The Taxes we pay
I've been thinking about how we respond to issues of tax fairness. Donald Trump's tax returns as reported by The New York Times show that he paid no personal income tax some years, and $750 a couple years. Trump makes the claim that he pays millions in taxes every year. So, let's break down how both of these statements might (or might not) be true by looking at taxes we pay.
1. Federal Income Tax: Generally speaking, anyone who has wage or salaried income ("earned income") over a certain amount pays federal income tax. Many various deductions have been designed which allow some people, even with higher income, avoid paying any federal income tax simply because they are able to offset their income. Also, if you are able to arrange things so that your expenses are all paid by your business, you can maintain a very nice lifestyle while showing very little personal income. If your income is from real estate or business investments, you can probably gain favorable treatment from the "Capital Gains Tax" and not have to pay the higher personal income tax rate. If you work for a living at an hourly or salaried job, you probably can't reduce your federal income taxes much.
1.a. Federal Income Tax Withholding: As I mention above, if you work for a wage or salary, you likely have an employer who follows IRS regulations to withhold your income taxes from your paycheck and send them to the US Treasury. You, as the worker, are paying this tax, not your employer. Often times someone who runs a business will claim that they pay millions in taxes to the federal government, but they are including in that figure all the the federal income tax that they withheld from employee's paychecks.
2. FICA/Social Security/Medicare: This is the premium paid by all working people as a portion of their income to provide Social Security and Medicare benefits for their retirement. There is no guarantee that you will receive more back in benefits than what you paid in over your working lifetime, but there is also the likely chance that you will receive more in benefits than what you paid in. That is the nature of insurance. Which is why it is called the "Federal Insurance Contributions Act". Everyone who works for a wage or salary pays into this, along with a matching amount added by their employer. If you are self employed, you pay both sides. This applies to all "earned" income. So, if you have investment income, you do not pay on that. Also, once your earned income reaches a certain level, your contribution is capped. This provides essential benefits for working people, but also hits the middle class and lower income workers harder than it hits the wealthy.
2.a. Again, many people who run a business with employees, will claim the amount they paid to FICA as part of the "millions" that they pay in taxes. The truth is, all of this was paid for by the labor of those employees. While the employer wrote the check, the employee provided the value from their labor, and those "taxes" would not be paid if they were not connected to the employees.
3. State and local income taxes: See #1 & 1.a above. In most places that have an income tax, calculation of the tax due begins with the Federal income tax filing, and may make some minor adjustments. It is likely true that if someone pays little or no federal income tax, they also pay little or no state and local income tax in whatever jurisdiction they live or work in.
4. Sales taxes: In places that have sales taxes most people pay the tax as a natural course of commerce. If the tax is high enough to encourage someone to try to avoid, there are generally two ways to do that. First, if you can afford to do it, you might either travel or order goods from a location that does not have the sales tax. Second, if you can show that you are buying wholesale, for example buying for your business use, then you can often avoid the sales tax. Generally speaking, low income people have the fewest opportunity to avoid sales taxes. Someone operating a business enterprise, could just purchase everything through their business and claim it is for business use. This is also a tax that many retail business owners will cite to show that they pay large amounts of taxes. Generally the tax was actually paid by their retail customers, and is then remitted to the taxing government, rather than paid by the business owner.
5. Property taxes: If you own real estate, or business real property, you will likely pay state and local property taxes. Homeowners pay their property tax. Landlords pay the property tax on their properties. While the property tax is paid by the owner of the property, anyone who owns rental property would be collecting that rental income with which to pay the property tax. It is very likely that Donald Trump, or his businesses, collects and pays millions in property taxes. In some cases, a property owner can get huge reductions or deferment of their property taxes. This, of course, is not what people generally think about when they ask the question "are you paying your fair share in federal income taxes?"
In conclusion, Donald Trump, through his businesses and real estate holdings, probably pays millions in property taxes (collected from rental and business income) and probably transfers millions in income taxes, sales taxes and FICA contributions to federal, state and local governments, all generated from the labor of employees. He probably has managed to work the system so that he can pay extremely low or no personal income taxes. If you are working for a wage or salary, it is extremely likely that you pay more in personal income taxes than Trump.
