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Tax History: When the President Paid No Taxes – No, Not That President

Posted on April 18, 2017 by Joseph J. Thorndike

President Trump and his taxes have been the object of endless speculation. Since the start of his campaign for the White House, observers have raised questions about the taxes he pays or possibly doesn’t.

Leaked documents, including fragments of both state and federal returns, have added fuel to that speculation, and during one campaign debate, Trump himself seemed to acknowledge that he paid little or nothing in taxes. “That makes me smart,” he responded when Hillary Clinton accused him of paying the IRS nothing.

Whether Americans care about a president’s tax payments is unclear; poll results show broad support for presidential tax disclosures, but Trump’s victory clearly established that it’s not a make-or-break issue for voters.

Still, it’s a nettlesome problem for the president. And Trump is not the first chief executive to wrestle with the optics of being a non-payer. In 1977 Jimmy Carter paid exactly nothing to the federal treasury.

New President, No Taxes

When Carter won his bid for the White House, he opened a new chapter in America’s post-Watergate political scene. Gerald Ford was never implicated in any aspect of Nixon’s signature scandal, but his unelected path to the presidency — not to mention his pardon for Nixon — left him tainted by the trauma.

Carter, by contrast, campaigned as an outsider, a fresh face on the national scene who would bring honesty and transparency to the sullied White House. Carter made his personal taxes a key part of this electoral pitch, releasing his returns during the campaign and promising similar disclosures once installed as president.

But tax day 1977 came and went without any release from the Carter White House. The president filed for an extension, but by early June, there was still no sign of a tax return. On June 13 Carter told reporters that he and his wife, Rosalynn, were filing the return that day, but the White House disclosed no forms.

On June 16 press secretary Jody Powell explained the delay — sort of. The president had decided to take a few more days to review elements of the return, Powell said vaguely. In his Oval Office diary for that date, however, Carter offered a fuller explanation: “We’ve a problem because of my income tax return where we owe no tax for 1976.”

Return Released

On June 24 Carter finally released his 1976 tax return. Reporters were quick to spot the central issue and the president’s discomfort. “President Carter and his wife Rosalynn owed no federal income tax last year, but will give the government $6,000 because of Carter’s ‘strong feeling’ that people in his income bracket should pay some tax,” reported The Washington Post.

‘We’ve a problem because of my income tax return where we owe no tax for 1976,’ Carter wrote.

The president was clearly uneasy with his tax situation, hence the voluntary payment. “It seemed apparent that the President wished to avoid the political embarrassment that might result if he paid no Federal income tax, even though that would be wholly legal,” observed The New York Times .

Carter’s return showed an adjusted gross income of $54,934, down from $136,926 in 1975. After deductions, he was left with a tax obligation of $11,675. But that obligation was wiped out by a $20,864 investment tax credit stemming from equipment and building purchases for his peanut processing business in Georgia (which he owned jointly with his brother, Billy Carter, and mother, Lillian Carter). Carter had taken a similar deduction in 1975.

The reduction in Carter’s gross income between 1975 and 1976 reflected a decline of about one-third in sales of farm supplies and services, according to White House statements, as well as a shrinking profit margin on those sales. His peanut farm continued to earn money, but his warehouse operation was responsible for roughly 86 percent of his total income.

Carter’s return showed $13,317 in itemized deductions, including $4,507 in charitable contributions, according to the Times. Half of his donations went to the Plains Baptist Church, but Carter declined to specify other recipients. He also refused to disclose details of a $190 “political contribution,” the paper noted.

One minor item on the return was a $750 honorarium Carter had received for giving a speech in 1975. He had been paid the same year but deposited the money in a campaign fund. After learning that such a deposit was illegal, the campaign had returned the money (in 1976) and Carter had included it on his return.

The Times was compelled to point out a final oddity of the return. Federal law required that taxpayers sign their returns using the same name printed on their Social Security cards. As a result, Carter’s return bore the signature of James E. Carter Jr. But that formal signature didn’t come easily to the famously casual president. “The letter ‘J’ in the signature and some other letters seemed to be formed differently from the flowing letters in ‘Jimmy Carter,’” the paper noted.

Carter’s Comments

In a June 30 press conference, Carter remarked on his tax situation, including an explanation for his delay in filing the return. “I had a substantial amount of income in 1976 from the sale of my book Why Not The Best?” he said, totaling about $70,000. But his publisher had not sent Carter a check until January 1, 1977. “The question arose whether or not we could count that as income in 1976 and therefore pay taxes on it,” the president said.

Many taxpayers, of course, would have welcomed the chance to delay payment on that income. But not a presidential taxpayer facing a zero liability during his first year in office. “We went to the Internal Revenue Service shortly before we published our statement and asked them for permission to include that income in 1976,” Carter explained. “They said that it would not be appropriate, that it would have to be included in 1977. So, because of that decision, I did not owe any income tax in 1976.”

Carter, in other words, had searched long and hard for some way to pay taxes in 1977. But getting no help from the IRS, the president was forced to improvise. “Believing as I do that people in my income bracket ought to pay taxes, we took our adjusted tax income and paid the minimum tax on it, roughly 15 percent,” he said.

Carter was apparently referring to the alternative minimum tax. “Powell and White House counsel Robert Lipshutz said the 15 per cent figure was used because that is the amount of the government’s so-called minimum tax,” the Post reported. “The minimum tax, which is not applicable in Carter’s case, is applied to income from stock options, capital gains and other special categories that are sheltered from the standard federal income tax.”

Carter’s 15 percent voluntary payment ‘was less than the average tax payment by people of his income,’ according to the Post.

As the Post pointed out, Carter’s 15 percent voluntary payment was slightly more than the average rate paid by individuals, then about 14 percent. “But it was less than the average tax payment by people of his income, who, according to 1975 Treasury Department figures, paid slightly more than 20 per cent of their incomes in federal taxes,” the paper continued.

Voluntary ‘Taxes’

Of course, a voluntary tax is not really a tax at all (according to my dictionary, a tax is a “compulsory contribution to state revenue”). But Carter was determined to participate in America’s annual civic ritual of handing money over to the feds.

At the same time, Carter was also determined to make a broader point about the tax system as a whole. As he said of his zero liability: “I considered it to be a problem not because there was anything improper about it but I think that I, as president, ought to demonstrate that the present tax laws are not adequate and that someone who earns as much as I did in ’76 ought to pay taxes.”

Hence the $6,000 payment. As it happened, Carter’s voluntary contribution didn’t require him to write a check, since he had been making estimated tax payments all year and was due a substantial refund. In a letter to the IRS district director in Atlanta, John W. Henderson, Carter asked the IRS to reduce his expected refund of $26,026 by $6,000. An agency spokesperson said the contribution would create no problems for the president or the agency.

The Associated Press reported that Carter’s contribution would go to “the same Treasury funds that were built up by patriotic contributors and members of Congress who have refused pay increases.” Those contributions — used to help pay “the general expenses of the government” — totaled $754,500 in 1975. That same year, another $210,600 in contributions had been earmarked for efforts to reduce federal debt, while a final $66,000 went to a “conscience fund,” to which people sent money when they believed they owed the government but preferred to remain anonymous.

Carter’s voluntary contribution didn’t require him to write a check, since he had been making estimated tax payments all year and was due a refund.

In his letter to the IRS, Carter explained his voluntary contribution as a matter of civic responsibility, citing his “strong feeling that a person should pay some tax on his income.”

It was a noble and high-minded sentiment, and one that Carter echoed in his public remarks. But the political utility of the contribution was lost on no one, least of all the president’s press secretary. In a candid exchange with the press corps, Powell explained Carter’s decision in the pragmatic terms of a political operative: “We deal in this world with appearances as well as reality.”