September 29, 2020
Friends kept messaging me yesterday asking me to weigh in on the Trump tax return story. I was hesitant, because I see the story as a mere distraction and hate to waste time on it. I understood why they asked; I’m a CPA and have spent many years working on tax fraud. While tax evasion is not my specialty and tax preparation is a field I avoid like the plague, I do have more perspective on the issue than the average person. When it comes to complex business empire tax returns, I could read through and understand most lines, but I’d also understand that the extent of detailed records potentially behind each line is massive, and making generalizations about such complicated documents is a mess I really didn’t want to dive into. But, I’ll cave to my adoring fans and provide a few thoughts.
To be up front, I don’t have all the answers about whether every deduction and loss that Trump claimed was valid, but I am certain of this: Trump’s base could not care less. Republicans are the party of lower taxes, and most conservative commentary on this story echoes and lauds Trump’s 2016 debate lines about why he doesn’t pay personal federal income tax in many cases. Trump voters also understand that job creation not only helps the economy by employing workers, but it inserts a whole host of other tax revenue into various levels of government – property tax, payroll tax, corporate income tax, and various other taxes depending on the nature of the business. Even if Trump’s personal federal income tax paid is low, these other taxes from his business are extraordinary. The benefit to the government and economy of the American entrepreneurial spirit is vast, and that’s why the tax code favors it. It’s no surprise that smart people with the ingenuity to grow big businesses also take the necessary care and planning to use the tax code to their advantage.
That said, we’ll never know specifically what is in Trump’s tax returns and we wouldn’t know what to do with it anyway. The NYT wasn’t supposed to have them and they’re not going to show them to us. Their bullet points were not written by tax experts, are unlikely to summarize the entire set of documents they looked at, and honestly say very little. Here are some examples (from NYT Twitter) of “important” information they wanted the public to know:
11 years no tax, 1 year $750, how about the other 6 years? In the 2016 debates, Hillary accused Trump of paying no federal income tax, and he never refuted it; in fact, he talked about using the same tax code provisions that Hillary’s rich donors use and lobbied for. He said he uses the carried interest provision and lots of depreciation to avoid income tax. In 2017, NYT and MSNBC released 2005 information saying Trump paid $38 million in federal income tax. The other 5 years that they aren’t telling us here may even be higher. We don’t know, because they selectively pulled out the years they wanted to tell us about and conveniently ignored the others. This is the problem with a biased media organization having the exclusive access to information they won’t show us, but then they are the ones who get to decide which parts to tell us about…the parts that sounds the worst and most ominous.
Questionable because you said so? Questionable because there is an unfinished IRS audit underway? “Questionable” is a questionable adjective choice here. One thing I’ve learned about looking at thousands and thousands of tax returns every year is that “massive refund” does not automatically mean “bad.” It usually means “rich person; complicated business; complicated return.” It’s not surprising that there’d be an IRS audit to verify such a large refund, though.
Duh. That’s how you do it. It’s called tax planning. You strategically time out your gains and losses from various businesses to offset each other and avoid total tax to the extent possible. Entire firms exist to help businesspeople do this. And by the way, losses for tax purposes don’t always mean “business in trouble.” Timing of expenses and especially non-cash expenses (depreciation, primarily) make huge differences in taxes that have little to do with the business operations or solvency.
It doesn’t matter what “most people” think; it only matters whether it’s permissible under the tax law. If they’re directly related to other income-producing businesses (like TV show personality), of course they’re deductible as business expenses. I doubt he’d be spending $70k on his hair if he was living in his parents’ basement. He doesn’t work for MSNBC where he shows up 2 hours prior to air time for hair and makeup at the company’s expense. He and his accountants and lawyers know whether his private jets and residences meet requirements for business expenses. This nugget is closer to voyeurism than news.
You can’t conclude whether there is financial pressure from debt without giving context to Trump’s or his businesses’ abilities to pay them. If he’s got the cash flow or convertible assets to pay them, he’s solvent, and the dollar amount doesn’t matter. If he’s got debt ratios that allow him to refinance, interest rates have never been lower, and the timing is excellent. Massive real estate developments are always financed with debt; this is the industry standard. The past three presidents’ net worth skyrocketed after they left office, and even if Trump’s businesses collapsed tomorrow (no such indication), his future cash flow potential is not small.
What? This slide gives the opposite of information. It creates confusion. He received more money than previously known? You knew nothing before. He also made more money than previously known, has more losses than previously known, his tax returns are more pages than previously known, he has more schedule E businesses than previously known. You get the idea; this is a non-statement. Buried at the bottom, however, gives the most embarrassing statement of the whole report: no new Russian connections. I’m actually shocked they included this. After all, it was the main claim from the left for the first 2+ years of Trump’s presidency. The one thing they were really hoping to find in his tax returns and it wasn’t there. A nothingburger.
The New York Times Trump Tax Returns story is a bunch of context-lacking and chaos-generating bullet points about tax returns that they shouldn’t have been looking at and won’t show us. What are we supposed to do with it?
Stop being distracted by shiny objects, enjoy the debate tonight, and decide who is better equipped to lead the world’s most powerful nation for the next four years.