Politics

What Donald Trump's Forms Tell Us About His Tax Policy

MSNBC’s Rachel Maddow didn’t exactly deliver the explosive expose on President Donald Trump’s taxes that some were led to expect Tuesday. However, the segment did shed light on a tax law that's been the subject of criticism of some of the wealthiest Americans, including the president himself. 

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The documents reveal that Trump reported a $150 million income to the Internal Revenue Service (IRS) in 2005, and that he paid $38 million in taxes that year. The White House confirmed as much less than an hour before Maddow's program, according to Reuter's Jennifer Ablan.

Of the $38 million that Trump paid in federal income taxes, he paid $31 million in "alternative minimum taxes." This kind of tax "applies to taxpayers with high economic income by setting a limit on those benefits" in order to "ensure that those taxpayers pay at least a minimum amount of tax," according to the IRS.

Trump called for the elimination of the alternative minimum tax as part of his tax reform agenda as a presidential candidate. "The 3.8 percent Obamacare tax on investment income will be repealed, as will the alternative minimum tax," Trump said. However, such a repeal would be costly. According to a 2007 report from the Center for Budget and Policy Priorities, "the cost of AMT repeal would equal more than $1.5 trillion over the next ten years."

Here's how the alternative minimum tax works.

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When determining how much an average person is going to pay in federal incomes taxes, you take their income and subtract deductions like charitable donations, property taxes, mortgage interest and other exemptions. How much you pay is based on the rate of your income bracket.

Calculating the alternative minimum tax works in much the same way, but some valuable deductions, such as state income taxes and property taxes, are exempted. If the alternative minimum tax rate is higher than what a filer would have paid using the traditional process, they must pay the higher sum.

In a statement Tuesday, the White House said Trump was obliged “to pay no more tax than legally required” as head of the Trump Organization.

Trump broke with tradition during his presidential campaign by refusing to release his tax returns — even though every presidential candidate has done so for the past 40 years. He claimed that he was unable release these documents because he was being audited by the IRS, though there is no law against releasing tax returns under audit.

In October 2016, The New York Times released tax documents that showed Trump reported a $916 million loss in 1995, which "would have been large enough to wipe out more than $50 million a year in taxable income over 18 years."

You can view Trump's 2005 tax returns here.