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Trump Used A "Legally Dubious" Tax Maneuver

by Seth Millstein

Donald Trump still hasn't released his tax returns, but we learned a tad bit more about his tax history on Monday, when The New York Times reported that Trump used a "legally dubious" maneuver to avoid tax payments in the 1990s. The specific loophole that he used was closed in 2004 through an act of Congress — an act for which Hillary Clinton voted when she was a senator from New York.

The irony here is that Trump previously accused Clinton of failing to do this. At the first presidential debate, when Clinton accused Trump of circumventing income tax payments for almost two decades, Trump responded that if Clinton didn't like it, she should have changed the laws that allowed him to do this when she was still a U.S. Senator. As it turns out, that's exactly what she did.

"If you want to change the laws, you've been there a long time, change the laws," Trump said. "But I take advantage of the laws of the nation because I'm running a company."

The tax maneuver Trump used was a variation of what's known as a "stock-for-debt swap," in which companies that are unable to pay back debts to creditors give those creditors shares in the company's stock instead. Until the loophole in question was closed, doing this allowed such companies to avoid reporting their debts as taxable income and, as such, avoid paying taxes on it — even if the stock they gave creditors was worth far less than the debt they owed.

According to the Times, Trump used a similar process to avoid paying taxes on debts that he and his co-partners assumed during Trump's failed foray into the casino business in the 1990s.

Trump hasn't denied using loopholes to avoid paying taxes. In fact, he's bragged about it, quipping at the first debate that it "makes me smart." Trump has also claimed that he "knows the tax code far better than anyone," although his former tax attorney told NBC that Trump "didn't know the code" during their working relationship. The Times asked Trump if he'd like to comment on the piece, and he declined.

Regardless, there are two notable things about this story. One is that, as has been previously reported, Trump may well have avoided paying taxes for many years through creative use of loopholes (it's impossible to say for certain, as he hasn't made his tax returns available). Second, Trump accused Clinton of failing to close the tax loopholes he's used when, in fact, she literally closed the exact tax loophole he used. Either he was lying, or his knowledge of the tax code isn't as great as he'd like us to think.