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Trump could personally benefit from Senate tax plan

December 3, 2017 GMT

WASHINGTON - Last-minute changes to the Senate tax bill could personally benefit President Donald Trump, who has investment stakes in roughly 500 entities that could be impacted by the planned adjustments.

Republicans are seriously considering expanding a new tax credit these types of entities use to lower their taxable income in a way that benefits most people tied to these firms. Trump and other senior administration officials have been in personal contact with lawmakers about the changes.

The changes focus on “pass-through” entities, which are a type of company that direct incomes through the individual income tax code and not the corporate tax code. There are millions of these entities, and they are most often sole proprieterships, limited liability companies, or partnerships. Trump’s stakes in these entities include many large and small ventures, including the Trump Organization.

Trump’s 2005 tax return showed he had more than $109 million in income from businesses, partnerships and pass-through entities, though he has not released updated figures, so the precise impact is not known.

Trump’s pass-throughs

Trump has become the first president in 40 years to refuse to release his tax returns, making it hard to know exactly how much he would gain from his tax policy. But a letter from Trump’s lawyers last year said that nearly all of his companies count as pass-through entities.

“You hold interests as the sole or principal owner in approximately 500 separate entities,” Morgan Lewis attorneys Sheri Dillon and William Nelson wrote in a letter released by the Trump campaign. “Because you operate these businesses almost exclusively through sole proprietorships and/or closely held partnerships, your personal federal income tax returns are inordinately large and complex for an individual.”

Many of Trump’s most signature properties, including the Mar-a-Lago Club in Palm Beach, Fla., and the Trump-branded golf courses across the country, are linked to limited liability companies, or LLCs, that would qualify as pass-throughs under the tax code, financial disclosure filings show.

Senate Republicans have proposed changing the way these firms pay taxes, allowing them to deduct 23 percent of their income from their taxable income.

“The president’s top priorities are delivering tax cuts for the middle class and making our businesses competitive again, both of which will jump-start our economy. Everyone will benefit when our economy is performing at its best,” said Raj Shah, the White House’s deputy press secretary.

Hard to prevent

Democrats have attacked the GOP tax proposals and alleged that they would disproportionately benefit companies, while offering limited and temporary benefits for families and individuals. Trump has said he would not personally benefit from the tax changes, telling senators that his accountant said he would actually fare worse under the tax bill than if no changes were made. But the White House has not offered any details to explain how he came to this viewpoint, and many believe Trump and his family would benefit greatly.

“He would definitely benefit personally, and in a number of different ways,” said Steven M. Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center, an organization that analyzes tax proposals and is often criticized by congressional Republicans for its reports that have found limited benefits from their tax ideas.

There are millions of firms that pay their taxes as pass-throughs, but tax writers for months have been concerned that people could easily take advantage of special tax treatment to avoid paying taxes. For example, a hedge fund manager or wealthy doctor could try and design their tax status in a way so they could qualify as a “pass through” and pay a lower tax rate than people who earn much less money. Republican tax writers have said they have tried to develop ways to prevent such tax avoidance, but it’s unclear if it would work.