The New York Times has reported select pages of Trump’s 1995 tax return showing about a billion dollar loss. They suspect that he may not have paid taxes for the next twenty years because of this. Well, that’s interesting since they have no idea what his income was in that time frame. A little background: I am a CPA and have been for 15 years. I graduated Summa Cum Laude with degrees in accounting and finance with many economic courses under my belt as well as reading economic books in my spare time. Now, I will tell you why all this is meaningless crap.
1 – The thing they are talking about is called a Net Operating Loss. It isn’t some sort of loophole. It’s a very fair mechanism in the tax code. Essentially: You have a business. For the first five years of the business, you have losses. In year six, you have income. You are allowed to deduct those prior year losses against the current year income. This is TOTALLY Fair. Let’s say that in this six year period, you lost $10,000 in years 1-5. Since you have no other income items, you had no taxable income and paid $0 in taxes for the first five years. You then make $110,000 in year six. You are allowed to deduct the $50,000 you missed out on, leaving $60,000 in taxable income. Compare that with someone that MADE $10,000 in years 1-6. In both cases, the average income for the six year period would be $10,000. If you didn’t allow some sort of carryover, then you would have taxed the first person on $110,000 and you would have taxed the second person on $60,000 even though they made the same amount of money in that period. How is that fair? It’s not. Not to mention that GE, the Clintons, Warren Buffet, the New York Times, and untold number of other Democrat darlings have used the carryover provisions.
2 – Paying taxes is NOT patriotic. This country was founded upon the premise that NONE of us wanna pay taxes. Yeah, that’s a little bit of a stretch. It was more taxation without representation, but still. No one wants to pay taxes. If you did not use the existing tax laws to keep as much of your OWN money as possible, you’d just be stupid. Taxes is not the same as charity.
3 – As far as Trump losing a billion dollars in a year, I seriously doubt he did. The tax code does not allow you to take passive losses (losses on businesses that you didn’t really participate in on a day to day basis–I’m over simplifying, please other CPAs, do not respond with pedantic responses). Instead, these loses carry over to offset passive income in later years. If you never have passive income, then these losses can be fully realized in the year you dispose of the business. This is to avoid what was known in the early eighties as a tax shelter. This is where people would buy into a business that would generate “tax” losses but wouldn’t actually generate true, cash losses. This is coupled with an At Risk limitation so that the total loss you can take is only that which you put into the business. Prior to these two rules, you had people investing in “businesses” which they did not really participate in and took losses far in excess of what they actually could lose if the whole thing tanked. So what has really happened is that he had 10-20 years of losses carrying over, he disposed of the business, and he has this huge loss. No big mystery. No giant “loophole.” Nothing really to see here.
4 – Even if Trump released his taxes, it would mean nothing anyway. Trump is 70 years old. He has beautiful houses, his personal plane, and a bunch of other stuff. So, here’s the thing… how much money does he need at 70? Now that he has most everything he needs to be happy, why would he need a lot of income? He has the ability to control how much his income is. If he doesn’t need a lot of money, why would he pay himself a large salary or cut himself dividends and face double taxation? He wouldn’t. He would keep the money inside the corporations. So, he can control his income. He has several corporations which would file their own tax returns and not report anything on his Form 1040. As far as charity goes, he may opt to pay charitable donations out of his foundation or his corporations, which would be more beneficial to the corporations than to him.
5 – Hillary is trying to make a big deal about his billion dollar loss (as I’ve explained above). Did you know that she lost $6 billion dollars as Secretary of State? Unaccounted for. Just lost. Of course, you can say that $6 billion isn’t much to the State Department, but a billion dollars is a LOT to an individual. You’d be right…but the key difference is that the billion Trump lost was HIS to lose. The $6 billion that she lost was OURS. If you’re an honorable person, you would much rather lose your own money instead of someone else’s.
6 – Hillary wants to point out that Trump is a bad business man because he would have done better if he had just put his money into a mutual fund. Well that’s great! Of course, that’s true of most everything. Let’s assume a normal distribution. So, half the businesses beat the market and half don’t. Well, obviously, the smart thing to do would be to have the ones on the lower 50% quit and invest their money in the other 50%. Great! So now, assuming that there’s a normal distribution, this means that half of the businesses are losers and half are winners, so they should sell off and buy into the winning 50%, and so on and so on…until there is only one business left. The true winner! Yes, the true winner. We should all be invested in that one entity. Except for the fact that this CANNOT happen. Industries go up and down. Companies go up and down. We need all different players and companies and businesses and industries competing and operating and innovating. When this happens, then you have the beauty of a diversified portfolio. Some industries will underperform on returns, but they may have more players or less risk or less costs to enter the market. A producer of corn will not have the same profit margin of Apple computers. Why? Because anyone can plant corn (more or less). You have start up costs, market risk, supply and demand, and other factors. Basically, it is called economics. Half the industries would not make the “beat the market” test. Boo hoo. Figure it out.
7 – Hillary likes to point out Trump’s failures. Well, he’s started hundreds of ventures, and a small portion of these went bankrupt. It’s a fun game for Hillary to play because she has nothing which can compare. She’s never started any business. So, let’s look at it this way: What laws has she sponsored? I’d be shocked if you could name any. How any of those had a net positive effect of the bottom line? Even if you wanna say that profit isn’t a motive in politics…how many of her policies actually solved a problem, let alone were cost effective? How any of her initiatives as Secretary of State were successful? Basically NONE. But yeah…let’s talk about Trump Steaks and not four dead Americans in Benghazi.
Long Live the Constitution!