At the first presidential debate, Hillary Clinton said that one reason Donald Trump might not be releasing his tax returns is because they could show that he hasn't given as much money to charity as he's claimed. Another reason, she said, is because such returns might show that Trump has paid little or nothing in federal taxes.
Portions of Trump's 1995 tax returns, released last weekend by the New York Times, lend credence to the second claim, suggesting that he could have avoided paying taxes for as long as 18 years years due to a loss of nearly $1 billion reported for 1995. While those documents didn't include information about Trump's charitable giving, they do offer important hints about how motivated he might have been to engage in such giving for tax reasons.
First, some background.
According to the Internal Revenue Code, charitable contributions are generally limited to 50 percent of the taxpayer’s adjusted gross income. Adjusted gross income (AGI) is essentially your gross income less a few allowable deductions. The 50 percent limitation means that if your AGI is $50,000, then you cannot deduct more than $25,000 of charitable contributions. If you have no income, you can't claim a deduction for your giving.
There is no doubt that the charitable contribution deduction is a big motivator for many donors. Evidence of this can be seen in the fact that most gifts are made in the last quarter of the year, especially during the month of December when people are planning their tax position and seeking to reduce their upcoming tax liability. In addition, research has shown that if the tax break for charitable giving were reduced, such giving would decline as a result.
So what do you do if you're a public figure who sees strong reasons to make charitable gifts as part of a public relations effort, yet you have no tax incentive due to a low-to-zero AGI after writing off high business losses or other expenses?
You might do two things. First, during those years in which you do have a high AGI, you might make contributions to your foundation, stockpiling funds that can be used to fuel giving in future years when your AGI is low. And as we know, the Donald J. Trump Foundation was originally fueled by his own money, albeit at a modest level for a billionaire.
The second thing you might do if you don't qualify for any charitable deductions is to get other people to fund your foundation. That way, your foundation can keep making grants—and enjoying good PR—without you shelling out a non-deductible dime.
As the Washington Post has reported, Trump hasn't given any money to the Donald J. Trump foundation since 2008. Instead, the foundation's giving has been powered by contributions by other donors—while its namesake has taken credit for being a generous philanthropist.
This isn't as unusual as it might sound. The Clinton Foundation, after all, has also mainly been fueled by gifts from other donors, and other public figures and celebrities have used their brands to fund foundations in their name that were then regranted to nonprofits.
But here's the puzzling question raised by the release of Trump's 1995 tax returns showing a huge loss. The years that immediately followed—when Trump's AGI may have been zero—are years that he was still contributing his own money to the Donald J. Trump Foundation. In other words, it might appear that Trump made charitable gifts over many years when he may well have had no tax incentive to do so. If that's true, it suggests Trump might be more generously minded than many critics have suggested.
On the other hand, given my broader points here, the fact that Trump hasn't given any of his own money to his foundation since 2008 would seem to heighten suspicions that he's had zero AGI over recent years.