The voices of Tax Policy Center's researchers and staff
Following The New York Times blockbuster series on President Trump’s personal finances—especially the revelation that he paid just $750 in federal income tax in 2016 and 2017, and no federal income tax at all in many previous years, I’ve repeatedly gotten one question: How do Trump’s paltry tax bills compare to other Americans'?
Because we have not seen his tax returns, we don’t exactly know what Donald Trump’s Adjusted Gross Income (AGI) was in 2016. But we do know that he considers millionaires to be his peer group, so my colleagues at the Tax Policy Center compared his tax situation with other tax-filers in 2016, including those with AGI over $1 million.
We found that 99.6 percent of tax units with AGI over $1 million paid more than $750 in federal individual income tax in 2016. Indeed, 99 percent paid more than $50,000 in federal income tax that year.
The bottom line is this: If Trump made $1 million or more (or compares himself to people who did) and paid just $750 in federal income tax in 2016, he was an extreme outlier. Of the 420,000 households that reported at least $1 million in AGI for 2016, fewer than 2,000 paid as little as Trump did.
Even among those with AGI between $500,000 and $1 million, an income tax bill this low would have been extraordinarily rare. TPC found that in that group more than 98 percent paid $50,000 or more in federal income tax while just 0.4 percent paid $750 or less.
How does that $750 individual income tax liability compare to middle-income people? Let’s look at the 20 million households that earned around the median income—with AGI of, say, $50,000-$75,000. TPC figures that only about one in 10 paid $750 or less. Of those, about 7 percent paid no federal income tax at all.
About 90 percent paid more than $750. And nearly half of those middle-income households—about 45 percent—paid between $5,000 and $10,000 in federal income tax.
Now you might ask: How does somebody with AGI of $1 million or more get to pay just $750 in federal income tax?
There are a few ways. The first would be to have lots and lots of itemized deductions. Imagine, for example, someone with big uninsured medical expenses, massive mortgage interest, extremely generous charitable donations, and very high state and local taxes.
Unlike today, there was no $10,000 cap on the state and local tax deduction back in 2016. But those making $1 million or more could have been subject to two provisions that limited the benefit of many of those deductions—a since-repealed reduction in the amount of allowed itemized deductions (named for its author, Rep. Don Pease) and the individual Alternative Minimum Tax.
Tax credits, such as the credit for taxes paid to foreign governments, also reduce taxable income substantially for high-income filers. Other business tax benefits, including the general business credits, could also play a role.
Still, whatever the techniques, it was very rare for high-income households (and uncommon even for middle-income households) to bring their federal income tax payments down to the levels The Times says Trump paid.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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