Contributors

Monday, October 03, 2016

Why Trump is No "Genius"

After the New York Times published its story about Donald Trump claiming a billion dollar loss on his 1995 taxes, his surrogates rushed to Sunday morning shows to brag about what a genius Trump is for avoiding taxes.
 
This reminds me of last summer, when Trump angered a lot of Republicans by saying of John McCain: "He's a war hero because he was captured. I like people that weren't captured, OK?"

To paraphrase Trump: "He's a tax genius because he had a huge net operating loss? I like people that didn't lose a billion dollars in a single year."

You don't need to be smart to take advantage of tax laws that were put in place by real estate and business special interests before you were born. You just need to have a rich daddy.

The wealthy have used this gimmick for decades: they buy oil leases or some other risky enterprise that are big money losers on paper in years when they know they were going to make a lot of money, in order to have losses to offset their profits. With those huge paper losses, and an S corp, you can flow all those losses into your personal balance sheet and pay no taxes.

Trump didn't buy paper losses as a canny financial maneuver, he lost all that money through terrible business decisions.

Furthermore, Trump's tax acumen isn't his own: in addition to all the money and property Trump inherited from his dad, he inherited a legal team that had been using these tax gimmicks for decades.

Before Trump's tax data were released I speculated that he was getting all his income through an S corporation as dividends, distributions and interest, and paying himself no salary. I was right: his 1995 taxes show him getting only $6,000 in salary.

The advantages of this are threefold: 1) you only pay Social Security and Medicare taxes on earned wages (not on interest, dividends or capital gains) -- with $6,000 of income, he paid next to nothing. 2) You pay the significantly lower capital gains tax rates on qualified dividends and capital gains. 3) Trump's merging of his personal and business lives through an S corp means that his lavish personal expenses (travel, clothing, meals, entertainment, his apartments, etc.) are tax deductible if they can be claimed as business expenses, which you can be damned sure he's doing. I'm guessing he also deducted his wives' jewelry and clothing as business expenses as well, because he takes them to business functions as a party decoration.

This means that when Donald Trump goes to a football game and sits in the pricey box seats, his company pays for it all, and then deducts it from his taxes. Great deal, huh?
We'd need to see Trump's full returns to know if he's really doing these things, but we can be pretty sure we won't because these things are almost certainly on them.

Mitt Romney angered a lot of people with his comment that 47% of Americans don't pay taxes, when the truth is that most of those people are paying taxes: Social Security and Medicare taxes, sales taxes, property taxes, etc. Trump has repeatedly made the same mendacious claim that 50% of Americans don't pay taxes.

Like Trump, they don't pay income tax, but they do pay payroll taxes, which Trump does not, because he doesn't collect any wages. And that's why Trump always says he's giving his book royalties to his "non-profit" foundation -- they would count as income, which he would have to pay Social Security taxes on.

Geniuses don't lose a billion dollars in a single year. Why did Trump lose so much money? He opened a new casino in an overheated market, lied to regulators about his financing and sold junk bonds that paid 14% interest, because respectable banks would no longer do business with him.

Real geniuses are people like Warren Buffett or Bill Gates or Robert Noyce (of Intel) who recognize or create real value, instead of losing money hand over fist like Trump did. Geniuses create value for their employees, investors, and the companies that do business with them. When geniuses are at work, everyone around them prospers.

Bill Gates, Steve Jobs and Robert Noyce created software and hardware companies that blossomed into entire new industries: millions of people earn their livings that grew out of the software and hardware platforms that Gates and Jobs built. Companies like Oracle and Google and Uber and Facebook are all built on the computer revolution that Apple and Microsoft started.

Donald Trump increased only his own wealth (and his lawyers, sure): he has stiffed his investors, suppliers, contractors and employees time and again. And then he sues them when they dare complain about how he screwed them.

Trump is no genius, he's just an incompetent and selfish dick.

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