When it was revealed by gaming license applications that Donald Trump paid $0 in taxes for at least four years in the 1970s and '90s, Trump said such low tax rates are normal in the real estate business. While it was notable that Trump was living a lavish lifestyle and that he is unwilling to follow the example of Hillary Clinton, Tim Kaine, Mike Pence, and past nominees by releasing his tax returns, the issue of preferential tax treatment in real estate is about more than just one candidate running for president this year.
Many real estate developers, like Trump, take advantage of unnecessary tax abatements. But it’s not just multi-millionaire developers who take advantage of tax giveaways on their properties; the middle class is one of the big beneficiaries of government welfare in the form of the mortgage tax deduction.
Homeowners with mortgages avoid paying $70 billion in taxes that they otherwise would have to pay each year; but, millennials are overwhelmingly excluded from these benefits. Millennials are purchasing homes at low rates. This is expected, because, being early in their careers, they haven't reached peak earnings capacity, and many haven't settled in a job or city for the long haul. They often rent, which means that they still have to pay for their lodging, but they don’t get to deduct their rent payments.
This kind of tax discrimination doesn’t provide an obvious benefit to the public interest. Is there a benefit to “helping” middle class and upper class people buy homes? Is that the government’s role? That “goal” only helps individuals, not the public, and arguably a specific industry—housing. But moreover, it doesn’t help individuals who can’t afford a home in the first place. Three-fourths of the benefits go to people earning six-figure incomes, who don’t need government welfare.
If anything, by artificially decreasing the cost of buying a home, the mortgage tax deduction helps inflate the price of property. The president of the National Realtor’s Association, which supports the tax break, claimed in 2010 that the tax deduction artificially increases the price of homes by 15 percent.
In fact, many aspects of tax policy towards real estate could be inflating housing prices and thus making it even harder for millennials to own a home. Another is the practice of developers like Howard Lorber, one of Trump’s economic advisors who, according to an Aug. 10 Politico article, left a New York property undeveloped for years on the assumption that if the city thought it was blighted they would redevelop the area—and thus boost his property value—at the taxpayer’s expense.
“I was thinking in my own awkward way, that the more the building was a blight, the more the governments would want this to be redeveloped; the more help they would give us when the time came. … And they did,” he said.
The campaign for president of a big-time property developer has shed new light on aspects of the tax code that have for too long gone unexamined. Trump’s refusal to release his taxes hampers the public discourse not just on his qualities as a presidential candidate but also on our understanding of tax policy and what could or should be reformed. No matter what happens in November, we ought to take a look at real estate tax policy and tax policy in general under the next president.