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Odds Are You Paid More In Federal Taxes Than Trump Did The Year He Took Office

RACHEL MARTIN, HOST:

No matter what you do for a living, odds are you paid more federal income tax than President Trump did the year he took office. The president's tax returns reportedly show he paid just $750 in federal income tax in 2016 and paid nothing at all for many years before that. That is all according to reporting from The New York Times. But how is that even possible? Here's NPR's Chris Arnold.

CHRIS ARNOLD, BYLINE: A manager at McDonald's likely paid more federal income tax than Donald Trump when he took office. So how does it make any sense that someone with a lifestyle as lavish as Trump - I mean, he owns fancy golf courses, spends tens of thousands dollars on haircuts. How could the tax system allow him to pay less tax than you or me? Well, it does help to be a real estate developer.

(SOUNDBITE OF ARCHIVED RECORDING)

PRESIDENT DONALD TRUMP: In the end, we'll have one of the great hotels of the world. It's an amazing building.

ARNOLD: That was Trump in 2013 talking about his hotel in Washington, where lawmakers over the decades have passed some very friendly tax rules for real estate moguls. Reuven Avi-Yonah is a professor of tax law at the University of Michigan. He says Trump and many real estate developers structure their businesses in a way that lets them deduct interest on any loans that they have so they can reduce their taxes, whereas you and I...

REUVEN AVI-YONAH: Regular people, when they take up credit cards, for example, and they have loans and they pay high interest rate, they don't get to deduct their interest.

ARNOLD: Now, conservatives argue that by lowering taxes for businesses, you help the whole economy because that creates more jobs and lifts all boats. But there is a lot of disagreement about that. Avi-Yonah...

AVI-YONAH: The system clearly is not fair.

ARNOLD: He says, take one tax break that developers enjoy - it involves depreciation. So let's say that you own an apartment building. You get to treat it as if it was a piece of equipment in a factory that was suffering from wear and tear and falling in value. But in real estate, you could get a tax break even if the building is not falling in value. Maybe it used to be worth $10 million, and now it's worth twice that - $20 million.

AVI-YONAH: It never made any sense to me to allow you to take a write-off for that depreciation when the building is not actually depreciating but rather appreciating. And I think there's really no justification for that.

ARNOLD: Another thing that really helps lower your taxes - big losses. According to The New York Times, since 2000, Trump reported hundreds of millions of dollars in losses on golf courses alone - that hotel in Washington, tax records show, lost $55 million; big losses on an Atlantic City casino. So then when Trump made big profits from his show "The Apprentice"...

DANIEL RECK: What you can do is use those losses to cancel out other income.

ARNOLD: Daniel Reck is an economist at the London School of Economics who studies tax evasion and tax policy. He says what Trump did was not necessarily against the rules. But Reck says when you have a big interconnected web of businesses like this, money can flow offshore, it can flow through tax-exempt charities, and you can hire a small army of lawyers and accountants.

RECK: When you have a business empire, you can see how the complexity can help you find different ways to not pay tax (laughter).

ARNOLD: OK. But for that to work to the point where you pay no taxes year after year, you do have to have a lot of losses. Tax professor Avi-Yonah says, assuming the Times does in fact have Trump's returns, a big takeaway for him is that Trump's supposed business empire is floundering.

AVI-YONAH: I think he really is not a very good businessman. I think his investments since 2011 have been reckless, and they've lost him a lot of money. And at this point, he really is at risk. But in addition to that, the fact that he's a bad businessman does not mean that he's not also cheating on his taxes.

ARNOLD: Trump is being audited, so, sooner or later, we should find out whether the IRS thinks that he broke or bent the rules.

Chris Arnold, NPR News.

(SOUNDBITE OF FAZER'S "HARLESDEN") Transcript provided by NPR, Copyright NPR.