Winnipeg Free Press

Winnipeg Free Press (Newspaper) - September 29, 2020, Winnipeg, Manitoba C M Y K PAGE B7 TUESDAY, SEPTEMBER 29, 2020 ● WINNIPEGFREEPRESS.COM B 7BUSINESS SP EC IA L C LE A R A N C E O N S EL EC TE D C LO TH Serafino Falvo Tailors has more than half a century of experience tailoring world class garments in the sartorial meccas of Milan, Rome and London. Serafino Falvo T A I L O R S WAS $2,800 NOW $2,000 WAS $2,500 NOW $1,775 WAS $1,850 NOW $1,275 WAS $650 NOW $450 WAS $850 NOW $575 SUITS SPORT JACKET PANTS 1765 Corydon Ave. • Winnipeg, MB • 204.489.9371 • serafinofalvo.com W ASHINGTON — The tax-avoidance strategies that U.S. President Donald Trump capitalized on to shrink his tax bill to essentially zero are surprisingly com- mon among major real estate develop- ers and other uber-wealthy Americans. Yet Trump characteristically pushed those strategies to the limit, perhaps to the breaking point. So say tax experts in the wake of a New York Times report Sunday that found that Trump paid only US$750 in taxes in both 2016 and 2017 — and none at all in 11 of the 18 years that the newspaper examined. “The things that Trump did are typical of wealthy businesspeople and particularly wealthy real estate devel- opers,’’ said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy. Still, Wamhoff noted, Trump claims “the special breaks and loopholes that are available in the tax code and sometimes just takes them to a whole new level.” U.S. tax law has long been kind to big real estate developers. It allows them myriad legal loopholes and breaks that can significantly shrink their tax bills. The law became even kinder to them after Trump’s Republican allies in Congress pushed through his US$1.5- trillion tax overhaul, which took effect in 2018. The Times reviewed Trump’s tax returns for 2000 through 2017, so its report didn’t capture the impact of the 2018 law. But Martin Sullivan, chief economist at Tax Analysts, said: “It is much easier now for a real estate developer to avoid taxes than it was five years ago.’’ Even before the 2018 law, developers could claim losses more quickly and easily than other businesses — and more easily delay or avoid reporting profits to the Internal Revenue Ser- vice. Even if they fall behind on their debts, if their creditors forgive their debts, they face fewer tax penalties than other investors do. Trump took full advantage of those tax breaks when he was unable to handle his debts on his failing Atlantic City casinos in the 1990s and early 2000s. Even so, experts say it’s unclear whether all his actions were permis- sible. “There are a lot of things that Trump has done that may exceed what is al- lowed by the law,” Wamhoff said. He noted that the IRS has raised questions about some of Trump’s claims — in particular, a whopping US$72.9-million federal tax refund that he sought and received and “business deductions for expenses that really look like personal expenses.’’ The Times reported, for example, that Trump has claimed a 200-acre family retreat in Bedford, N.Y., as an investment, thereby allowing him to write off property taxes. And he has used what the Times called “unexplained’’ consulting payments to reduce his business taxes. Trump even claimed $70,000 in hairstyling expenses during his TV show The Ap- prentice. Then again, said Sullivan at Tax Analysts, defining legitimate business expenses is typically a “murky’’ issue. Hairstyling is a clearly a personal matter for an everyday office worker. But for a television personality, it would be a legitimate business ex- pense. Experts note that such outsize tax advantages for the most privileged businesspeople serve to widen the na- tion’s economic inequality. Economists Emmanuel Saez and Gabriel Zucman at the University of California, Berkeley, found that in 2018 billionaires faced a small burden than did the working class for the first time in 100 years: The richest 400 Ameri- cans paid an overall tax rate of 23 per cent — including federal, state and local taxes — compared with 24.2 per cent for the bottom 50 per cent. Wealthy families typically try to transfer some of their assets during their lifetime to ease the tax burden on their heirs, something they can do legally in a variety of ways. As assets go, real estate is one of the most flex- ible options. That said, there’s a fine line between tax avoidance and abuse. A key provision in the 2018 tax law delivered a steep tax break for a kind of business set up by owners of profit- able firms, including Trump and his family. The law allowed a 20 per cent deduction against income taxes for businesses whose profits are taxed at the owner’s personal income rate. They’re known as “pass-through” companies because their profits are funnelled into the owner’s personal tax bucket. Those businesses span a huge range, from the local florist and family- owned restaurant to law firms, hedge funds and privately held large firms — such as real estate companies and the Trump family’s property empire. Trump himself has owned about 500 entities structured as pass-throughs, according to his lawyers. This has made the Trump Organization less a single business than a grab-bag of units drawing on the fancier parts of the tax code: sole proprietorships and limited-liability partnerships. Beyond wealthy individuals, the Trump tax law also made it easier for big corporations to avoid paying income taxes, now at a 21 per cent rate. Despite making billions in profits, a number of them receive tax rebates ex- ceeding their income tax bills, giving them effectively a negative tax rate. Some of the companies that have done this in recent years according to their public filings include Amazon, General Motors, IBM and Netflix. Apple, the most valuable company in the world, has used the the tax code to avoid paying billions in U.S. taxes by deploying a complex setup involving subsidiaries in Ireland. More recently, embedded in the US$2.3-trillion pandemic rescue pack- age speedily enacted in March is a tax break piggybacked onto the earlier break for “pass-through” companies. Experts say it helps mostly million- aires. The new change in the tax code would deliver nearly 82 per cent of its benefits to about 43,000 taxpay- ers earning more than US$1 million yearly, according to an estimate from nonpartisan congressional tax ana- lysts. And it would cost U.S. taxpayers US$86 billion this year by reducing tax revenue captured by the govern- ment, the Joint Committee on Taxation calculated earlier this year. Proponents of the new tax break insisted it was needed relief for small businesses in dire cash-flow straits because of the virtual shutdown of the U.S. economy. Smaller pass-through companies, though, may not be as well- positioned in their financial accounting to take advantage of the tax change as the giants. — The Associated Press Trump went even further than other uber-rich to shrink taxes PAUL WISEMAN AND MARCY GORDON Strategies used by U.S. president common among major real estate developers EVAN VUCCI / THE ASSOCIATED PRESS U.S. President Donald Trump took full advantage of tax breaks when he was unable to handle his debts on his failing Atlantic City casinos in the 1990s and early 2000s. A federal judge on Sunday postponed a Trump administration order that would have banned the popular video sharing app TikTok from U.S. smart- phone app stores. A more comprehensive ban remains scheduled for November, about a week after the presidential election. But the judge, Carl Nichols of the U.S District Court for the District of Columbia, cast doubt on the government’s argument that TikTok is a national security threat because of its ties to China. The ruling followed an emergency hearing Sunday morning — hours before the app-store ban was set to take effect — in which lawyers for the Chinese-owned app argued that the ban would infringe on First Amend- ment rights and do irreparable harm to the business. Here are some questions and an- swers about the dispute. WHAT DID THE JUDGE SAY? Nichols, who was appointed to the bench by U.S. President Donald Trump last year, said in a ruling unsealed Monday that the “government has provided ample evidence that China presents a significant national security threat.— But he added there is “less sub- stantial” evidence that TikTok itself presents such a threat or that a ban is an effective way to address it. Trump is trying to use his emer- gency authority under a 1977 law enabling a U.S. president to regulate international commerce to address un- usual threats. But Nichols said that law has an exception to protect personal communications and disseminating information across borders — which he said would include much of the content found on TikTok. Nichols also sided with TikTok’s ar- guments that the app-store ban would cause it to lose users and advertisers, driving them to “alternative platforms and eroding TikTok’s competitive posi- tion— even if TikTok were to ultimate- ly win its case. WHAT IS TIKTOK? TikTok is a smartphone app for mak- ing and watching short videos that’s popular with teens and young adults, with typical posts centred around lip syncing, dancing or comedic pranks and sketches. TikTok says it has 100 million U.S. users and hundreds of millions glob- ally. It has its own influencer culture, enabling people to make a living by posting videos on the service, and hosts ads from major U.S. companies. It’s owned by Beijing-based tech company ByteDance. Like other social media services, the app collects a lot of personal data about its users. The Trump administration says it poses a threat because Americans’ user data could fall into the hands of the Chinese government because Chinese com- panies are subject to intrusive laws compelling their co-operation with intelligence agencies. TikTok has countered that Trump is targeting it for political reasons, tying his August executive order in part to a prank in which TikTok users mobilized to depress turnout at a Trump rally in Tulsa, Okla. WHAT’S NEXT? Trump has said TikTok could avoid a U.S. ban if it’s sold to an American company. TikTok is still scrambling to firm up a deal tentatively struck earlier in September in which it would partner with Oracle, a huge database-software company, and Walmart in an effort to win the blessing of both the Chinese and American governments. The company also last week sought China’s approval to export its artificial intel- ligence technology, after the Chinese government set new restrictions in a move to gain leverage. — The Associated Press Will Trump administration be able to ban TikTok? MATT O’BRIEN PHILADELPHIA — A federal judge in Philadelphia joined others Monday in ordering a halt to recent postal service cuts that critics say are causing mail delays and threatening the integrity of the presidential election. Six states and the District of Colum- bia presented “compelling evidence” from the U.S. Postal Service itself that shows “a pronounced increase in mail delays across the country” since July, the judge found. “In a pandemic, states are even more reliant on the mail, especially when it comes to administering elections,” U.S. District Judge Gerald A. McHugh Jr. wrote in granting a preliminary injunc- tion. The Postal Service, in response, called election mail the agency’s “No. 1 priority.” In an agreement reached Friday in a similar New York case, the agency agreed to handle it as First Class Mail whenever possible and to put more resources toward the effort. “We are 100 per cent committed throughout the Postal Service to ful- filling our vital role in the nation’s elec- toral process by securely and timely delivering all ballots pursuant to our long-established processes and pro- cedures,” spokesman David A. Parten- heimer said in an email. Lawyers for the agency insist that new Postmaster General Louis DeJoy never ordered a slowdown or overtime ban. However, they conceded in court last week that local managers may have interpreted the guidance from Wash- ington that way. Because of that lack of clarity, Mc- Hugh said, a national injunction that echoes three others issued this month was necessary. “This is a major victory and confirms — for every senior who has not received their timely shipment of prescription drugs and every voter who needs the reliable delivery of their mail-in ballots — that Postmaster General DeJoy was making false promises,” Pennsylvania Attorney General Josh Shapiro, a lead plaintiff, said in a statement Monday. While service began rebounding to- ward the end of summer, no Postal Ser- vice region was meeting the agency’s target of delivering more than 95 per cent of first-class mail within five days, according to data obtained this month by The Associated Press through a Freedom of Information Act request. Shapiro was joined in the Philadel- phia case by attorneys general in Cali- fornia, Delaware, Maine, Massachu- setts, North Carolina and the District of Columbia. Federal judges in Wash- ington state and New York had issued similar orders this month. — The Associated Press U.S. judge orders stop to postal service cuts, echoing others MARYCLAIRE DALE B_07_Sep-29-20_FP_01.indd B7 9/28/20 6:29 PM ;