No, Trump’s losses doesn’t allow tax avoidance
The New York Times is reporting that Tump lost nearly a billion dollars in 1995, and this would enable tax avoidance for 18 years. No, it doesn't allow "avoidance". This is not how taxes work.Let's do a little story problem:
- You invest in a broad basket of stocks for $100,000
- You later sell them for $110,000
- Capital gains rate on this is 20%
- How much taxes do you owe?
Obviously, since you gained $10,000 net, and tax rate is 20%, you then owe $2,000 in taxes.
But this is only because losses offset gains. All the stocks in your basket didn't go up 10%. Some went up more, some actually lost money. It's not unusual that the losing stocks might go down $50,000, while the gainers go up $60,000, thus giving you the 10% net return, if you are investing in high-risk/high-reward stocks.
What if instead we change the tax code to only count the winners, ignoring the losing stocks. Now, instead of owing taxes on $10,000, you owe taxes on $60,000. At 20% tax rate, this comes out to $12,000 in taxes -- which is actually more than you earned on your investments.
Taxing only investments that Continue reading
