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Election 2016

Did Donald Trump Cheat on Social Security and Medicare Taxes, Paying Less Than Minimum Wage Workers?

Following the inglorious footsteps of Newt Gingrich and John Edwards.

Photo Credit: www.culinaryunion226.org/

In 1995, did billionaire Donald Trump pay less for Social Security and Medicare than minimum wage workers paid? Has he paid less in every subsequent year? If he did, he probably cheated.

The only way to know for sure is to see his federal income tax returns. But there is indeed evidence already in the public domain that suggests that, on top of being a racist, a misogynist, and a xenophobe, Donald Trump is a tax cheat.

The first page of Donald Trump’s 1995 New York resident income tax return, published by the New York Times, reveals that he reported on his 1995 federal tax return that he had just $6,108 in salary for the year. On that small salary, just $378.70 would have been paid for Social Security and just $88.56 for Medicare, for a grand total of just $467.26.

That same year, workers, earning the 1995 federal minimum wage of $4.25 an hour, made $8,840 for full time work. On those wages, $676.26 was paid for Social Security and Medicare - $209 more than paid on the reported salary of the billionaire Republican presidential nominee. (The above numbers combine the total Social Security and Medicare liability. If a worker has an employer, the amount is split evenly between the two; individuals who are self-employed are liable for both the employer and employee portion.)

Donald Trump earned a salary of only $6,108 in 1995? Less than a minimum wage worker? Hard to believe. And, indeed, it is contradicted in a report filed in 1997 with the U.S. Securities and Exchange Commission. The report, which was filed by the Trump Hotel and Casino Resorts, Inc., a Trump-controlled corporation that apparently owns and operates all of Trump’s properties, states that Donald J. Trump received a salary of $583,333 and “other compensation” of $4,830,000 for a total of $5,413,333. If all of that income should have been assessed for Social Security and Medicare, Trump should have paid a total of $164,575.46!

So which is it? In 1995, did Trump and his corporation pay $164,575.46 for Social Security and Medicare, just $467.26, or some amount in between? And what was he required to pay? There is no way to know without seeing his federal tax return. (The first page of the New York return shows a large amount of business income, but without his federal tax return, it is impossible to know whether any self-employment tax was paid on that income.)

What is known is that Social Security and Medicare are cheated out of billions of dollars of revenue every year. And Trump may be doing his part.

By law, all covered workers are required to contribute to Social Security and Medicare. It doesn’t matter if you are a high school student scooping ice cream on your summer vacation or the CEO of a Fortune 500 company. All covered workers are required to contribute, based on their earned income.

But do they? Most workers have their Social Security and Medicare contributions withheld from their paychecks. But those who don’t, if they are dishonest, can underreport or not report their earned incomes. The stereotype of unreported income is under-the-table payments to domestic workers or payments for illegal activities like drug deals. But Donald Trump may be an example of the wealthiest engaged in this same kind of illegal activity. If you are Donald Trump and other wealthy moguls, rather than using cash payments, you can simply hire accountants and lawyers, set up Subchapter S corporations and limited partnerships, and mischaracterize salary as profits.

This scam appears to be quite widespread. Because both former Democratic Vice Presidential nominee John Edwards and former Republican Speaker of the House (current Trump adviser and surrogate) Newt Gingrich cheated the government in this way, the practice has become known as the Edwards-Gingrich loophole. But don’t be confused by the name. It is not a loophole. It is a hard-to-prove mischaracterization of salary. Like paying workers under the table or labeling your employees as independent contractors, it is cheating.

How widespread is it? A GAO study reviewing 2003 and 2004 tax returns calculated that Subchapter S corporations mischaracterized earned income by a whopping $23.5 billion, resulting in underpayments to Social Security and Medicare of billions of dollars in just those two years.

Like most other crimes, this fraudulent mischaracterization is not victimless. When cheating is done with respect to domestic and other low-income workers, those individuals are denied the disability, survivor, retirement, health, and unemployment protection the law requires they have.

If Donald Trump, Newt Gingrich, and their wealthy compatriots are illegally avoiding paying what they are obligated under the law to pay for Social Security, Medicare, Unemployment Insurance, and Workers’ Compensation, they may be able to get by without the benefits, but they are cheating us.

Social Security and Medicare work so efficiently and well because they are universal. Given the perilous and rising income and wealth inequality over the last few decades, I do not believe the wealthiest are paying their fair share. But, it appears that Trump and his plutocrat friends may not even be paying what they legally owe already.

Again, it is impossible to know if one of those plutocrat-cheats is Donald Trump without seeing his tax returns. But perhaps that is one of the reasons he is being audited.

It is amazing he is being audited for any reason, given the efforts of those in Congress to protect him and his fellow elites. Thanks to budget cuts, the rate of individual tax returns being audited is lower than it has been in over a decade.

But Congress’s protection of the wealthy is even worse. One of the truly outrageous requirements imposed on the Internal Revenue Service is to spend their limited resources disproportionately on those returns of people who claim the Earned Income Tax Credit (“EITC”).

The EITC was enacted in 1975 to give the working poor a better return on their work by offsetting some of their work expenses, including their contributions to Social Security and Medicare, with a refundable income tax credit. Those working Americans, by definition, have very little income.

In order to claim the EITC, those working poor must file tax returns. Those returns make up around 19 percent of all returns filed. Yet they consist of a ridiculous 35 percent of all audits. Even if those returns have errors, the amounts, obviously, are small. So why does Congress insist that their returns be audited twice as frequently as returns generally? To protect the wealthy and to spitefully make life even more difficult for those struggling to make ends meet are the logical explanations.

Social Security should be expanded for those working poor and for all Americans. Those expansions can and should be paid for by making millionaires and billionaires pay their fair share. And while we are at it, let’s make sure that they pay every penny that the cheaters among them are failing to pay now. The perfect poster boys for this effort are John Edwards, Newt Gingrich, and, quite likely, Donald J. Trump.

 

Nancy Altman is author of The Battle for Social Security: From FDR's Vision to Bush's Gamble (John Wiley & Sons, 2005) is president of Social Security Works and Chair of the Strengthen Social Security Coalition. She is co-author, with Eric R. Kingson, of Social Security Works! Why Social Security Isn't Going Broke and How Expanding It Will Help Us All (The New Press, 2015), and has written the forward to a new release of Thomas Paine's Agrarian Justice.

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