Five Takeaways from the Trump Tax Article in the NY Times

Here are some things we may have learned from the recent revelations:

1.        The losses described in the article appear to be actual losses as opposed to "paper losses" - and this is important.  "Actual losses" mean that businesses in which Trump was involved suffered commercial setbacks that are actual and measurable as opposed to being based upon a purported depreciation schedule, “tax shelter” or accounting quirk.  This is a double edged sword for Trump.  He is claiming that the way he has manipulated the tax code is proof of his "genius".  That would seem to imply that he really didn't lose the money - he just was able to structure his finances in a way that took advantage of loopholes and left him owing nothing - but still, very, very, very rich.  Hardly an argument a conventional candidate would make, but, as has been said many times - Trump is not a conventional candidate.

The problem with this, of course, is the fact that you or I cannot manipulate the system in this way without going to jail.  Trump is advocating a tax cut for people (like himself) who can afford to manipulate the system - and his own tax returns are the best possible argument for the idea that these people scarcely need to pay less tax.  This is buttressed by the fact that Mitt Romney, a squeaky clean candidate by comparison, was also revealed to have paid a percentage of his income at a rate more akin to a low wage earner than a multi-millionaire.  So why cut taxes for such people instead of just cutting loopholes?

More to the point - every indication is that Trump, in fact, did not manipulate the system that much.  The losses he reported seem to reflect actual business losses associated with disastrous investments in casinos and hotels.  He seemingly did lose nearly one billion dollars in a single year.  That, while less manipulative of the system, is also hardly indicative of a sharp business mind.  You really have to be colossally stupid to lose that much money in a year.  If an analogy to his casinos could be drawn - it looks like Trump took all of his assets and put it on a single number on the roulette wheel.  He seems to have drawn to an inside straight numerous times.  He played the one armed bandits thinking he was going to beat the system.

Yes, this stupidity has left him with losses that he could use to offset future gains on his taxes.  But it also left him in a huge hole, one which it seems he is still trying to dig himself out of.  That is where the second major takeaway from this week's revelations arises.

2.       The business losses manifest themselves in ways other than tax savings.  Trump was attacked by Hillary Clinton on two fronts during last week's debate.  The first - the tax return issue - has garnered all the headlines.  Clinton savaged Trump’s failure to disclose his returns, postulating that he has paid little to no federal income taxes. This is what everyone has zeroed in on. However, it is the second line of attack Clinton followed that may be more damaging.  Since we now seem to  know how Trump may have avoided taxes (he has enormous carryover losses) - the question arises - how is he still around despite such an enormous loss?

Here’s how - if he had huge losses he likely would have needed a massive dig out to even think about avoiding ruination.  That is what Clinton was referring to when she said, during one exchange, that it is possible Trump owes "up to $650 million to foreign banks and investors".  That is the second crucial line of attack. To absorb the types of losses he reported in the ‘90's Trump has to have been somehow kept afloat. He doesn't seem to have been kept solvent by rolling up massive profits because that would mean his tax losses would have run out very quickly - (you can only make use of losses to offset gains - and if he had made billions in profits he would presumably have long since used up his accrued losses).  Instead - you can be relatively assured that Trump has, as alleged, relied largely upon extensions of credit to remain in business.  The borrowings he had to have undertaken would be enormous. He must have exposures - huge exposures - to numerous lenders.


3.       The fact that he has exposures to outside creditors explains some of the more bizarre choices Trump has made over the past couple of decades.  Why, for instance, would someone who holds such massive wealth (according to him) ever get involved in setting up a venture as shallow (and unprofitable) as "Trump University"?  What billionaire has ever marketed something as crass as "Trump Steaks"?  Where did "Trump the Board Game" come from?  Why, aside from an admittedly massive ego, would such a wealthy individual spend over a decade on a reality TV show like "The Apprentice"?  The list goes on.  One of these side ventures would maybe be understandable.  Two would be excusable.  But Trump never gets off the self promotion wheel.  He seemingly loves the sort of activity most people would see as demeaning.

The reason for this may have a great deal to do with what really keeps Trump afloat financially.  As fellow billionaire Mark Cuban has pointed out - the most valuable thing about Trump is the Trump brand.  If he is in hock for most of his real estate holdings, many of which he doesn't even hold (he just leases out the use of his name - branding again) - then the returns from his hotels, golf courses, resorts and offices are probably earmarked for servicing debt ranging back to his days of losing billions.  His actual cash liquidity must come from things like hosting The Apprentice, selling meat, trying to convince people to enroll at a bogus "university" or otherwise slapping his name on anything that he can shill at an inflated price.  As Cuban (who, while possessing a huge ego himself also backs things up with a razor sharp mind and actual business accomplishment) has stated - Trump needs his brand to survive financially.  One can very plausibly construct the following scenario from the revelations in the Times' story.  Donald Trump lost huge amounts in the mid-1990's.  He may have approached the banks who held the paper or from whom he sought credit and said as follows:  "Guys - I'm not going to be able to pay you according to our original contract.  You can shut me down now - and get about 25% of your money back.  Or - you can stick with me, let me retain the brand and image of a being a savvy financial high flyer - and get everything back.  Which option do you choose"?  If I'm Trump's bankers I say "Sure Donald - you just have to sign every penny of income from your real estate empire over to me.  All the rents, all the proceeds following a sale, all the fees generated off the properties.  You can keep the name and whatever money you can squeeze out of that."

If I were Trump I take that deal - and if that is what happened the obligations would hang around his head like a noose.  Clinton was probably right on both counts - he pays no taxes - but he also is nowhere near as wealthy as he would like you to think, since he has to service a huge debt.  In that case - Donald Trump hosts The Apprentice not because he enjoys the experience - he hosts it because he doesn't want to starve.


4.       The need to retain the Trump name and image explains Trump's unwillingness to commit to a true "blind trust" arrangement.  One of the more amusing news clips of recent times was that of George Stephanopoulos vainly attempting to get Donald Trump Jr. to acknowledge that it is impossible for his brother, sister and himself to run a "blind trust" for the Trump business.  <iframe width="854" height="480" src="https://www.youtube.com/embed/yuOZ_qm7Vq4" frameborder="0" allowfullscreen></iframe>   The very definition of a "blind trust" is that it is not run by family members - the president (in fact, anyone attempting to place assets in a qualifying blind trust) is assumed to have ongoing contact with members of his/her immediate family.  Such contact makes them ineligible as a trustee of a truly blind trust.  But for Trump - whose wealth is solely predicated upon the family name and brand - the possibility of allowing that name to be run by someone other than a family member is terrifying.  That's why there is all the flim-flammery when it comes to committing to do what every president has done for decades - remove themselves from personal involvement in the running of their business ventures.  "Trump" is not a name supporting a vast business empire - it is a vast business empire supporting a name.  And that is what leads us to the final, critical takeaway from the Trump financial disclosures.


5.       Donald Trump is potentially seriously compromised when it comes to his personal finances.  If Trump indeed owes money on the scale indicated by his past losses and Hillary Clinton's allegations - he is seriously exposed to financial manipulation.  Here is a very basic example of how that might manifest itself.  Let's say that a week-long stay at a high end suite in the Trump Doral costs an individual $10,000 (it may be more, it may be less, but let's use a round figure).  A wealthy lender who has taken a position in Donald Trump's personal finances may wish to bring an entourage of 25 of his closest friends to Doral for a week - and, in the past, knowing that such a stay greases the wheels of finance Mr. Trump may have comped the whole stay.  Trump would see this expense as good for himself personally - keeping the brand strong and maybe gaining some leverage with a lender who will be less inclined to call a note when due.  A family member would know that taking the quarter of a million hit is worth it for them on the back end.  This may not even be illegal - resorts can offer reduced rates.  It is certainly problematic for some of the creditors of Doral - who, if the resort goes Chapter 11 after a few too many such "gratuitous" stays, may end up getting stiffed.  But for the big picture - Trump - or a family member - would take the risk.

A true blind trustee would not.  They would look at the request for the freebie and tell the lender to go pound sand.  That is what keeps Trump awake at night tweeting about Miss Universe.  “How do I keep this whole house of cards from crumbling around me”?  Now - extend that spider's web of financial complexity across continents.  Keep in mind that people you owe money to expect some quid pro quo if they give you a break.  And now think of the kinds of "breaks" a president would be expected to give.  If Donald Trump owes the kind of money that is reflected in his historic losses - then he is not in a financial position to serve as president.  If he owes large amounts of money into countries where American interests conflict with personal interests - he is not in a financial position to be president.  If he cannot remove himself and his family from his financial activities while serving in office – he is not in a financial position to be president.

Of course, this may not be a problem of any kind.  All of this is conjecture and none of it may be a concern. There is, of course, one way to find this out.

Release the tax returns.