Love or Hate Trump, your choice, but this isn’t about politics
W hat it is about is the ignorant financial reporting by the mainstream media. It’s no wonder there’s a populist uprising against the stranglehold of professional politicians and Beltway journalists (using the term “journalist” loosely) trying to run the country.
What’s Going On Here?
Last Sunday, and ad nauseum ever since, the losses on Trump’s tax return have been front and center in every news story and with opinions from every pundit with a pen.
But there are several obvious facts that are never mentioned that are particularly relevant to the business community. I want to address 7 issues with a more objective perspective on common business practices and the tax code that applies to everyone.
This is not intended to be a political commentary about either Presidential candidate. It’s only meant to be an objective observation of relevant business, financial and tax principles that have been ignored by the media in its overzealous reporting about the tax returns of Donald Trump.
7 Points to Consider about the Tax Return Controversy
A Few Assumptions
For the record, these are a few underlying assumptions and principles:
- I have no special knowledge of Trump’s business activities, but I am assuming he is acting lawfully.
- The Trump Organization is a privately-owned company that is not required to publicly report its financial results.
- I am not a tax expert or a registered tax practitioner. I have spent decades in senior financial positions, however, and have practical knowledge of certain basic principles.
1. Why Hasn’t Trump Released His Tax Returns?
This seems to be the “elephant in the room.”
Many pundits imply this is simply an excuse, a smokescreen to avoid embarrassing public disclosures. While that might be true, it’s unimaginable any competent lawyer or tax practitioner would advise a business client to publicly disclose their tax returns while undergoing an audit. A different client recommendation would be even more unlikely in a political environment where the client’s opponents would be all too eager to exploit it in any way possible.
Admittedly, few private businesses will ever face that decision, but the case of a Presidential candidate is quite unique. Nonetheless, it doesn’t diminish the risks of public disclosure during an audit. While the government could accelerate the audit to complete it before the election, the tax returns may be too complicated, the record gathering very cumbersome … we just don’t know. Of course, it’s also likely that unacceptable government interference would create a political firestorm.
It’s challenging enough to go through a tax audit of a complex business tax return. To encourage 330 million more opinions about every item in it is just not something I expect any competent advisor would recommend.
2. There are the ONLY 3 PAGES that underlie the entire story
First, if you read the original NY Times article closely, you’ll note the NY Times reporter only received 3 Pages, the ones shown below … from 1995, more than 20 years ago. As of this writing, that’s all the Times has received.
These are the 3 pages they received.
- First page of a New York State resident income tax return,
- First page of a New Jersey nonresident tax return, and
- First page of a Connecticut nonresident tax return.
BTW, not a single page from his federal tax return or anything more current than 20 years ago was received … not to mention a reliable source of how this information just “happened” to show up in some journalist’s mail slot.
Yes, just 3 pages from which an entire novel has been written, with a limited objective discussion of some of the obvious reasons that successful businesses generate significant losses for tax purposes. You can find these 3 pages here.
Later in the article, the Times did state this obvious fact:
- “The documents examined by The Times represent a small fraction of the voluminous tax returns Mr. Trump would have filed in 1995.”
That’s putting it mildly.
3. He “Could Have” Avoided Taxes for Nearly Two Decades”.
So pronounces the New York Times, with the operative term being “Could Have”. Interestingly, it appears they arrived at the “two decades” period in a convenient approach designed only to inflame the controversy.
The Times calculation is simply based on a hypothetical annual amount of $50 million, which conveniently fits into about 18 years which turns out to be about 2 decades.
That’s how they arrived at their statement that “a $916 million loss in 1995 would have been large enough to wipe out more than $50 million a year in taxable income over 18 years”.
In short, they’re referring to tax loss carryforwards a common tax provision that applies to all taxpayers, businesses or individuals, with certain exceptions, whenever they have recognized losses in a particular year. These tax losses could create an equivalent tax reduction in future years if the entity is profitable in those future years.
If your business ever reports a tax loss carryforward, an uninformed reader could say about you … that “you could have avoided taxes” equal to some hypothetical amount over some hypothetical future period. Otherwise, it is meaningless.
My SWAG is this condition has likely applied to millions of taxpaying entities over the years.
4. Doesn’t This Statement Also Apply to Every Business Executive?
This is part of the statement released by Trump’s campaign. I’ve never met a business executive who would disagree with this statement if their name was substituted for Trump’s:
- “Mr. Trump (insert your name) is a highly-skilled businessman who has a fiduciary responsibility to his business, his family and his employees to pay no more tax than legally required.”
To complete the paragraph reported in the Times, the Trump statement continued with this sentence, the veracity of which is unknown:
- “That being said, Mr. Trump has paid hundreds of millions of dollars in property taxes, sales and excise taxes, real estate taxes, city taxes, state taxes, employee taxes and federal taxes.”
5. Here are a Few Prominent Examples of Enormous Business Losses
Business losses, by themselves, are hardly an accurate barometer of business success. Millions of successful businesses have experienced losses during their existence. The size of those losses can be very large, but are directly proportional to the size of the business.
The mainstream media never mentions this, but here are just a few examples (among zillions of others) of losses reported by other companies. These are very successful companies measured by market value; they employ hundreds of thousands of people.
The point is that losses alone hardly tell the story of success or failure without a much broader analysis that goes way beyond information available in a tax return. Any valuation expert can attest to that:
- After almost 20 years in business, Amazon never made a profit … and posted a net loss of $437 million as recently as Q4 of 2014. Today, Amazon’s market value is just under $400 Billion.
- UBER, the poster child for the “on demand” economy, has already lost over $4 Billion, yet it’s raised over $15 Billion to build the company.
- BP (the British oil and gas company) said it lost $6.5 billion in 2015.
6. Raise Your Hand if You Volunteer to Pay More Taxes
Please … find me a businessman trying to pay as much in taxes as possible. Every businessman I have ever known applies the tax code as thoughtfully as possible to minimize taxes within the law. There are hundreds of thousands of tax practitioners working hand-in-hand with clients to achieve that very goal. I wonder if the media giants are offering to pay more taxes than required?
Want to change the tax code? Great, do it. In the meantime, businesses will do everything possible to minimize taxes within the law.
I don’t know of any exceptions.
7. The Mainstream Media is Simply Ignorant about the “Real World” of Commerce
What is most frustrating is the total lack of understanding among professional pols who’ve never worked in private industry, and reporters like so many at the NY Times and Washington Post, who have no idea how the world of commerce functions. Sadly, their misplaced views pervade the general populace which makes it virtually impossible to get the facts straight in anyone’s mind.
I hope you get the point.
You’ll have to decide if Trump is a terrible businessman, but taking advantage of the tax code, depreciation and bankruptcy provisions included, isn’t unpatriotic, illegal or wrong. It’s what every business executive has done since there was a tax code. They, like you and me, will continue to do, until and unless the tax code is changed.
Any wonder why there’s a populist uprising across the country?
Question: As a business executive, what do you think about these issues? You can easily add your comment below, or by visiting our Facebook Page or @Exkalibur on Twitter. I visit them every day and look forward to discussing these ideas and concepts with you.