By Dr. James M. Dahle, WCI Founder
I have always found the tax returns released by presidential candidates to be fascinating. It became even more interesting when President Trump refused to release his, setting off a multi-year political brawl that involved all three branches of government. It's hard to blame Trump for refusing to release them. I agree with the general principle that no one—including any presidential candidate—should have to release their returns, and the returns definitely make Trump look bad.
But in December 2022, the courts ruled that the House of Representatives House Ways and Means Committee could release Trump's taxes. And so it did.
It's really in the eye of the beholder whether it looks worse to be very wealthy and not pay much in tax or to have your reputation as a successful businessman skewered by having your true business losses revealed. And that's not even considering the possibility of potential indiscretions on the returns or inappropriate pressure on the IRS not to audit them properly.
Politics aside, white coat investors can learn plenty from the released tax returns of US presidents. Let's go over a few of them and see what we can ascertain.
Bill Clinton's 1996 Tax Return
Let's start with an older return, this one for President Clinton from 1996, well into his time as president. Here's the first page:
We see the $200,000 presidential salary (it doubled in 2001) and just over $1 million in total income. That puts the Clintons well into the top tax bracket of that year. But only 1/6 of their interest was tax-exempt. It seems like they would have benefitted from more municipal MMFs instead of savings accounts. Also, the amount of dividends compared to the amount of interest seems really low. Maybe they should have been investing a lot more aggressively. That $100,000 in capital gains was all from Boston Harbor Trading Company, and it doesn't seem very diversified. The business income was all from Hillary's book, it seems.
The most impressive thing on this tax return was the $545,000 in itemized deductions. I couldn't find a Schedule A to break that down, though. Interestingly, the Clintons' income went way up after he left office. Between 2000 and 2007, they earned over $109 million, half of which was from President Clinton's speeches. A president's $400,000 salary could be much less than what a high-earning physician can make, but you've got to love going on the speaking circuit afterward!
More information here:
My Favorite Physicians That Became Politicians: The History of Docs in Congress
George W. Bush's 2000 Tax Return
I thought this one would be a lot more interesting, given that, at one point, George W. Bush was wealthy enough to own the Texas Rangers baseball team. Only $900,000 in income? I thought this guy was rich.
It turns out that he only put $600,000 into the Rangers, and despite an awesome return ($14.9 million), he's apparently not that rich. Still, $500,000 in taxable interest (again, somebody needs to tell these folks about muni bonds) requires a lot of capital.
Sarah Palin's 2006 Tax Return
Being from Alaska, I couldn't resist peeking at Sarah Palin's tax return from the year she was elected governor and before she was the 2008 Republican nominee for vice president. It's quite a bit more humble than the last couple of presidential returns.
Her husband, Todd, made $21,000 fishing and $2,000 racing snowmobiles (a low-profit margin there given that he spent $266 on decals), and they donated almost $5,000 to charity, including a crib. This return looks an awful lot like that of many other Alaskans.
More information here:
Mitt Romney's 2010 Tax Return
Now let's get into something more interesting, like Mitt Romney's 2010 return. The former presidential candidate and current US senator from Utah is somebody who knows how to make money!
Who wouldn't like an AGI of $21 million? Millions in interest and millions in dividends. Once more, why doesn't anybody tell all these politicians about muni bonds? He gave $3 million to charity, though, so that'll help the tax bill (and the charity). Lots of interesting stuff in here that one can learn about the wealthy by looking at all of the trusts and investments. I never did figure out what that $12 million capital gain was; it wasn't on the Schedule D. Still, he only paid $3 million in taxes. That doesn't seem all that high on $21 million in AGI, but it'll look like a king's ransom when we get down to Trump's return.
Barack Obama's 2003 and 2015 Tax Returns
Now that we've seen an interesting return. Let's look at a really boring one: President Obama's 2003 return from when he was still an Illinois state senator.
Seriously, can you leave more lines blank on your tax return? And didn't you have a dime in the bank? I don't know if the Obamas had anything invested at that point, although they did have a nanny. Seriously, white coat investors: if your return looks like this, you are not winning this financial game. Luckily the Obamas got better at it as time went on. Here's the 2015 return.
At least they had a little savings 12 years later. I can't quite figure out how they ended up with a loss investing in Treasury notes, but I guess he never claimed to be a great investor. He clearly wasn't investing in the TSP. Still, it's got to be pretty cool to put 1600 Pennsylvania Avenue on your tax return.
More information here:
How Tax Brackets Work for 2023
Donald Trump's Tax Returns
Now, for the real fun. There are seven tax returns out there for President Trump, 2005 and then 2015-2020.
2005 Total Income: $49 million; Total Tax: $38 million ($31 million in AMT!)
For anyone who says Donald Trump doesn't pay taxes, well, check out that one! That must be one of the worst effective tax rates I've ever seen. It gets even more interesting when you dive in.
That's $9 million in interest (again, only $46,000 in tax-free interest), $42 million in business income, $32 million in capital gains, and $67 million in real estate income. But the real head-scratcher here is the $103 million loss. Too bad we don't get to see Statement 1. That's why the effective tax rate is so high, though. It's because that loss comes out of total income, but clearly, it wasn't all useable in 2005. Presumably, he's been carrying it (and/or other losses like it) for years. Lesson to learn? Make lemonade out of lemons by using your losses to offset your income where it is allowed to do so. And know how the Alternative Minimum Tax (AMT) works. It was apparently designed specifically for people like Donald Trump.
2015 Total Income: $31 million; Total Tax: $0
What? How does such a rich guy pay $0 in taxes? Well, it's all about those losses, I suppose.
The businesses lost money. The real estate lost money. He's carrying forward $77 million in losses, and yet he's still got $35 million in capital gains and he still donated $21 million to charity. This return is a lesson in the power of being a real estate professional. Using real estate losses against ordinary income can really reduce your tax bill.
As for his returns from 2016-2020: These returns are more of the same: losses being carried forward year to year and canceling out income. Some years, the businesses made money; in some years, they didn't. The real estate usually lost money. Usually, something was given to charity ($1.1 million in 2016, $1.8 million in 2017, $500,000 in 2018 and 2019, and $0 in 2020), but it wasn't exactly an impressive amount given his reported net worth. You can learn a lot about what someone values from their tax return. Interestingly, despite the fact that he paid $0 in income tax in 2020, he still had to pay his payroll (self-employment) taxes to the tune of $272,000.
Even not counting the real estate losses (presumably driven by depreciation deductions), the returns are pretty revealing about the success of Trump's businesses. Just look at the business income:
- 2005: $42 million
- 2015: -$599,000
- 2016: $8.8 million
- 2017: $1.4 million
- 2018: -$430,000
- 2019: -$225,000
- 2020: -$30,000
Not only does Trump not appear to be a very successful businessman in recent years, but his businesses are in serious danger of being reclassified by the IRS as a hobby if recent returns keep up! It's a good thing he makes a high seven figures in interest every year. At any rate, if you're interested in learning how to reduce your tax bill, these tax returns are a pretty good textbook.
Joe Biden's 2020 Tax Return
No better place to end our review than with President Biden's 2020 return.
Many of you are making more than the Bidens did in 2020. I also find it illuminating that we have a president who is old enough to be receiving a pension and Social Security while in office. Incidentally, the Bidens spent about 1/6 of their income on household employees and gave about $30,000 to charity. Apparently, older tax returns are more interesting.
You've learned here at WCI about S Corps. Well, the Bidens used to have much higher income: $11 million in 2017, mostly from an S Corp that would seem to sell Joe Biden mugs and T-shirts. However, that income is probably mostly from speaking gigs and book sales, which raises the question of why it paid the President so little in wages. I mean, $720,000 in wages on $10 million in income is probably a little lower ratio than most tax preparers would recommend for your S Corp.
There is a lot to be learned from looking at tax returns—for a presidential candidate or anybody, really. Not only can you learn a lot about a person and what they value, but you can often learn a few techniques that you can use yourself.
What do you think? What tax reduction techniques have you learned from reviewing presidential candidate tax returns? Do you think tax returns from presidential candidates should be released? Comment below!
I think there’s a typo, trump makes high 7 figures in interest a year, not 8 right?
Yes, that’s correct.
It would interesting to see Trump’s net worth if he had just invested his inheritance from his father into VTSAX and did nothing else compared to his current NW.
He’d probably owe more in taxes though.
Especially if you apply equivalent leverage.
I think that someone that voluntarily chooses to run for president should release their tax returns. Speaking as a voter, I think they owe us that transparency.
What about senators? Governors? Mayors? State reps? School board? School community council? At what point do you stop insisting that other people reveal their private data? And is it worth it if it keeps good people from running that aren’t willing to do that?
Is there a chance that a good person wouldn’t choose to run for president since they had to provide their taxes? I suppose that possibility exists, but given how much scrutiny someone at the presidential level faces anyway, I’m not sure how much that would be a factor.
Maybe not at the president level, but at the state senator level? Sure.
Yes, quite possibly (maybe even probably?) at a state rep level, but I was addressing the topic of this post, which was presidential tax returns. It’s a pretty unique position.
PS Given that I agree with 99% of what gets written on your site, it feels really weird to be discussing the 1% where we likely don’t agree!
I’m all for transparency for our elected officials at all levels of government. I’m not at all concerned about supposed good people avoiding elected office. I want to know if my state senator or U.S. senator has an ownership stake in a company that receives government contracts. I want to know if tax reforms and loopholes they voted for benefit them personally.
There’s more to it than that. Your tax return(s) gives away business secrets. Is that really fair for a business to have to reveal those to its competitors? For example, Trump’s tax returns released by the House include a personal return and also a whole bunch of business returns.
If you take off the cynic hat for a bit and ask yourself what would motivate somebody making millions to run for public office, it’s possible they want to do it out of a desire to serve, not just to enrich themselves. Yet should they really have to hurt their businesses (including partners, employees, and clients) in order to serve?
This is a deeper question than I think most people appreciate at first glance. The government already has required disclosures about investments etc. Tax return release was above and beyond anything required by law. Sure, it’s easy for somebody like Obama with a drop dead simple tax return and few conflicts of interest to release them. But for a Romney or a Trump? Lots more downside to a release.
If you choose to run for elected office, your constituents deserve to know where your loyalties lie. Is it with your business or the people you represent? Some of our best presidents had no business experience (Reagan and Eisenhower) and some our worse presidents had business experience (Hoover and Harding). There are thousands people of modest means who would make great presidents (Lincoln) or representatives. If you cannot be transparent, you shouldn’t run for office. Will transparency discourage bad actors? Yes. Will it discourage good people? Yes. If I had to choose between a representative who is good, bad or honest, I would not hesitate to choose the latter.
I don’t know the right answer. I do know the reflex answers (full transparency!) has unintended consequences. As does the way campaigns are funded and many other factors. I was asked by my state rep to take over for him at the next election. Fat chance of that, especially if it required publication of my tax returns. I’m unelectable anyway given everything I’ve written on this blog over the years so it doesn’t really matter.
Another factor is that we don’t pay very much to our elected officials. I mean, you can make more working 15 days a month as an emergency doc than as the president of the United States. US Senators get paid $174K. My state rep gets paid $285 per day plus per diem, 5 days a week, for the 2 months or so the legislature is in session. So unless you’re already financially independent and/or are highly motivated to serve publicly despite the low pay, you’re not going to run. That sort of thing seems fine at first glance, but there are unintended consequences. In a lot of ways, we get the leaders we deserve. Pay them better, treat them better and maybe you’ll get better people.
Thanks for your candid appraisal and this great article. Very enlightening!
No. Why should they? What are you looking for? Just like Trump, if they are wealthy, they probably lose income. But, is it is interesting, as some like the Obamas leaving later get wealthy. I’m not implying that that’s bad.
I don’t know whether everyone should be required to release them, but when you say 20+ times you will, I 100% think you should be required. Glad they got released for that reason
How is such a massive loss generated, still puzzled at that.
Is it real loss or some tax maneuver?
On the real estate it’s probably just depreciation. But Trump has had some businesses go bad in the past. Bankruptcies etc.
Mitt Romney’s gain is reported on Schedule D. Most of it is from his K-1’s (16 million).
I notice in line 8a (Taxable interest) that the number is quite high for some. My understanding based on my own taxes is that this number comes from 1099-INT forms which I thought was just interest on savings accounts. Are there other more lucrative forms of “taxable interest” that I’m not aware of that go into that line as well?
Yes, like real estate notes often pay interest or taxable dividends.Those could show up on that line. Some of mine do.
thank you, that’s good to know!
NYtimes did a interesting piece on Trump’s dad who systematically ran a tax cheating scheme for many years with his RE assets. Statue of limitations ran out and his kids inherited his assets without any clawback or penalties from the IRS.
As far as the enormous carryforward losses for Donald Trump, i think it was mostly related to his failed casinos in NJ back in the 90s. I was always confused on how he was able to claim the phantom losses with borrowed money from banks or equity raised from investors.