What Donald Trump’s Big Tax Break Might Buy
By Eduardo Porter
What would, say, a half-billion dollars do for the well-being of the American people?
Donald J. Trump acknowledged during his second presidential debate with Hillary Clinton on Sunday night that he had deployed nearly $1 billion in losses incurred on failed business ventures to avoid paying federal income taxes for years.
Such a huge loss would be worth a lot of money to a top 1 percenter like Mr. Trump. Assuming he used it to the fullest — as he has boasted he has — avoiding taxes on $50 million of income a year over 18 years, he would have saved almost $400 million in federal taxes in today’s money. Deploying the deduction against New York’s state and local income taxes would have produced savings of another $150 million.
Mr. Trump and his surrogates on the campaign trail have portrayed such maneuvering as a sign of accounting genius, a crucial skill for a future president to have. Yet perhaps the most relevant question, considering Mr. Trump’s ambition to the highest office in the land, is what did his fellow Americans lose in exchange for his gain?
Half a billion dollars over 18 years would not be enough to plug the budget deficit or rebuild the nation’s crumbling infrastructure. But it is definitely real money.
When you consider how readily wealthy people are able to use a variety of legal techniques to minimize their taxes — including even Warren E. Buffett, who disclosed he paid about 16 percent of his reported income in federal income taxes last year — the revenue lost to the public purse adds up fast.
Consider Mr. Trump’s tax savings. Half a billion dollars would finance housing vouchers for more than 40,000 families with children, at just under $10,000 a family. It would fund more than 50,000 slots for the Head Start program, which costs about $8,700 a child.
It would pay the unemployment insurance benefits of more than 60,000 Americans getting the average weekly check of $300 for six months. Or it would cover the average food stamp benefit of $126 a month for more than 300,000 people for an entire year.
The federal and state governments spent $11.3 billion in child care subsidies in 2014, a 12-year low, according to the Center for Law and Social Policy. Another $500 million would provide support for an additional 75,000 children, freeing thousands of low-income parents to go to school or enter the labor force.
Or consider the training that $500 million could buy. American workers are less skilled than their peers around the industrialized world, according to the Organization for Economic Cooperation and Development’s survey of adult skills. Only about two million adults receive basic skills training, usually through generic programs that do not target specific jobs.
For $500 million, half a million low-income, low-skilled adults could receive high-quality training through Integrated Education and Training programs, along with support services, which mix occupational job skills with basic literacy and support services to help participants find jobs and hold them.
This is not to say Mr. Trump’s approach to taxation is the most pressing fiscal problem facing the nation. And even if he maxed out his tax savings, as my colleague Andrew Ross Sorkin pointed out the other day, he is a minnow in the avoidance racket.
And yet Mr. Trump’s proud dodge should draw attention to one of America’s most damaging weaknesses: The nation does not manage to provide its people with a minimum standard of well-being, something commonplace across the rest of the industrial world.
The United States scores depressingly low compared to other advanced countries in the Organization for Economic Cooperation and Development. A baby girl born in the United States today is expected to live four fewer years than one born in Italy or South Korea. One in five American children lives in a poor home. In Norway, fewer than one in 20 do. For every 100,000 American children, 33 die before they turn 20. That’s 12 more than in Britain. And American teenagers have babies at four times the rate of teenagers in Spain.
What’s going on? On average, Americans are among the richest people in the world. The problem is that too many of them have been left out of that prosperity. And the American government has simply not had the wherewithal to lend a hand.
Contrary to Mr. Trump’s claim that the United States is one of the most heavily taxed nations, only South Korea, Chile and Mexico, among O.E.C.D. countries, collect less in tax revenue as a share of the economy. That means the American budget for things like prenatal care, low-income housing and worker training is simply not up to the task.
Federal, state and local government spending on what the O.E.C.D. calls social purposes adds up to just over 19 percent of the nation’s gross domestic product. That’s 10 percentage points less than in France, eight less than in Belgium or Denmark, and six less than in Portugal.
President Obama has tried hard to draw more resources for the federal government by raising the top rate of taxes paid by rich people like Mr. Trump. He forced Congress to increase the top income tax rate for high-income Americans from 35 percent back to 39.6 percent, where it was under President Bill Clinton. He imposed a small tax on the wealthy to help pay for health coverage for the uninsured.
Still, total federal tax revenue in 2015 amounted to only 18.3 percent of the nation’s G.D.P. That is less than Washington collected in the 1950s. Federal taxes on individuals generated just 8.7 percent of gross domestic product, well below the peak of 9.9 percent 15 years earlier.
In this context, Mr. Trump’s accounting “genius” adds up, for the nation, to an existential threat.
The large and growing share of income flowing to the very wealthiest Americans — those who routinely deploy high-price professionals and sophisticated financial engineering to keep the taxman at bay — poses a simple question:
Are those who have benefited the most from the economy’s bounty prepared to do anything more to improve the nation’s meager social standing and allow their fellow citizens to share in America’s riches?