Buzz
A notable detail in Trump’s 2005 tax return, made public recently, is the mention of the “Alternative Minimum Tax” (AMT). If you’re not well-versed in it, here’s what the AMT entails and why it’s significant.
David Cay Johnston, a reporter for the Daily Beast, tax expert, and author, is the one who discovered Trump’s 2005 IRS 1040 form in his mailbox and subsequently shared it online (and on Rachel Maddow). The Daily Beast reported:
The documents reveal that Trump and his wife Melania paid $5.3 million in standard federal income taxes, which equates to a tax rate of under 4%. However, they also paid an additional $31 million in the “Alternative Minimum Tax” or AMT. Trump has previously advocated for eliminating this tax.
While this is not the only noteworthy aspect of the entire situation, it highlights the crucial role of the Alternative Minimum Tax, an integral component of the IRS tax code.
The Alternative Minimum Tax (AMT) was created to prevent wealthy individuals from exploiting loopholes that would allow them to avoid paying their fair share of taxes. As the Tax Policy Center explains, in 1968, Treasury Secretary Joseph W. Barr informed Congress that 155 taxpayers with incomes over $200,000 (which was a much larger sum back then) had paid no federal income tax in 1966. This revelation sparked public outrage, leading to the creation of the AMT to address these concerns and close the loopholes. The IRS describes the AMT like this:
The Alternative Minimum Tax (AMT) targets taxpayers with high incomes by limiting the tax benefits available to them. It ensures that these taxpayers contribute at least a minimum amount of tax.
Although the AMT has complicated tax filings for many middle-income taxpayers, it continues to prevent the wealthiest individuals from completely avoiding taxes, according to Johnston. He told Maddow (emphasis ours):
Keep in mind, we have two tax systems. Wealthy individuals essentially calculate their taxes twice: once under the regular tax system and once under the Alternative Minimum Tax. Without the AMT—and Donald Trump has publicly called for its elimination—he would have paid taxes at a lower rate than the bottom half of taxpayers, including those making less than $33,000. Trump would have paid just over $5 million, which is less than three and a half percent. The point here is that the wealthiest people in the country are not burdened by taxes in the same way the rest of us are.
Another notable detail from Trump’s 2005 tax return was that he continued to benefit from a $916 million loss he reported in a 1995 return, using it as a tax credit. While questionable, this was a perfectly legal loophole at the time. The AMT helps offset the impact of such loopholes.
If this all seems like a mess, that’s because it is. In his book, Perfectly Legal, Johnston highlights many of the problems and complexities within our tax system. It’s convoluted, but it clearly demonstrates why the wealthy aren’t “burdened the way we suggest,” and how they manage to avoid paying significant taxes by exploiting loopholes, credits, and tax shelters.
