Page Created:
        September 26, 2016
Last updated:
        September 26, 2016

Do Tax Returns Matter In Presidential Elections?

by Jay Starkman, CPA

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Jay Starkman discusses the history of tax liability disclosure by presidents and other politicians, shedding light on the recent controversy over the release of tax information by Republiocan presidential nominee Donald Trump.

Copyright 2016 Jay Starkman.
All rights reserved.

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“How has he gotten away with not turning over his tax returns?” questioned Justice Ruth Bader Ginsberg in a recent controversial interview. Donald Trump need not worry about releasing his tax returns. History tells us that it probably won’t make much difference one way or the other.

In this election cycle, Ted Cruz and Marco Rubio released just two pages of their returns. We have 38 years of complete Hillary Clinton returns and 34 years for Jeb Bush. The tax returns of presidential candidates may be interesting to some, but they really don’t affect the outcome of elections. Here’s what we know (and didn’t know, but wouldn’t have mattered) that did not affect presidential election outcomes.

Prior to 1933, presidents were exempt from income tax. Honest Abraham Lincoln paid the Civil War income tax, and his heirs applied for refunds which the Bureau of Internal Revenue granted. Calvin Coolidge appears to have voluntarily paid income tax. Herbert Hoover contributed 20 percent of his presidential salary back to the Treasury, but he still lost re-election.

Franklin Roosevelt

Franklin Roosevelt didn’t like being the first president subject to the income tax. He raised tax rates in 1934. Then, amazingly, he decided he should be exempt from the new higher rates – 39 percent in his $70,000 income bracket, up from 33 percent – and IRS agreed. He amended his 1934 income tax return claiming a $915.01 refund because the Constitution prohibited his compensation from being diminished during the term for which he was elected. He also prepared his 1935 and 1936 returns using 1932 tax rates.

Despite being crippled by polio, every year while governor or president he deducted losses from two “farms.” One was his estate in Hyde Park, NY just a mile down the street from the Vanderbilt Mansion, the other from his “cotton plantation” in Warm Springs, GA where he went for polio rehabilitation. Eleanor Roosevelt failed to report over $100,000 she received from her radio broadcasts.

Congressional leaders and the press shielded Roosevelt from disclosure of these improprieties, which were well known around Washington but not to the general public. A pro-Roosevelt press wouldn’t report revelations by Rep. Hamilton Fish (R-NY) whose accusations were based on leaks from the New York State Department of Revenue. The details are preserved in the Congressional Record and confirmed by Franklin Roosevelt’s income tax returns, which today are a public record.

Harry Truman

Harry Truman wrote about the fabulous salaries he was offered after leaving the White House in 1953:

    I turned down all of those offers. I knew that they were not interested in hiring Harry Truman, the person, but what they wanted to hire was the former President of the United States. I could never lend myself to any transaction, however respectable, that would commercialize on the prestige and the dignity of the office of the presidency.

He turned speaking honorariums over to the Truman Library. Many biographers say this was a major sacrifice because Truman subsisted on his meager army pension. This was an exaggeration, but unverifiable until recently when the Truman Library finally released his tax returns showing very significant income for all years. The then undisputed claim of near-poverty was sufficient to gain Congressional support for paying a federal pension to former presidents, beginning with Truman and Hoover in 1958.

Lyndon Johnson

When Lyndon Johnson became president in 1963, his family assets were estimated at $20 million, including a radio and television station, land, a cattle empire, and a large portfolio of stocks and bonds. How did the son of an impoverished father, whose income during most of his adult life came from a government salary, become one of the richest men ever to occupy the Oval Office?

First elected to the House in 1937, he won the 1948 Texas Senate Democratic primary election by just 87 votes, out of almost a million cast, curiously traced to 203 suspicious votes in the Duval County Precinct 13 ballot box, earning him the derisive nickname, “Landslide Lyndon.”

Johnson had unsuccessfully run for Senate in 1941. When the revenue service audited Brown & Root’s 1941 income tax return, it discovered a major tax fraud and circumvention of the Corrupt Practices Act by the Johnson campaign which the company had bankrolled. For his invaluable assistance in securing an unprecedented third term, President Franklin Roosevelt ordered the investigation immediately haulted. Treasury’s chief criminal investigator, Elmer Irey (who helped convicted Al Capone and Lindberg baby kidnapper, Bruno Hauptmann), was ordered to tell his six agents who had been working this case for 18 months, convinced they had a sure fraud case, to quickly wrap up the investigation. Historian Paul Johnson commented that Roosevelt “used his executive authority, nlawfully and unconstitutionally to save Johnson from going to jail for criminal tax fraud.”

In 1941, Johnson gave John Russell Kingsbery, son of an Austin Republican a coveted appointment to the U.S. Naval Academy at Annapolis. It would keep young Kingsbery out of an anticipated war. In return, Johnson applied to purchase from E.G. Kingsbery, the father, radio station KTBC. FCC approved the sale the following year and Johnson paid Kingsbery a mere $17,500 for the station, registering Lady Bird as the new licensee. That mattered little in a community property state like Texas, and it was Lyndon Johnson who manipulated the FCC and goaded CBS executives into granting affiliation.

“It was no accident that Austin, Texas, was for years the only city of its size with only one television station. Johnson had friends in high places,” wrote his protégé, Bobby Baker. Those “friends” were at the Federal Communications Commission. Upon his election to the Senate in 1948, Johnson became a member of the Commerce Committee, which oversees the FCC. Indeed, Austin didn’t get a second TV station until 1965, when a UHF license was granted to KHFI-TV, whose president was John Russell Kingsbery.

In the fall of 1963, Bobby Baker was charged with improper financial dealings and influence peddling for which he served prison time. During the investigation, there was testimony that Johnson shook down companies to advertise on his station. Without making new revelations, Baker wrote in his 1978 autobiography that telling the whole truth would have been devastating to Johnson. Johnson would have been implicated had he not become president and pressured the Senate to drop its investigation. So, there may be more to this story that we’ll never know. Tammany Hall called this “honest graft.”

Johnson’s colleague, House Speaker Sam Rayburn (D-TX) once said, “I have been unable to save much money in my life. I have been in politics, and in politics an honest man does not get rich.” Rayburn served over 48 years in the House, one of the longest tenures in history. At his death in 1961, his savings totaled $15,000.

Though Johnson’s returns have never been publicized. his 1940s tax returns would have revealed an embarrassing windfall from KTBC. Despite this, the public knew or suspected he was crooked. Doyle Dane Bernbach’s famous 1964 “Daisy” ad showing images of nuclear explosions and mushroom clouds, implying that electing Barry Goldwater would provoke a nuclear war, helped Johnson win 44 states in his election landslide. So effective was the ad that when my high school physics teacher told the class he had voted for Goldwater and thought he would have made a great president, we were all aghast that anyone would admit to having voted for him.

Richard Nixon

Prior to 1969, Presidential papers came to be donated to the National Archives via a tax deduction. Truman, Eisenhower, Kennedy, Johnson and Nixon all contributed presidential and pre-presidential papers to the National Archives to gain an extraordinarily large charitable contribution tax deduction.

Nixon delivered papers from his vice-presidential years to the National Archives on March 27, 1969 for “courtesy storage.” This meant they still belonged to the donor until a formal legal transfer was signed. Courtesy storage is not considered a completed gift to the National Archives. The 1,176 boxes were appraised at $576,000.

A major tax law was passed on December 30, 1969 under Richard Nixon’s signature. It included a provision making donation of personal papers after July 25, 1969 ineligible for a charitable deduction.

Nixon’s tax attorney, Frank DeMarco, missed the deadline for a proper tax deduction. To hide this failure, DeMarco and White House attorney Edward Morgan prepared a deed on April 10, 1970 transferring legal title to the National Archives, backdated to March 27, 1969. DeMarco falsely notarized it as of April 21, 1969. The tax deduction was lost forever because April 10, 1970 was the actual date for the completed gift of Nixon’s pre-presidential papers.

The tax-motivated gift of the papers was mentioned in a deposition of a White House official, taken in the civil suit brought by the Democratic National Committee against the Republican Committee to Re-Elect the President, which arose out of the 1972 Watergate break-in. If not for Watergate, this tax deduction story would never have come to light. I doubt Nixon knew of the subterfuge involving the presidential papers deduction at the time it happened. Edward Nixon confirmed to me that his brother didn’t pay close attention to his personal finances.

In 1974, both the IRS and the Joint Committee on Taxation examined President Nixon’s income tax returns for 1969 through 1972. The IRS found an underpayment of $432,787 and the JCT found an underpayment of $444,022. Including interest and a five percent negligence penalty, Nixon owed $305,376 for the open years of 1970 through 1972. An underpayment of $171,055 for 1969 was beyond the statute of limitations, but Nixon pledged to pay that additional assessment too. It has never been ascertained whether he actually honored his pledge.

Ronald Reagan

In an attempt to embarrass Ronald Reagan during his 1976 primary challenge, Gerald Ford released summary details of his own 1966-1975 returns. Reagan refused to do the same. California had a big budget deficit in 1970, when Governor Reagan made large cuts in state spending and blamed falling revenues on tax avoiders. Shortly before the 1976 Michigan primary, it was revealed that although his 1970 income was $73,000, Reagan paid no state income tax and just “several hundred dollars” in federal income taxes. Reagan claimed that “business reverses” were the cause, but it was later revealed that two tax avoidance shelters made his taxes negligible. Ford won the nomination with 1,187 votes, against Reagan’s 1,070, making it the closest convention of the twentieth century.

Did tax return publicity make the difference? Shortly before he died, Michael Deaver, longtime Reagan adviser and White House deputy chief of staff, wrote me:

    I really don’t recall RR’s 1970 tax issue being a major factor. The campaign was really about Foreign Policy and Spending. It was also about whether the Republican Establishment could hold onto control of the GOP. Whatever the issues appeared to be, it was really about who was going to control the Party machinery in the States and at the National level. Reagan was about change and Ford was about status quo. Well, the establishment won.....for the last time. And they won, delegate by delegate, by what the White House and the RNC could deliver, that RR couldn’t. Ambassadorships, invitations to the White House, State Dinners, appointments, etc.

    In 1980, RR became the establishment. His refusal to release his tax forms was really based on his long-time belief in privacy. Whether you agree with that position or not, it was a long-held belief of his. It was clear that his 1970 tax returns had been “leaked” by someone at the IRS or the State Franchise Tax board, a clear invasion of his privacy.

What Do Tax Returns Reveal?

Jimmy Carter’s 1976 taxes were sheltered by investment tax credits from his peanut farm, which reduced an $11,675 tax to zero. Embarrassed, Carter made a $6,000 donation to the federal government “[b]ecause of my strong feeling that a person should pay some tax on his income...approximately 15 percent of our net taxable income.”

For all the criticism over Mitt Romney’s returns, they were completely legitimate. Romney’s low 14 percent tax rate resulted from “carried interest.” That’s a partnership interest received in exchange for services on which IRS inexplicably permits capital gain rather than ordinary income treatment. IRS has never challenged this in court and has never explained why not. Many experts believe that without requiring new legislation, IRS could easily change this treatment.

In 2010, Ann Romney made two carried interest elections in her blind trust, so that any future gain would be taxed as capital gain. The ordinary income required to be currently recognized was listed as zero on the dubious theory that it is incapable of being valued. This begs the question of what future services she was providing which are required to retain the property, the so-called carried interest.

Romney’s disclosures also beg the question of how his IRA came to be worth $100 million? His advisers missed IRA conversion planning. I calculate he could have converted $3.1 million in 2010 and $9.2 million in 2011 to a Roth IRA at just a 28 percent tax. A Roth IRA is not subject to mandatory withdrawal during his lifetime, accumulates tax-free, and it would have raised his publicized tax rate to 20 percent, from a criticized 14 percent.

Tax returns for Barack Obama, Hillary and Bill Clinton, Laura Bush, and Jimmy Carter share one thing in common. They paid tens of thousands of dollars of self-employment tax on their first book, perhaps unnecessarily. The IRS’ longstanding position is that “if an individual writes only one book as a sideline and never revises it, he would not be considered to be ‘regularly engaged’ in an occupation or profession and his royalties therefrom would not be considered net earnings from self-employment.”

President Obama consistently fails to claim a state income tax deduction against Obamacare net investment income tax. He over-tithes on charitable giving, while Vice President Joe Biden is a charity tightwad, giving between 1/2 of 1 percent to 2 percent annually.

Ted Cruz and Marco Rubio coyly released just two pages of their returns. Full returns might have revealed one insufficiently charitable and the other overloaded with debt. Bernie Sanders’ return was simple enough that he prepared his own tax return -- the only one to do so. With no savings and high mortgage interest and property tax, Bernie would be bankrupt without his congressional salary.

Some “ull tax returns” are just partial disclosures, much hidden with other people or in trusts, partnerships or corporations. There other entities file their own tax returns, and may not even appear on the individual return. The Romney’s reported interest, dividend, capital gain and royalty income from four different trusts, only two of which they disclosed. John and Cindy McCain filed separate returns. He released his full returns when he ran in 2008, but Cindy released just two pages and her income at $4.2 million was more than ten times his. John Kerry released his full returns when he ran in 2004. His wife, Teresa Heinz, wouldn’t until finally under pressure, she released just two pages showing 2003 income of $5 million on her separate return showing a tax rate of just 12.5 percent.

Hillary Clinton

The Arkansas governor appears to be the most underpaid position in America. Bill Clinton’s salary was just $35,000 in 1991. Hillary was paid $110,000 at The Rose Law Firm, rather low for a partner in a prestigious firm, especially someone listed among the 100 most influential lawyers in America. She earned an additional $65,000 from director fees. And they earned $5,500 apiece in honoraria. It would appear that Bill Clinton was able to afford serving as governor because of his wife’s earnings. Or, perhaps his wife’s earnings were the result of his being governor.

They have always exceeded tithing (including long ago, bags of used clothes, valuing Bill’s underpants at $1 each and $3 per undershirt). Today, tithing goes mostly to the Clinton Foundation, unrelated to the Global . No one cared that Arkansas Governor Bill Clinton failed to report some income, including a $51,000 “mansion fund” and a $19,000 “public relations fund,” at least that portion not spent on official business.

In 1994, the Clintons paid nearly $15,000 to cover back taxes on an unreported second 1980 commodities account, unrelated to Hillary’s widely-criticized $100,000 commodities trading windfall. Though the statute of limitations had expired, they paid even though they were not legally required.

There is peculiar inconsistent treatment for foreign withholding tax on Bill’s lecture income. He claimed $618,750 foreign tax credits in 2005-2007, then amended his 2007 return repaying IRS $138,750 for an FTC refund. His 2011-2012 returns show foreign withholding refunds on Bill’s Schedule C for $410,072 and $114,652, along with “interest from tax refunds” of $48,705 and $6,392. Other than 2007, there are no details on what years those refunds relate to.

The available evidence suggests that the original 2011-2012 returns properly reflect delayed 2008-2010 foreign tax refunds and the 2007 amended return properly reflects that year’s refund. Did they improperly claim $480,000 of 2005-2006 tax credits? One cannot take a FTC for foreign tax withheld when the amount would be refunded if a claim were made, whether or not applied for. $480,000 would be more than Nixon owed and pledged to pay, despite that the statute of limitations had partially expired.

The Clintons earned over $200 million since Bill left office. Their 2013-2014 returns show around $25,000 annual interest as their only investment income, and in 2015, an additional $84,000 dividend income from Vanguard 500 Index Fund. This is consistent with under $20 million of investment assets. If true, where did all their income disappear to?

Hillary Clinton grossed $10 million from lectures, plus another $6 million from books in 2014. Bill grossed $10 million, plus another $6 million from consulting. Truman’s impropriety-avoidance adminishment has been completely spurned. Jeb Bush grossed $7 million from lectures and consulting.

Most troubling is that questionable contributors turned the Bill, Hillary & Chelsea Clinton Foundation into an ethically-challenged empire. Smaller “Set-up Your Own Charity” schemes caused House Majority Leader Tom DeLay’s resignation and criminal indictment on account of corporate contributors to his “ DeLay Foundation for Kids” while Newt Gingrich’s “Progress and Freedom Foundation” survived IRS scrutiny, but resulted in a $300,000 fine from the House Ethics Committee.

The Foundation tax returns show an organization with unconsolidated international affiliates, providing employment for Clinton apparatchiks awaiting her return to power. It spends under $10 million annually on non-salary, non-overhead charitable work, while raising hundreds of millions of dollars that ebb and flow with Hillary’s political prospects. It has far-flung operations in Australia, Colombia, El Salvador, Haiti, India, Kenya, Malawi, Peru, Rwanda, Tanzania, Ukraine, and Vietnam and suspicious arrangements like the Clinton-Giustra Enterprise Partnership. While the Clinton Foundation has pledged not to accept foreign donation should Hillary be elected president, there is no such pledge from Clinton-Giustra, a Canadian foundation which publicize neither its tax returns nor donors.

Smaller and perhaps not much better, Jeb Bush’s Foundation for Excellence in Education raises $11 million annually, but spends under $1 million on non-salary, non-overhead charitable work.

Disclosure pressure on Hillary goes beyond tax returns. She will not release transcripts of one-hour speeches to groups like Goldman Sachs, for which she received $250,000 and up. Like her husband when he ran, she will not release her medical records. Considering Woodrow Wilson’s debiliting stroke and that Franklin Roosevelt died in office, this should be of greater concern than tax returns. She has suffered fainting spells and blood clots and takes blood thinner medication.

Donald Trump

Releasing his returns while under audit, which he is being urged to do, is a no-win for Donald Trump. He risks some armchair accountant directing IRS where to look for further mistakes and misreporting. Given the 515 entities he is involved with, 110 registered or pending trademarks, and high income, the ongoing audits are not unusual. That he negotiates satisfactory settlements with IRS is evident from the absence of Tax Court litigation. His tax adviser is former IRS Chief Counsel, William F. Nelson, who has advised against releasing his returns while under audit.

Wealth would be hard to measure from his returns. Real estate is a cash-flow business, not an income-dependent business, so low taxable income would not reveal very much about the value of his assets. Taxable income is sheltered by depreciation and like-kind exchanges while his properties appreciate in value. It’s the best legal way to earn big income and pay little tax.

One of the hottest accounting issues today is valuing trademarks and data. When these assets are self-generated, they are not reflected on a tax return. What is the value of the Trump brand and all those registered trademarks?

His tax attorneys have said, “Because you operate these businesses almost exclusively through sole proprietorships and/or closely held partnerships, your personal federal income tax returns are inordinately large and complex for an individual.” Donald Trump Jr. told the Pittsburgh Tribune-Review that his father's tax return is 12,000 pages. That easily dwarfs Mitt Romney’s mere 200 annual pages.

Critics will find much to pounce on upon release of his returns. They may question whether Trump is sufficiently charitable. Even now, they speculate how much charity consists of overstated “conservation easements,” and suggest he may use “captive insurance company” tax shelters that are common in real estate operations.

In March 2016, The Wall Street Journal published a list of properties that Trump claimed noncash charitable deductions for “conservation easements” totalling tens of millions of dollars. Such contributions increase cash flow by reducing taxes for promising not to develop the property. Conservation easement valuation is one of the major issues clogging the Tax Court, yet Congress last year expanded and enhanced this much abused deduction.

The Donald J. Trump Foundation shows almost no expenses. There are some $500,000 annual contributions from Richard Ebers Inside Sport and Entertainment, and occasional $100,000 contributions from The Clancy Law Firm and others. The reason others contribute so generously to the Trump Foundation deserves inquiry. The Washington Post tried, calling to inquire of every contributor since inception. It published an article on September 10, 2016 reporting that no one would talk to the pool of 20 reporters that the Post assigned to get dirt on Trump. This is the same Foundation that Mr. Trump used for collecting $5.6 million in contributions (including $1 million from himself) for military veterans when he skipped a January 2016 Republican presidential candidate debate. On further digging, the Post alleged that the Trump Foundation “spent more than a quarter-million dollars” suggesting a pattern that “may have violated laws against ‘self-dealing.’”


There is no substitute for disclosure to dispel notions of crookedness, hypocrisy, and to gain insight into the individual. Yet, disclosure may be unnecessary to detect and expose dishonesty. There are no allegations that Mitt Romney or Donald Trump achieved their wealth through corruption, though their returns are sufficiently complex for critics to find fault. Hillary Clinton and Jeb Bush didn’t consider anything on their tax returns would taint them or worry that the public would care, despite questionable quid pro quo speaking fees and foundation donations.

If the electorate didn’t get excited about Reagan’s tax shelters, Carter’s tax credits, Jeb and Hillary’s questionable earnings, and other tax return issues, then publicity over taxes must not be very important to voters. Otherwise, voters would demand returns from everyone running for Congress too.

In 2004, Arnold Schwarzenegger refused to publicize his tax returns when he successfully ran for governor of California. “There’s a balance here between what is a prurient interest versus why this data is thought to be important to disclose,” announced his spokesman.

Indeed, like Lyndon Johnson, quite a few politicians have become millionaires under questionable circumstances, including many in Congress today. Senator Nelson Aldrich spent his entire career in elected office and turned public service into such a lucrative racket that he amassed a $16 million fortune through corrupt dealings.

Ethics questions arise when politicians raise contributions for their own foundations largely from others, especially when those others also pay questionably large speech and consulting fees. It constitutes a wellspring of power, wealth and influence for the politician who controls the use (and potential abuse) of funds. While tax and criminal statutes prohibit bribery, how can they even detect the tacit understanding that patrons expect from such non-altruistic contributions?

It would be an initial step to expand the Code's definitions prohibiting self-dealing and feeders to politicians so that charities are not abused by elected officials or candidates. Granted that these charities support worthwhile causes. Jimmy Carter showed us how to do great charitable works without a scintilla of suspicion of “honest graft.“

Otherwise, Aldrich’s motto, "“Admit nothing. Explain nothing,” might be a politician’s best defense after all.

Yes, death and taxes may be inevitable, but you don’t have to release the latter to avoid a political version of the former.


Jay Starkman, CPA is a sole practitioner in Atlanta. A version of this article was originally published in Tax Notes on September 5, 2016.