Why Democrats released Trump’s tax returns

After years of fighting for Donald Trump’s tax returns, Democrats finally got a hold of them and released them to the public through two congressional reports published this week. But Democrats stress their decision was not about Trump himself but rather about oversight of the IRS and about the U.S. tax system more broadly — even though Trump was the first president since Watergate not to release his returns before assuming the presidency.

The report from the Democratic-led Ways and Means Committee found Trump wasn’t audited during his first two years in office. His first audit as president came only right when the IRS was asked directly by Congress to produce Trump’s tax returns. 

That could be a violation of IRS policy, which states that “individual income tax returns for the President and Vice President will be subject to mandatory audit examination” and that they’ll receive “normal pipeline processing” and be subject to “regular filing and retention procedures.”

“The IRS has failed to administer its own mandatory audit program policies,” Ways and Means Chair Richard Neal (D-Mass.) said Thursday in the House, introducing legislation that bumps the presidential audit program up from the level of IRS policy to the level of federal law.

Democrats are mad the presidential audit program was ‘dormant’

“After years of stonewalling and litigation ending at the Supreme Court, the Committee found that, for all practical purposes, the mandatory audit program was dormant. It wasn’t just functioning poorly — it was not functioning at all,” Neal said.

Neal’s legislation, which passed the House on Thursday, would give the Treasury three months to produce a report on a sitting president’s tax returns, which are required by law to be filed every year.

The bill also makes a president’s tax returns public along with those of any businesses they own.

“This has never been about one person, this has been about the office of the presidency,” Rep. Steven Horsford (D-Nev.) said Tuesday after the vote to release Trump’s returns.

Democrats are also calling out the ‘two-tiered tax system’

Trump’s returns display sophisticated accounting whereby income from investments was offset by large, distributed business losses that reduced his tax liability. In 2020, the last year Trump was president, he didn’t pay any income tax at all.

Tax experts say his techniques are not atypical and are just some of many methods that are widely used by people with a lot of money to pay less in tax. These maneuvers can range from using bank loans backed by stock portfolios to obtain cash to combining trusts with annuities to keep money away from the government over the course of generations.

This sophistication is another source of anger for Democrats and is something they want to call attention to through the release of Trump’s returns.

“Trump’s returns likely look similar to those of many other wealthy tax cheats — hundreds of partnership interests, highly-questionable deductions, and debts that can be shifted around to wipe out tax liabilities,” Senate Finance Chair Ron Wyden (D-Ore.) said in a statement on Wednesday.

Treasury Secretary Janet Yellen has sounded similar notes about how taxes work in the U.S.

“At the core of the problem is a discrepancy in the ways types of income are reported to the IRS: opaque income sources frequently avoid scrutiny while wages and federal benefits are typically subject to nearly full compliance. This two-tiered tax system is unfair and deprives the country of resources to fund core priorities,” she said in a statement on congressional tax compliance proposals in 2021.

But the release of the returns is also about beating Donald Trump

While Democrats have couched the release of the returns in a broader policy discussion, it’s just as much about politics and defeating a political rival.

Trump incensed Democrats during his presidency for the ways he broke presidential norms that extended beyond his refusal to release his tax returns. His prolific use of social media and his public castigation of judges and other public officials whom presidents usually don’t criticize changed the tone of political discourse in the country, much to the anger of the opposition party.

“When we win this election, and we have a new president of the United States in January, and we have a new secretary of the Treasury, and Richie Neal asks for the president’s returns, then the world will see what the president has been hiding all of this time,” House Speaker Nancy Pelosi (D-Calif.) said in 2020.

The revelation of Trump’s huge business losses, which were presaged by years of investigative reporting, undermine the image of Trump as a successful, self-made businessman projected by TV shows like “The Apprentice” and that he ultimately capitalized on to win the presidency.

“Donald Trump had big deductions, big credits, and big losses — but seldom a big tax bill,” Rep. Lloyd Doggett (D-Texas) said in a statement on Tuesday. “This inquiry has unearthed many questions about how someone who claimed to be so rich can avoid so many taxes.”

Republicans are taking it personally

Republicans have been looking past the policy discussion raised by the committee reports and are laying the groundwork for some political reprisals.

Outgoing Republican leader of the Ways and Means Committee Kevin Brady (Texas) talked about actions relating to personal tax returns in the context of the upcoming Congress, in which Republicans will take control of the House.

“I won’t speculate on what the next Congress and this committee will focus on related to tax returns,” he said on Tuesday.

“Democrats’ claim about the need to reform the presidential audit program is merely cover for weaponizing the tax code against political rivals,” Ways and Means Republicans said in statement on Thursday.

Tax experts say that Hunter Biden, who’s under investigation by the Justice Department over whether he paid enough taxes on payments he received while working on the board of a Ukrainian company, may be in Republican crosshairs.

“Ways and Means Republicans could come out and say, ‘You guys started it. This is both-sides-ism.’ And so they’re going to ask for the tax return information on Hunter Biden and Joe Biden and whoever else they want to embarrass,” Steve Rosenthal, a policy analyst with the Urban-Brookings Tax Policy Center, said in an interview.

Hunter Biden hired a new defense attorney this week, perhaps in anticipation of committee actions involving him during the next Congress, NBC News reported this week.