In today’s Exponential Investor…
- A web of lies and losses
- What is going on with Trump’s tax returns?
- What does it tell us about American society?
The New York Times dropped a huge bombshell overnight, publishing an awesomely long article, which investigated and made sense of Donald Trump’s tax returns.
It had obtained them through people with legal access to them – ie, people have leaked them to the press.
It makes for fascinating reading, but not for the reasons you might have imagined…
The revelations are these.
Trump pays no income tax most of the time. His businesses are failing. And he has over $400 million in debts falling due in the next few years, for which he is personally liable.
It doesn’t prove criminal behaviour, it doesn’t prove links with Russia, or illegal payments to his lawyers for the Stormy Daniels thing… You can find the full article here by the way.
What it proves is that the system is as woeful as we feared.
For me the most upsetting thing was this paragraph:
Testifying before Congress in February 2019, the president’s estranged personal lawyer, Mr. Cohen, recalled Mr. Trump’s showing him a huge check from the U.S. Treasury some years earlier and musing “that he could not believe how stupid the government was for giving someone like him that much money back.”
Because it’s so true.
The more I read of Ben Hunt, the more I am concerned for the fabric of capitalism as it currently exists. With the Federal Reserve enriching the pre-enriched, Trump enriching his family members and properties through the Oval Office, and listed companies enriching themselves through debt and buybacks, while Elon Musk traipses around in his private jet “solving the climate crisis” one carbon intensive EV at a time, I just feel a growing sense of unease.
The IRS returning $72 million in income tax refunds to Trump just seems… wrong.
It’s literally like monopoly, when the person with all the properties and money gets the Chance card saying “Advance to GO! Collect £200”, skipping past your dark greens on the way.
The theme running through the whole thing is not that Trump has committed crimes, but that he has found and used every legal means possible to reduce his payment of income tax. Oh, and that (obviously) he lied loads about it and is a total scumbag (obviously). More on this later.
The key to his tax-avoidance (crucially not “evasion” – which is the illegal version of avoidance) is the offsetting of taxable income via previous losses. That’s how he managed to pay precisely zero dollars of income tax in ten of the last 15 years, and how he paid only $750 the year he became president.
Essentially, if your portfolio of income-producing streams is net negative in a year, you don’t have to pay income taxes.
If it’s positive one year, but was negative in previous years, you can carry over the previous negative balances to offset the positive years.
And it turns out that Trump’s assortment of business interests is mostly loss-making.
Aside from his The Apprentice money, which totalled over $400 million in profit to Trump through TV deals, endorsements and licensing, Trump’s hotels casinos and golf resorts have lost millions each year.
And that fact is beginning to gain significance, argues the NYT piece.
Apparently, Trump is running out of money, and running into a rough few years too.
His debts, for which he has made himself personally liable, total over $400 million and fall due in the next four years.
Which means, astonishingly, that if he gets a second term, his creditors will have to decide whether or not to foreclose on a sitting US president – Trump might have to sell of his golf courses, hotels and towers to pay off his loans.
What are they gonna do though, send around big Dave with his metal bat? Get the heavies in?
Hard to see it happening, to be honest.
Then there is another issue. That $72 million I mentioned, well it turns out he might have claimed it back on shaky ground.
When exiting the casino business in Atlanta, he legally “abandoned” them. This wording means he left with nothing and can write off everything as a loss and claim it against future earnings, which he has done to great effect.
However, the piece claims that Trump actually walked away with a 5% equity stake in the businesses he left, meaning he did not leave with nothing, which would negate the legality of the entire $72 million refund.
If it is decreed (and this case is under review) that it was not a legal basis for a refund, Trump would have to pay the sum back, plus interest and fines, which would be over $100 million, adding to his existing debt burden of $400 million.
So it’s adding up. And he has already sold down the entirety of his stock and bond portfolio to pay off pervious debts, the tax records show.
And he can’t look to Mar-a-Lago to bail him out. Although he has wickedly held on to his business assets as president, and used his presidency to boost its usage and appeal, it is not enough to counteract the losses from countless golf courses, hotels, and the rest.
His tax records from the last couple of decades show an incredible pattern of bad business management, whether money just bleeds from almost everything he touches, with a few notable examples.
Trump campaigned on the fact that he was so rich because he was so clever and had built such a phenomenal business empire so he must be a genius so people should vote for him.
This was always fantasy and idiocy, but the tax records prove it, which is kind of nice.
Overall, the picture is clear. Trump is not a great businessman, as we suspected. What he is brilliant at is tax-avoidance.
And that is keeping him afloat, but the next few years are going to be very painful.
Ivanka also floats in and out, collecting “consultancy fees” through quiet payment and private organisations, without seeming to have done anything. This is dodgy, but hard to prove that it’s actual tax evasion (dodging inheritance tax and “gift” taxes).
It’s such a complex and well-fortified web of chaos that it will once again be hard to prove that Trump is a criminal.
What it tells us instead is that the ultra-rich have a million weapons in their tax-avoiding arsenal, which is always a sad realisation. The $72 million refund stings especially nastily.
It’s just another way in which the asset rich have done well in the US since the central banks started their exceptional monetary policies. The little guy doesn’t have so many ways to match their accountants, lawyers, and now I think of it, their fund managers.
Luckily, that’s where we come in. At your service as always,
Editor, Southbank Investment Research