photo by David Kessler
To a lot of the media world, this week’s leak of two pages from President Trump’s 2005 federal tax return is like my favorite appetizer, pigs-in-a-blanket, which kicks off my family’s Thanksgiving dinner.
When the smell of roasting turkey permeates our house and the side dishes are in the final preparation stages, there is no way a single one of those little pastry-wrapped hot dogs is going to slake my appetite. But it sure feels good to scarf it down.
The way the talking heads jumped on Trump’s taxes reminded me of how I lunge for that first gluten-fortified morsel of Hebrew National beef. Nobody is satisfied, even as they are still smacking their lips. They want more: more pages explaining those eight- and nine-figure totals on Trump’s returns, more details about the many separate entities whose reports were incorporated into those figures (and where most of the facts about the Trump family business would be found) and, of course, more than just a single crumb from a single year that ended more than a decade ago. Trump’s leaked tax snippet merely hinted at the feast that remains sequestered in his private financial kitchen.
I was the Elkin family turkey-roaster-in-chief for a long time. I also served as Minister of Made-From-Scratch Rolls. My grown daughters have recently relieved me of those duties, so I now have time to watch the televised parade and send personal holiday greetings to about 1 billion Facebook users. I don’t mind the one-day retirement. I am still on active duty as a tax professional, and in that realm my 30 years’ experience still matters.
Normally I would avoid looking at someone’s (even a president’s) involuntarily released private files out of respect. I accord that respect to actors and actresses whose photos are hacked, and I would do the same for the Trumps. However, since the White House confirmed the essential details of the material while decrying its unauthorized publication, I felt at liberty to peek at Trump’s Form 1040 and try to decipher what was cooking that year. Here are a few morsels:
1. At least in some years, Donald Trump makes a lot of money and pays a lot of taxes. His reported income that year was nearly $153 million before accounting for an unspecified loss of more than $103 million, leaving a gross income of $49.5 million. On that income, he paid income tax of about $5 million under regular rules, an additional $31 million under “alternative minimum tax” rules, and nearly $2 million in self-employment taxes, practically all of which would have been the surcharge that pays for Medicare. His total tax bill was more than $38 million. He wrote a $22 million check when he filed for an extension on or before April 15, 2006, and sent another $2.3 million when he filed the return on or before October 15. The rest was paid via quarterly estimates.
2. Besides what he paid to Uncle Sam, Trump paid a lot of money in state taxes. We can assume the bulk of that money went to New York, his home state, albeit one in which Trump is not hugely popular today. We don’t know how much, exactly, he paid. But we do know that his total itemized deductions were more than $17 million. In 2005, the top regular federal tax rate was 35 percent, while the AMT rate was 28 percent. State and local income and property taxes are deductible for regular tax but not for AMT. The reason Trump’s regular tax bill was so much smaller than his AMT bill is almost certainly because he had huge deductions for those taxes. As a New York City resident, Trump also owed tax to his city, likewise nondeductible for AMT. The money the Trumps paid New York in 2005 would have covered the salaries of a lot of police, firefighters and teachers, or maybe the entire crew that cleaned up after that year’s St. Patrick’s Day parade after it passed Trump Tower.
3. We know that $38 million of tax is about 77 percent of $49.5 million of gross income. This is the way the “effective tax rate” is usually calculated. If we guess that the Trumps paid $12 million in state and local income taxes, the effective tax rate was 100 percent or more. You probably heard commentary that their effective tax rate was only about 25 percent, which is the answer you get if you disregard the unexplained (to us, not to the Internal Revenue Service) $103 million loss. Most likely this loss was carried forward from an earlier year, probably the early to mid-1990s when Trump suffered major losses on his casinos. If you generally like Trump, you may be impressed to realize that his total federal, state and local tax bill that year was equal to his entire gross income computed under tax rules that he had nothing to do with writing. If you don’t like Trump, you won’t be impressed at all.
4. Most of us think of Donald Trump as a self-employed businessman. Many of the entries on the return reflect that status. But Trump (or Melania Trump) also reported nearly $1 million in wages. I don’t find this especially surprising. What jumped out at me was one of the smallest entries on the return: The $1,427 reported on line 67 as excess Social Security payments. This can happen when a person changes jobs mid-year, and two employers together charge Federal Insurance Contributions Act (FICA) taxes on wages that exceed the Social Security ceiling (which was $90,000 in 2005 and is $127,200 this year).
How did Donald Trump, or Melania Trump for that matter, end up with excess FICA withholding? Could it be that someone said “You’re fired!” to one of the Trumps?
Beats me. Chefs don’t like to reveal their secrets, and just like Thanksgiving at my house these days, I am not in the Trumps’ kitchen to see how things get made.