David Cay Johnston explains Trump’s tax schemes


It has become a cliché that the real scandal in the US is not what is illegal but what is legal and this is amply demonstrated in the way that the real estate industry has obtained massive loopholes that benefit themselves and that Donald Trump has then exploited for his own benefit.

David Cay Johnston is a veteran reporter whose beats are economics and taxes. I have read a couple of his books and have linked to him frequently because he knows his stuff. As a bonus, he has also been following Trump’s career for several decades and this combination makes him the perfect person to explain what might be going on with Trump’s massive tax loss in 1995 that has been in the news this week.

Trump, the only major-party presidential nominee in four decades to keep all his tax returns secret, insists “there’s nothing to learn from them.”

Yet in one day I figured out how Trump’s advisers almost certainly arranged the massive tax losses, skipped out on a massive income-tax bill, and then fashioned a loophole with more valuable tax benefits than the already liberal tax breaks Congress gives big real-estate owners while sticking others with the bill.

Trump dumped the real costs of all this on investors who saw gold in his brand name, but who lost everything even as he was paid tens of millions of tax-free dollars.

As Johnston shows, Trump’s business model seems to involve taking on massive debts that he has no intention of paying back and then threaten endless litigation unless his creditors negotiate much more generous terms. This is similar to his attitude towards not paying people who do work for him and challenging them to sue him, which most small businesses and individuals cannot afford to do.

Last May, Trump revealed that he took on debt with no intention of paying it all back, which strikes me as fraud. “I’ve borrowed knowing you can pay back with discounts,” he told CNBC in May, boasting “I’ve done well with debt.”

Back then Trump threatened endless litigation unless 70 banks he owed money gave him millions more in new loans at low interest rates and provided him with $5.4 million a year for personal spending, the equivalent of $10 million in today’s money.

In the first debate with Hillary Clinton, Trump did not dispute her statement that he pays no income taxes. Instead he said it shows he is smart.

That may be, but it also suggests the rest of us are chumps for paying our taxes while Trump enjoys all the benefits of the United States government—little things like individual liberty, the FBI, and a military to protect us—while bearing none of the burden. If we all did as Trump does, we would, to quote a line Trump employs often, not have our country anymore.

The kinds of things Trump does are only possible if you are already wealthy. John Maynard Keynes referred to an old saying, “If you owe the bank thousands (a small amount), then the bank owns you. If you owe the bank millions (a large amount), then you own the bank.”

Seth Meyers also looks at Trump’s terrible week. He also addresses the tax issues and dismisses the idea that personal taxes have any fiduciary implications for others, something that some of Trump’s surrogates have argued and many reporters have not challenged. Meyers says that it all shows that Trump is a fundamentally amoral person.

Comments

  1. brucegee1962 says

    Did you hear the latest? Trump’s tax preparer says that Trump didn’t actually do any of the work of tax preparation, or show any particular signs of knowing much about taxes — it was the preparer who actually figured out the loopholes for him. The bar for being a genius is pretty low these days.

  2. sonofrojblake says

    Trump’s definition of “genius” appears to be “rich enough to hire a genius (and then maybe not pay them)”.

  3. Some Old Programmer says

    A bank customer that is too big to fail–such a strange idea (at least to someone that will never be in that position).

  4. ShowMetheData says

    This type of system is called a Chumpocracy

    Someone makes an original decision and when it fails, has someone to bail them out. Usually they have figured out the system or been born into it and know who the chumps are and have established techniques.

    Bankers – chumps who saw profits and did not bother to put together all the pieces until Trump showed up with debt to void and threaten them with.
    Small tradesmen – chumps who believed that their honesty or quality was something that would protect them AGAINST wealth.
    Taxpayers – When Trump targets gate-keepers, the chumps are you.

  5. Mobius says

    If you are rich and don’t pay taxes, you’re smart.

    If you are poor and don’t pay taxes, you’re a moocher.

    This seems to be a Republican meme.

  6. Reginald Selkirk says

    John Hempton at Bronte Capital

    Either:

    the loss is a real loss and the Donald was really was out of pocket by $916 million (in which case he has legitimate NOLs)

    or the loss was passed on to someone else by The Donald defaulting on debt – in which case Donald Trump should be assessed for income from debt forgiveness.

  7. Reginald Selkirk says


    Unless that is there is an avoidance scheme the New York Times has not worked out. Those schemes go by the name of “debt parking”.

  8. sonofrojblake says

    @Mobius, 5:
    You’ve got it wrong:
    If you’re poor and don’t pay the taxes due, you’re a moocher – and this is indeed true.
    If you’re medium rich and don’t pay the taxes due, you’re a “white collar criminal”.
    But… if you’re really rich, there ARE no taxes due, unless you’re an idiot.

    The real scandal here is not that how little tax is paid by these people, it’s how little is due. The rules are the problem, not the players of the game.

    (Obviously one of the problems is that the people who set the rules are either (a) rich players themselves or (b) owned by rich players.)

  9. John Morales says

    sonofrojblake:

    If you’re poor and don’t pay the taxes due, you’re a moocher – and this is indeed true.
    If you’re medium rich and don’t pay the taxes due, you’re a “white collar criminal”.
    But… if you’re really rich, there ARE no taxes due, unless you’re an idiot.
    The real scandal here is not that how little tax is paid by these people, it’s how little is due. The rules are the problem, not the players of the game.

    Shorter version: no blame accrues to those who take advantage of unfair rules.

  10. Dunc says

    If you are rich and don’t pay taxes, you’re smart.

    If you are poor and don’t pay taxes, you’re a moocher.

    This seems to be a Republican meme.

    Actually, you can strike “and don’t pay taxes” from the first two sentences.

  11. Pierce R. Butler says

    Saad @ # 12 – Now, that’s just not fair.

    Counting sonofrojblake, we got at least two of ’em here.

  12. sonofrojblake says

    @John Morales, 10:
    Even shorter version: No blame accrues to those who play by the rules.

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