“Donald Trump declared a $916 million loss on his 1995 income tax returns, a tax deduction so substantial it could have allowed him to legally avoid paying any federal income taxes for up to 18 years, records obtained by The New York Times show.”
This was the lead paragraph of the story in the New York Times Saturday morning, October 1, 2016.
The facts that can be gleaned from the three pages from the three state tax returns published by the New York Times, because those pages were provided to a reporter for the New York Times, are fairly clear.
The major fact is that of the enormous loss — $916,000,000 — claimed on Trump’s personal state tax returns from New Jersey, New York and Connecticut, while he was married to his second wife, Marla Maples, is an amount with an impact that could have been (and likely was) carried forward on future tax returns. This “carry forward” is a provision in tax law that allows someone to claim the impact of an asset value-based or other financial loss for many years into the future, as well as years into the past.
The “carry forward” provision had previously enabled tax filers to carry forward impact of a loss on taxable income for up to 15 years into the future and “carry backward” up to 3 years before the year that the original loss was claimed. (That legal provision has been revised to allow carry forward for 20 years and carry backward for 2 years.) This means that Donald Trump could (and likely did) claim that the $918 million loss experienced on his personal financial books in 1995 impacted his financial status and taxable income up to 2015, based on the carry-forward, and backward to amended returns filed for his 1994 and 1993 tax returns.
Whether or not Trump claimed this carry-forward impact is not known, because he has not revealed all his tax returns from 1996 to the present. This is a problem, because since the early 1970s, tax-related behavior of presidential candidates came to the fore during former president Nixon’s time, as Nixon did some very shady and illegal things with his taxes that would not have been uncovered had journalists not pushed for documentation. But, it’s logical to expect that he took the full benefit of the tax adjustments available to him because he’s so “smart,” and because he’s firmly committed to paying no more than the minimum amount of tax that he would owe each year, based on income.
During the last couple of days, since the story broke, Trump surrogates such as Rudy Guiliani and others have appeared all over the airwaves claiming that Trump is a “genius” for using the tax code this way. They have also stressed that doing this was not illegal — although no one, including the New York Times, has ever claimed that what Trump did regarding how his tax obligation was managed was illegal.
Why do all these business-related tax matters affect Trump’s personal tax returns? This is because of the types of corporations that Trump’s businesses are set up as. Because they are S-corps or similar types of entities, their financials are intrinsically bound up in the entirely personal financial matters of Donald Trump.
Most people who create financial or business entities to do business create those businesses using corporate structures that clearly separate the “business finance” from the “personal finance,” usually to reduce the likelihood that financial liabilities of the business would affect the personal financial situation. But Donald Trump has set up many business entities using structures that make the “personal” virtually indistinguishable from the “business.”
This is why the financial affairs of the many Trump businesses — failed (or bankruptcy-declaring) hotels such as the Taj Mahal in Atlantic City, and the now-defunct Trump Shuttle airline — were intrinsically bound up in Donald Trump’s personal financial dealings and his personal tax liability.
Related to this is the Net Operating Loss. According to the New York Times, “The provision, known as net operating loss, or N.O.L., allows a dizzying array of deductions, business expenses, real estate depreciation, losses from the sale of business assets and even operating losses to flow from the balance sheets of those partnerships, limited liability companies and S corporations onto the personal tax returns of men like Mr. Trump. In turn, those losses can be used to cancel out an equivalent amount of taxable income from, say, book royalties or branding deals.”
The New York Times story continues to explain, “In a few short years, he had amassed $3.4 billion in debt — personally guaranteeing $832 million of it — to assemble a portfolio that included three casinos and a hotel in Atlantic City, the Plaza Hotel in Manhattan, an airline and a huge yacht.”
According to the New York Times reporting, in the 1990s, Trump’s businesses were losing large amounts of money — the Trump Taj Mahal casino reported a $25.5 million net loss during the first six months of 1990; the Trump’s Castle Casino lost $43.5 million that year. The Trump Shuttle lost $34.5 million during the first six months of that year.
All this being what it is, the central problem is not that what Trump did was inherently illegal — it was entirely legal. And no one has disputed the legality of his tax management strategies.
The problem with Trump’s tax picture is that his handling of it has been fundamentally dishonest. As someone running for president, he has tried to paint a picture of himself as a wise businessman. He has consistently marketed himself as a very successful businessman, someone wise and smart, someone who knows how to manage businesses well.
Trump borrowed millions of dollars to build casinos and buy overpriced real estate — the Plaza Hotel and the Eastern Air Lines shuttle as a couple of examples. His businesses lost large amounts of money, and several of those businesses needed to declare bankruptcy to protect themselves from creditors. Those losses obviously had huge impact on what amounted to $918 million in losses for which he accounted on his personal tax returns for 1995.
A wise businessman does not run many companies so badly that they generate $918 million in losses in a short span of time.
The goal of running a business is to make money, not to lose it. Donald Trump is not a wise businessman. Trump’s consistent marketing of himself as a smart businessman, and his saying that his business prowess makes him qualified to be president of the United States, is absurd and false on its face.