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What Trump's Tax Return Could Mean For Historic Tax Credits

Posted by Bill MacRostie on Thursday, October 6, 2016
Bill MacRostie
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For those of us watching the Presidential race in the context of its likely effect on tax reform, we may look back on Saturday, October 1, 2016 and say that was the day the political forces for sweeping tax code changes took a turn. As the world now knows, Saturday was when the New York Times published its story detailing how Donald Trump took a $916 million loss on his 1995 taxes and may not have paid any federal income taxes for 18 years. Trump says—and this really gets to the heart of this as a political issue beyond the election—that taking such a loss is perfectly legal. Business people use real estate depreciation, net operating losses, and any manner of other deductions and credits in the tax code as a matter of course. However, to the legions of Trump voters (and Bernie Sanders supporters for that matter) who are hurting economically but who nevertheless pay taxes, the idea of a billionaire paying NO TAXES for years can’t help but feed populist anger and have a political impact beyond the election…regardless of who wins.

Before this weekend, the political tea leaves seemed to indicate that Trump, who proposes to lower the corporate tax rate to 15%, would need to eliminate all tax preference items (including the historic credit) from the code. If former House Ways and Means Chairman Dave Camp’s 2014 discussion draft for tax reform—which pegged the corporate rate at 25%--eliminated nearly all “community investment” credits from the code, then it’s hard to imagine a rate of 15% not doing that and more.

Hillary Clinton—while not taking a formal position on the historic credit but supporting the Low Income Housing and New Markets credits—has a history of supporting urban focused programs and policies consistent with Democratic Party orthodoxy. Many have assumed that while generally supporting incremental tax reform, a Clinton administration would be inclined to keep economic development incentives in the code.

After the New York Times bombshell, however, all bets about a selective, incremental approach to tax reform may be off the table. A sizeable chunk of people in the country are hurting and angry, and sweeping tax code changes that more fairly balance the burden by eliminating “loopholes” may be the perfect way for a Trump or Clinton administration to address that anger.