No 'smoking gun' in Trump's two-page tax return, experts say

Republican presidential candidate Donald Trump listens to a question during a town hall with the Retired American Warriors, Monday, Oct. 3, 2016, in Herndon, Va. (AP Photo/ Evan Vucci)

The story was framed as a bombshell, what President Donald Trump's critics had been waiting for, finally the president's tax return. After months of buildup, the moment had come and the public would finally learn more about the president's finances. The only problem was the so-called bombshell was a two page document from 2005 showing that Trump indeed paid federal taxes and at a higher rate than a lot of other billionaires.

Just before going on air Tuesday night, MSNBC's Rachel Maddow tweeted that she would release Trump's 1040 form from 2005. But before Maddow got in front of the camera to release the return, the White House beat her to the bunch, issuing a statement to news outlets saying that Trump paid $36.5 million on an income of more than $153 million that year.

The White House's preemptive response, mocked the report and accused Maddow of illegally disclosing the president's old return. "You know you are desperate for ratings when you are willing to violate the law to push a story about two pages of tax returns from over a decade ago," the statement read, repeating at the end that it is "totally illegal to steal and publish tax returns."

In an exclusive interview with Sinclair Broadcast Group on Wednesday, Trump described the leaks as "terrible" and "illegal," and described the reporter who obtained them as a "weird dude."

The legal question around leaking the tax returns is murky. The question of what the public learned from the return is more straightforward: Not a whole lot.

David Cay Johnston, the journalist who initially broke the story even said on Tuesday, "There’s no smoking gun there." Through use of a tax shelter, itemized deductions and other manipulations, Trump paid an effective tax rate of 24 percent. Johnston concludes that Trump while being paid like the upper 0.001 percent, "but he paid taxes like the 99 percent." Johnston reported that he originally received the tax form in the mail from an unnamed source.

In October, Trump made clear to the public that he has been "a big beneficiary" of the "broken" tax system that allows the wealthy to pay lower rates than the majority of middle-class Americans. Addressing a crowd of supporters in Pueblo, New Mexico he said that he understands tax laws "better than almost anyone" arguing that is what qualifies him to "truly fix" the American tax code. He then admitted that as a businessman he paid "as little tax as legally possible."

When his Democratic rival Hillary Clinton attacked him during a debate for reportedly not paying federal taxes, he famously replied, "That makes me smart."

According to Joseph Thorndike, an expert at Tax Analysts and a law professor, Trump's two-page return is "unremarkable." The single 1040 form represents just a fragment of a complete tax return, and because it only covers a single year it is impossible to know whether it represents a typical return for Trump or if its an outlier.

"It's not a smoking gun at all," Thorndike insisted. "If anything I would imagine that the White House might be somewhat pleased by the sort of top line numbers here."

As a matter of transparency, Thorndike believes all presidents should release their full tax returns, because the public can gain real insight from a complete disclosure. "You would learn something more about the sources of his income ... you might learn something about deductions he was claiming, business expenses that sort of thing, and you would learn more about his charitable giving" he explained.

The most important thing to find out from Trump's tax record is "how does the president conduct himself in the grey areas of the law," Thorndike said. Because there are many ambiguities in the U.S. tax code, how aggressively or benignly Trumped worked around or within those rules could be telling.

Even Trump's personal tax return might not tell us much because many of his sources of income could only be known by examining his businesses, and it is not likely the president will willingly make those records public.

On Capitol Hill, some Democrats who saw Trump's leaked tax form say the minuscule disclosure leaves a lot to be desired.

"They were just merely, as we say in Minnesota, a cocktail weenie appetizer. It was just a tiny, tiny piece of what we want to see," said Sen. Amy Klubochar (D-Minn.) of the two-page tax form.

Klobuchar is among the Democrats in the Senate demanding full disclosure of Trump's tax returns. By making those documents available, she argued, lawmakers and the American public will better able to assess what potential conflicts of interest are hanging over Trump's presidency.

Lawmakers are the best equipped to get President Trump's tax returns and could do so either by subpoena or by passing a law mandating every president release his or her tax record. Sen. Ron Wyden, (D-Ore.) is the original sponsor of a bill that would make presidential tax disclosures mandatory, but so far the bill has not received much support from Republicans. In fact, last month House Republicans defeated a resolution requesting President Trump make his tax returns public.

"This is the lowest ethical bar," Wyden said clearly frustrated with the small amount of information released on Tuesday. "If the president has nothing to hide, he should do what every other person in his shoes has done for a full four decades and that is release the returns."

Sen. Ben Cardin (D-Md.) has been hawkish in investigating potential conflicts of interest between Trump and foreign nations, like Russia, China, Saudi Arabia and Turkey. He also suspects the public will be able to learn more about those connections if the president releases his taxes.

"Because we do not know all of his financial holdings — he has not released tax returns, not following the transparency with respect to the President of the United States — we do not know whether when he promotes a particular tax change or a particular trade policy whether that's affecting Mr. Trump or it's in the best interest of our country," Cardin charged during a Wednesday press conference on government transparency.

The Trump critics who hope to find an incriminating "magic bullet" in the president's personal tax returns will probably be let down, according to Thorndike. "People are thinking that they'r'e going to find some line on his tax return that says 'interest payments made to Russian oligarchs,' but those people are likely to be disappointed," he explained. "Tax returns can tell us a lot, but they're not going to be the Rosetta Stone to Trump's financial life."

What those numbers definitely indicate is first of all, contrary to campaign allegations, Trump did in pay federal income taxes, and second that he was unable to skirt the alternative minimum tax (AMT), a tax that ensures wealthy individuals can't reduce their tax bill below a reasonable level. Without the AMT, Trump would have been able to avoid paying taxes on downunable to avoid paying taxes $103 million sitting in a tax shelter. Because of the law, more than 80 percent of Trump's $38 million tax bill ($31.3 million) was collected under the AMT.

Some have argued that Trump may try to repeal the alternative minimum tax in order to line his own pockets and pay fewer taxes. Thorndike believes the argument is "crazy," and even does a disservice to individuals like him who are seeking the tax returns in the interest of transparency, not political

"It's not, generally speaking, the best tax-planning method to plan on getting elected president," he laughed. "This would lead us to the position that anytime a Republican president suggested a tax cut, he would just be out for himself. But every Republican president suggests a tax cut."

To be sure, none of our past presidents or presidential candidates have entered office as paupers. Before President Obama took office, his 2007 tax return showed he earned $4.1 million and paid $1.4 million in federal taxes, about 33 percent. That year was an outlier for the Obamas compared to the previous years where they earned upwards of $200,000 through 2004, and around $1 million in 2005 and 2006.

Mitt Romney's 2011 tax return showed he was earning upwards of $13 million, but paying an effective tax rate of 14.1 percent, a rate comparable to an individual earning $30,000 per year.

Clinton's tax returns showed that she and her husband paid upwards of 30 percent federal taxes between 2012 and 2015, and earned a whopping $10 million in 2015.

Despite what he called a "boring" 2015 tax return, the self-described Democratic-socialist Sen. Bernie Sanders paid only 13.5 percent in federal taxes on his $205,000 income.

The tiny piece of the Trump financial puzzle has ultimately left more questions than answers. Among them is exactly how the president's tax information was leaked to the press.

The timing of the White House release of the main numbers in Trump's tax form is "highly suspicious," according to Norm Ornstein, a resident scholar at the conservative American Enterprise Institute. He suspects that the White House leaked the document itself, a conclusion that Johnston, who originally received the 1040 form, concluded as well.

"[It] all raises immediate red flags for me about where this came from and the timing of it as we're discussing the healthcare matter, deserves a lot of digging," he noted. The fact that the Trump team was able to produce a 12 year-old document with apparently little notice is also "a curiosity," Ornstein said.

Whether the initial leak of a single form will lead to new disclosures it yet to be seen. It was under Richard Nixon when the precedent was set for presidents releasing their tax returns. After a portion of his tax record was publicly disclosed, Nixon released the rest, and it has become tradition ever since.

With heavy penalties for unauthorized leaks, is not likely someone at the IRS will divulge Trump's returns. There are numerous former business associates who probably have access to the information and could release it, but again, if they get caught they could face fines and up to five years in jail.

Whether the small leak on Tuesday (possibly provided by the White House) could prompt President Trump to be fully transparent, don't hold your breath. As White House counselor Kellyanne Conway said in January, "he's not going to release his tax returns."

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