Did Donald Trump Break A Tax Law? He Didn't, & The Reason Why Isn't Comforting

If Hillary Clinton's biggest campaign controversy has been her email scandal; Donald Trump's has been his tax returns. Although he's consistently stated that he won't release his returns — citing an IRS audit as the reason why — someone reportedly leaked partial returns to The New York Times. The state returns give voters some idea of Trump's tax history (his federal return was not included in the release) but the biggest reveal was the answer to the question everyone's been asking: Did Trump break a tax law?

In a letter, the Trump campaign responded to the returns, but mostly to say that they were obtained illegally and should never have been published, rather than commenting on the content of the returns themselves:

The only news here is that the more than 20 year-old alleged tax document was illegally obtained, a further demonstration that the New York Times, like establishment media in general, is an extension of the clinton Campaign, the Democratic Party and their global special interest.

First of all, what exactly are the laws around income tax? If you live and work in the United States, you have to pay a certain percentage of your earnings to state and federal governments (through the Internal Revenue Services, or IRS) in the form of income taxes. If you work for a company, they'll usually take that money out of your paycheck, then give you the rest, at each pay cycle. If you're self-employed, you have to keep track yourself (getting an accountant helps!).

Since Trump is a business owner, his income and taxes are in the millions (if not billions) — figures most of us can't even imagine. According to his state returns from 1995 (which were for New York, Connecticut and New Jersey, where his businesses operated) Trump declared $916 million in losses — which was enough to offset any profit. If a business doesn't make any profit (the amount of money that's left over when you subtract the costs of running the business from the money the business makes), there's nothing to pay income taxes on. Or, if the amount of profit is beneath a certain threshold, the IRS doesn't require taxes to be paid on it.

The rule of thumb has always been pretty simple: the more money you make, the more you'll owe in taxes. So how did someone like Donald Trump, who makes billions each year, end up not paying any income tax at all for 18 years?

The analysts hired by the Times to look through Trump's returns revealed that the amount claimed in losses — $916 million — would have been enough to clear him of owing income tax for more than a decade. He was relieved of taxes totaling nearly $50 million a year, based on his earnings from businesses and ventures like his television show The Apprentice (which the Times reports he made as much as $100,000 per episode for).

Trump has benefitted from a tax system in the United States that favors the wealthy, giving them "breaks" for such high earnings. Many politicians have used the platform of not giving tax breaks to the wealthy as a way to win voters, but Trump isn't likely to take that stance anytime soon: one of these such tax breaks, which is given to real estate developers like Trump, accounted for nearly $15,818,562 in reported losses on Trump's return — which helped him avoid paying income tax at all. Since the majority of us aren't real estate developers, we aren't eligible for those tax breaks.

These were not federal tax returns, however, so some information is missing: we do not know, for instance, how much money was donated to charity — through the controversial Trump Charitable Foundation or otherwise. There was also no information about Trump's assets, meaning these returns don't reveal anything about his overall net worth.

In any case, after reporting those huge losses in the early 1990s, Trump filed bankruptcy (he's filed four times in all). Usually when you hear that someone has filed bankruptcy, you would expect that would put them in a precarious financial situation: so how has Trump remained living a life of luxury, despite losing so much money in his failed business ventures?

Trump has been able to (again, legally) hide behind his many businesses, which he can move money around in — including into his own pocket. The losses of his businesses, reported on his taxes, would not necessarily reflect losses of money that he was paid from his companies.

Spencer Platt/Getty Images News/Getty Images

During the first presidential debate when Clinton called Trump out for not paying taxes, he called his move "smart" – and in fact, so far everything that has come out of the leak of his tax returns show that he hasn't broken any tax laws at all. He, or more specifically the lawyers and accountants he works with, have found several loopholes in the tax code that he's been able to take advantage of.

When Trump cited an ongoing IRS audit as the reason he wouldn't release the returns, he probably wasn't lying about that either: huge profits or losses, like what he reported, would definitely attract the attention of IRS auditors. But since Trump's been dealing in high figures for most of his career, an audit wouldn't be unusual. Although, according to the IRS, there is nothing about an audit that would prohibit him from releasing the returns.

In the response to the returns from Trump's lawyer, they pointed out that "Mr Trump knows the tax code far better than anyone who has ever run for President and he is the only one that knows how to fix it." But, as Washington Post columnist Allan Sloan points out, if Trump knows so much about tax law, why isn't he sharing the wealth of knowledge and using that to bolster his political platform? "If Trump were truly smart — and wanted to lead by example," Sloan writes, "he would have disclosed his tax returns, showed the loopholes he used, and vowed to close them."