Wealth begets wealth, and the wealthy are remarkably adept at figuring out how to get wealthier. That is one takeaway from The New York Times’ mammoth investigation into the Trump family’s gymnastic accounting prowess, based on reams of tax returns and corporate documents. The family used perfectly legal and more questionable tax-avoidance strategies to bolster its net worth, the investigation by David Barstow, Susanne Craig, and Russ Buettner found, and also committed “outright fraud.”
As a result, hundreds of millions of dollars passed from one generation to another scarcely taxed or never taxed at all. President Donald Trump’s parents, aided by their son, transferred more than a billion dollars to their heirs, much of which should have been subject to a 55 percent tax on gifts and inheritances. The Trumps paid an estimated 5 percent rate, starving the government of hundreds of millions of dollars of tax revenue and hastening the dynastic accumulation of wealth. Indeed, President Trump, who often touts himself as a self-made man, received $413 million in today’s dollars from his family, with the infusions starting when he was a toddler.
The story acts as an accounting playbook for the hyper-rich. Among other tactics, the Trump family manipulated “grantor-retained annuity trusts,” or GRATs. The Trumps put assets into these special vehicles and took annuity payments from them, before passing the assets on to their children. By grossly undervaluing the real estate in the GRATs—properties valued at $41 million for tax purposes in 1995 were worth close to a billion dollars when valued by banks a decade later—the family dodged hundreds of millions of dollars in taxes, the Times investigation concludes.
There were also cases of potential fraud. The most overt involved a shell company called All County Building Supply & Maintenance, which “siphoned millions of dollars from Fred Trump’s empire” by marking up the cost of goods and bumping up rent increases. Another egregious example: Fred Trump sent a bookkeeper to Atlantic City to buy more than $3 million in casino chips, a cash infusion that helped his son Donald avoid defaulting on his bond payments.
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A lawyer for President Trump denied any wrongdoing and distanced the president from the allegations, and the White House has dismissed the story. “The Failing New York Times did something I have never seen done before,” Trump wrote on Twitter. “They used the concept of ‘time value of money’ in doing a very old, boring and often told hit piece on me. Added up, this means that 97% of their stories on me are bad. Never recovered from bad election call!”
But the evidence is clear, and the ramifications broad. The story demonstrates how wealthy families wriggle out of taxes through means both licit and illicit, starving the government of tax revenue, making the tax code less progressive than it is designed to be, and effectively increasing the tax burden on lower-income families and businesses. In so doing they also exacerbate wealth inequality, which the tax code currently encourages with its minimal taxes on inheritances and gifts and its large loopholes for the wealthiest of the wealthy.
Economists have found that the richer a family, the more effective it is likely to be at tax evasion. Indeed, in one study, the richest 0.01 percent were shown to evade about 25 percent of their taxes, several times the rate seen in the general public. “Taking tax evasion into account increases the rise in inequality seen in tax data since the 1970s markedly,” the economists Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman concluded.
An easy fix would be to have the Internal Revenue Service crack down on the kind of fine-print shenanigans and creative accounting methods used by the Trump family, which would lower inequality, raise government revenue, and restore the tax burden on the wealthiest. But in the past decade, Congress has slashed the IRS’s budget, leaving it less capable of conducting audits, let alone finding and punishing cases of fraud. The agency’s enforcement staff has dropped by a third in recent years. As a result, business owners—such as the Trump family—underpay their taxes by an estimated $125 billion a year. That amounts to a trillion-dollar stealth tax cut on the very wealthy, something Congress did not seek to fix in the sweeping tax law it recently passed.
The ultrarich inhabit what the academic Brooke Harrington describes as a “parallel world of selective lawlessness: selective in that the super-rich can continue to enjoy the benefits of laws that suit their interests while ignoring laws that inconvenience them.” But that need not be the case. Stronger laws and better enforcement would make the system more fair for everyone.
The Times investigation also raises the question of whether the Trump family’s tax evasion and avoidance have continued in recent years—a question impossible to solve without access to the president’s tax returns. (The paper gives no indication of how it got the tens of thousands of pages of private documents cited in its story, though it does mention that President Trump’s cousin acted as a bookkeeper for the family business and passed away in January.) In a few months, Democrats may gain a majority in the House, giving them the ability to subpoena Trump’s tax returns. That makes it highly likely those documents will become public next year, helping solve the riddle of Trump’s wealth and showing how he is passing it on to his children.