax, when a dead person’s estate is transferred to another person. Though the idea is thousands of years old and the American permutation has been around in some form or another for a century, the tax was gradually phased out starting in 2001. But when it came back in 2011—the product of impermanent legislation—the rich who stood to lose the most from the transfer of their substantial assets bucked.

It didn’t matter; the tax became permanent in 2013. But when Saunders and Pilon interviewed dying people and their potential heirs on the eve of the tax’s return, they found a strange phenomenon—people who make life-or-death decisions about their health and end-of-life care based on the potential of saving their heirs money on taxes.

In 2009, more than a few dying people struggled to live into 2010 in hopes of preserving assets for their heirs. Clara Laub, a widow who helped her husband build a Fresno, Calif., grape farm from 20 acres into more than 900 acres worth several million dollars, was diagnosed with advanced cancer in October, 2009. Her daughter Debbie Jacobsen, who helps run the farm, says her mother struggled to live past December and died on New Year’s morning: “She made my son promise to tell her the date and time every day, even if we wouldn’t,” Mrs. Jacobsen says.

In New York the lapsing tax spawned a major family conflict, according to one attorney. As a wealthy patriarch lay dying at the end of the year, it became clear that under the terms of the will his children would receive more if he died in 2010, while his wife (not the children’s mother) stood to benefit if he died in 2009. The wife then filed a “do not resuscitate” order and the children challenged it. The patriarch lived a few days into 2010, but his estate, like Mrs. Laub’s, remains unsettled given the legislative uncertainty.

3. “The Throwaways” (Melissa Chadburn, The Rumpus, January 2012)

Taxes are a matter of life and death not just to the wealthy, but to the people who need tax-funded social services to survive. Chadburn, who endured horrific abuse and a traumatic stint in foster care, considers what taxes mean to the people she calls “the throwaways,” those who depend on the small sums of money that anti-taxation advocates fight not to have to pay. As disparities between poor and rich grow, she argues, taxation can be seen as a revolutionary lifesaving act, a statement about the very worth of the people it helps.

Strangely, it was for dreams like these—the simplest dreams of rest, of feeling, of safety—that I first began to look at taxes. Taxes are the tool that makes these dreams of ours possible. Shelter for everyone, food for everyone, taxes ensure public safety. And what about love? Love is given and received. Love is not a solitary act. Love requires people to commune with one another.

My previous associations with taxes were shame and guilt and trickery. Then I looked at my history with money and public funding in general. Some people have argued that we are a nation of self-interested people. People who only care about themselves. Their own well-being.

I disagree. I think we are better than that but have been assaulted by the overwhelming personification of Greed….It’s our first lesson in pain.

4. “Tax Hero” (Planet Money, NPR, March 2017)

Despite the stakes of taxation, the act of filing taxes can be unbearably mundane. But there’s a darker side to doing taxes—the poor pay a disproportionate amount to tax preparation firms that gouge them on relatively simple filings. Enter Joseph Bankman, a Stanford tax law professor who thought he’d figured out a simpler way. But as Planet Money reveals, simpler isn’t always better for those who benefit from the current, complex system. His fight for painless filing became a legislative battle—and his opponents were a strange coalition of their own.

5. “Mossack Fonseca: Inside the Firm That Helps the Super-Rich Hide Their Money” (Luke Harding, The Guardian, April 2016)

While your average Joe struggles to pay the tax preparers, there’s a shadowy world of ultra-wealthy corporations and individuals who’ll do anything they can to not pay taxes at all. Last year, the lid on one of these complex tax-avoidance schemes blew open when 11.5 million documents—now known as the Panama Papers—were leaked, revealing inside information on over 200,000 offshore shell corporations that exist to help the one percent sidestep their tax obligations.

The Guardian won a Pulitzer for their groundbreaking investigation of the Panama Papers (Here’s a breakdown of how they got the scoop—and an in-depth podcast that tells the entire sordid story behind their award-winning investigation.) One of their most fascinating stories was about Mossack Fonseca, the Panamanian law firm that helped the rich find tax-friendly parking places for their cash. Harding tells the story of a company that’s part financial services provider, part peddler of international intrigue—one that’s marketed directly to Americans with money to hide.

Mossack Fonseca’s leaked emails reveal the extraordinary measures that some of its well-heeled clients took to keep their financial affairs secret. Especially the Europeans and Americans, who have latterly found themselves under scrutiny from their own governments.

One theme that emerges is anxiety. Wealthy individuals with “undeclared” offshore bank accounts are afraid they might get rumbled.

Another theme is victimhood. The super-rich, it appears, feel they are being unfairly picked on—persecuted even.

6. “Donald Trump Tax Records Show He Could Have Avoided Taxes for Nearly Two Decades, The Times Found” (David Barstow, Susanne Craig, Russ Buettner, and Megan Twohey, The New York Times, October 2016)

What happens when a tax evader is not an average citizen but the President of the United States? Of course, the answer is “we don’t know yet,” because we have no idea what’s in Donald Trump’s personal tax returns. Despite Rachel Maddow’s overhyped scoop on a few pages from Trump’s 2005 return, nobody’s been able to get ahold of what could be the most sought-after documents in modern history. And thus, we don’t know what wealth the President has to brag about—or hide.

After receiving several pages from Trump’s 1995 returns from an anonymous source, Barstow, Craig, Buettner, and Twohey hypothesized that back when he was a mere real estate mogul, the president used a $916 million business loss to cancel out his tax debt for decades. Is it true? Until Trump comes forward with his tax returns, there’s no way to know. But journalists won’t stop piecing the story together—and if the tax march is any indication, citizens won’t stop insisting that he tell the truth about his financial situation.

But the most important revelation from the 1995 tax documents is just how much Mr. Trump may have benefited from a tax provision that is particularly prized by America’s dynastic families, which, like the Trumps, hold their wealth inside byzantine networks of partnerships, limited liability companies and S corporations.

The provision, known as net operating loss, or N.O.L., allows a dizzying array of deductions, business expenses, real estate depreciation, losses from the sale of business assets and even operating losses to flow from the balance sheets of those partnerships, limited liability companies and S corporations onto the personal tax returns of men like Mr. Trump. In turn, those losses can be used to cancel out an equivalent amount of taxable income from, say, book royalties or branding deals.