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Photo by Veni | CC BY 2.0

Donald Trump has stated that, on advice of his lawyer, he will not release his tax returns until his audit is concluded.1

By contrast, Hillary Clinton has released her federal 1040 returns, (but not her state or possible other returns). Language on her campaign website asserts that she and her running mate “continue to set the standard for financial transparency.”

The Clinton returns reveal much information, but they reflect a standard short of full financial transparency. More significantly, the tax reductions the Clintons receive when donating to their foundation and the lower rate of self-employment taxes they paid compared to those who make much less reflect some of what is wrong with the U.S. tax system.

For years 2010-2015, the table below shows the Clintons’ reported gross income, total federal taxes paid, charitable contributions, and the amount of the latter going to the Clinton Foundation.

What follows mainly focuses on the Clintons’ 2014 tax return.

Self-employment Income

Almost all of the Clintons’ gross income after deducting expenses ($28,020,811) was derived from self-employment: with the biggest amounts for making speeches (slightly more than $8.7 million made by Hillary and $8.4 million by Bill), consulting ($6.1 million made by Bill,) and writing ($4.6 million made by Hillary.)

All of their speaking income is paid by The Harry Walker Agency. However, under IRS rules, who paid the agency or to whom they spoke is not disclosed.

The tax return indicates that $2.125 million of Bill’s consulting income, before deducting expenses, was paid by Gems Education. A Wikipedia article describes Gems Education as “the largest operator of private kindergarten-to-grade-12 schools in the world, [that] as of 2015 has over 70 schools in over a dozen countries…”

In 2010, Bill Clinton “named GEMS Education a strategic partner of the Clinton Global Initiative.” According to the tax returns, in 2011, for the first time, GEMS Education paid Bill– $500,000 raising its payment each year thereafter.

Laureate Education paid Bill $4,292,475. It is described in the New York Times as “a network of for-profit schools.”

In 2010, Laureate hired Bill as its new honorary chancellor. As disclosed on the tax returns, it paid him over $17.5 million from 2010-2015. Bill’s visits to Laureate’s campuses were described to have “inspired” students.3 The nature of the advice Clinton provided is not part of the tax return.

Business Deductions

Both Clintons took deductions against their self-employment income. These deductions are supposed to be ordinary and necessary meaning they are common and appropriate. Their expenses deducted for airfare, transportation, and hotels came to several times what most people earn at their jobs.

In 2014, Bill claimed travel expenses of $375,793 for his speaking business, an amount considerably less than the $2,018,050 spent on travel for that business in 2013. By contrast, his total travel expenses for his consulting business for 2013 and 2014 together came to less than $600.

Hillary’s travel expenses for making speeches in 2014 came to $813,842. Another $288,504 was spent on travel for her writing business in 2014.

Under IRS rules, specific details such as where they went and stayed, and for how long, are not provided.

Self-employment tax

Self-employment income is subject to self-employment taxes: social security and medicare taxes paid by the self-employed. In 2014, social security taxes were paid on only the first $117,000 of net income at a rate of 12.4% resulting in a maximum tax of $14,508. The medicare portion which is 2.9% of all net income had no income limits.

If one adds the Clintons’ 2014 self-employment tax to their additional medicare tax under the Affordable Care Act, the total comes to $1,010,090 or 3.6% of their total net self-employment income.

The Clinton returns show the gross unfairness of the self-employment tax that leaves those with high incomes paying a rate that is much lower than those with significantly less income.

For example, a person making $30,000 of self-employment income after deducting expenses would pay a self-employment tax of $4,239 which is over 14% of their self-employment income, or more than 3 times the rate paid by the Clintons.

Clintons’ Unearned Income

From 2011-2014, the Clintons reported no dividend income from stock holdings, only interest income. In 2014, it came to only $25,171. All but $464 was paid by JP Morgan Chase Bank. How their money is invested with the bank is, as allowed by the IRS, not made clear– probably in the form of CDs or bonds.

By contrast, in 2007, the Clintons made over $1 million in interest income and over $90,000 in dividends. All of the latter is reported as coming from trusts.

In 2007, they also reported over $15 million on the sale of stock held by their trusts. Most sales were for less than $100,000 with only one for slightly more the $250,000. Most sales occurred on or before May 11 reflecting very good timing since this was shortly before the financial meltdown.

Their stock holdings were diverse. They consisted of holdings in major corporations including Bank of America, Wal-mart, Chevron, Exxon, General Electric, Honeywell, and Lehman Brothers prior to its bankruptcy.

At first glance, one might see the Clintons as acting upon information that the economy would soon crash, but they may have decided to rid themselves of holdings that might be used against Hillary in her run for the presidency in 2008.

Reporting no dividends from 2011-2014 probably indicates no re-entry into the stock market after the meltdown, or that they only purchased stocks that paid no dividends.

There is a huge difference between their total interest and dividend income in 2007 of $1,159,836 with their 2014 interest income of $25,171 and no dividend income. Despite the low interest rates, how could their dividend and interest income have plummeted so much?

Given the size of their total income all these years, one has to wonder if they have been spending it all or investing it in ways that do not show up on their tax returns.4

This raises other questions. Have they been making large gifts/political donations or paying large personal legal bills? Have they set up an entity that handles investments and pays taxes on the income generated instead of passing it through to them individually to report on their tax return?

Charitable Contributions

Those who usually receive the biggest reduction in their taxes per dollar donated are those with the highest income because they are in a higher tax bracket. Many charitable donors receive no tax reduction because they do not itemize their deductions. In 2014, the Clinton donation to their foundation of $3 million reduced their taxes $1,188,000 –39.6% of the money donated, not including a probable savings of state taxes. This level of savings can be viewed as a government subsidy/giveaway to the rich since it reduces the government’s revenue and allows the money donated to be used to support and finance the policies of their own foundation.

In 2014, all but $200 of their remaining charitable contributions, $22,500, went to two churches. From 2010-2015, 2014 was the only year specified contributions went to religious organizations.

Comparison to Romney 2010 Return

In 2010, the Romneys reported on their tax return gross income of $21,661,344. Despite a gross income that was $8 million more than the Clintons that year, their total federal tax came to less than 14% of their gross income, $3,009,766– over $1,000,000 less than the amount of federal taxes paid by the Clintons.

The main reason for the Romneys’ lower taxes was because most of their income came from investments which were taxed at a lower rate (a policy that began when Bill Clinton was president) while the bulk of the Clinton income was “earned” income which is taxed at a higher rate.

Like the Clintons, the Romneys saved on their taxes by making donations. $1.525 million went to their church and over $1.45 million of stock was donated to their own foundation. It in turn made donations to entities including Brigham Young University, The George W. Bush Library, and the Harvard Business School. 4

Why All of the Above Smells Foul

The rich are said to be different than most people. One difference is that three of the last four major party candidates for the presidency had their own foundation. This suggests that having a foundation could be a future requirement for being taken seriously as a candidate.

By releasing their returns, the Clintons have acted with more transparency than Trump.

Trump may be hiding something, but the Clinton returns raise many questions whose answers should be of concern to voters.

The Clinton’s gross income declined sharply in 2015 from over $28 million in 2014 to $10,745,378. Nevertheless, this “lower” income could arouse disgust given the levels of poverty in the world and unmet basic needs of millions.

The low level of taxes the rich pay under the IRS rules allow for the massing of fortunes which normally go untaxed during their lifetimes, except for whatever property taxes they pay on the real estate they own.

Footnotes

1.By signing his Form 1040 return, Trump indicated, as stated above one’s signature that

“Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete.”

If what he submitted is “true, correct and complete,” shouldn’t he be willing to share his returns with the public even if many lawyers think otherwise. See various views held by some lawyers on this issue at:

http://lawnewz.com/politics/legal-experts-side-with-trump-it-would-be-totally-stupid-to-release-his-taxes-during-audit/

2. The capital loss started in 2008 when the Clintons disposed of a holding they acquired in 2003 of Yucaipa Partnerships showing a loss of $726,761. For some details about it and their relationship to it, see this Wall Street Journal article at: http://www.wsj.com/articles/SB123716092427335513

The Clinton ties to Yucaipa weren’t all costly. According to the 2007 tax return, Yucaipa Global Holdings paid the Clintons over $2.75 million. (The relationship between Yucaipa Global Holdings and the disposed Yucaipa Parnerships is not clear to me.) There was no income from Yucaipa during subsequent years reported on a Schedule E where one reports partnership income as had been reported in 2007.

A Wikipedia article indicates that:

“Former U.S. President Bill Clinton, a close friend of founder Ron Burkle, was an advisor to Yucaipa. From 2003 to 2006, Bill and Hillary Clintons’ tax returns show total Yucaipa partnership income of $12.5 million.”

See https://en.wikipedia.org/wiki/Yucaipa_Companies

3. http://money.cnn.com/2016/08/23/news/clinton-laureate-university/

4. There are no indications on the tax returns that the Clintons invested in real estate. From 2007 through 2015, their property taxes remained around $100,000. The only exception is 2013 when it jumped to $128,098, but then went back down to $104,303 the following year.

5. http://www.forbes.com/sites/edwindurgy/2012/05/17/an-inside-look-at-the-millions-mitt-romney-has-given-away/#1b79c55b3e44

For more details, see http://www.motherjones.com/politics/2012/02/mitt-romney-charity-philanthropy-lds