The revelation by the New York Times that Donald J. Trump was showing a tax loss on his 1995 tax returns of nearly $1 billion is stunning.
As a tax lawyer, academic and commentator, I have a pretty good sense of what is coming: a few articles, some denials and retorts–including one from Trump that came after the story appeared–and lots of complexity from talking heads.
True believers in Trump will come away still convinced of their great leader’s genius and acumen. Hillary Clinton’s followers will fume that yet another piece of evidence showing their opponent is a selfish, unprincipled con artist has come forth without finally ending this thing.
The rest of us — and the remaining undecideds — will come away confused, in large part because stories about billion-dollar tax breaks tend to be confusing.
Here, then, are a few simple points:
• A $916 million tax loss is a big deal. It means that Trump could have earned income of almost a billion dollars over a period of up to 15 years after 1995 without paying any federal income tax. Nice work if you can get it. Trump got it.
• It is wrong to assume that Trump’s nearly billion-dollar loss came from his own money. Trump is the self-proclaimed “king of debt.” Much of sophisticated tax planning has always involved getting tax breaks from “other people’s money,” a phrase of which Trump is fond. Banks, other lenders or investors could well have put up the money generating the losses that Trump is claiming on his own tax returns.
• To truly understand the underlying source of the tax loss, we would have to see Trump’s tax returns. It is certainly fair to assume that the loss came largely from other people’s money, and fair for us to expect Trump to rebut such a claim …. by showing us his tax records.
The argument that “Trump is really smart, the king of tax loopholes, and that we should elect him because he alone can fix the tax system” is extremely weak, for at least two reasons.
1. There is no evidence whatsoever that Trump, himself, understands the tax laws benefiting him. The New York Times article indicates Trump’s own tax accountant found him inattentive, and nothing that Trump has said in public has revealed a deep knowledge of the tax code. Trump does, on the other hand, have a frequently revealed fondness for debt, or using “other people’s money.”
2. Trump’s own tax proposals would actually close down none of the remaining tax “loopholes” benefiting debt. Indeed, Trump’s plan would greatly encourage and reward debt. Trump’s impulsive last-minute decision to continue an interest loan deduction in his otherwise standard trickle-down tax du jour plan was a $1.2 trillion dollar “whopper” — an expense nearly five times higher than the campaign’s view of the cost of Trump’s child care tax plan.
Trump’s continued preference for tax benefits for debt is reckless. Trump’s tax policies would greatly increase taxpayer abilities to use other people’s money to generate tax breaks for themselves.
Whatever happens in the sea of complexity about to be sent forth, we should all remember this: A tax loss of nearly a billion dollars is a very, very nice thing to have, especially if it came from other people’s money.