WASHINGTON, October 2, 2016 — The Sunday headline in the New York Times, as well as a similar treatment in the Washington Post assert “Trump could have avoided paying taxes for 18 years, a report on tax records says.” This irresponsible headline and the speculative reporting that follows is simply a disgrace to journalism and a shameful display of biased reporting. “Could have avoided” is speculation, not fact.
Either newspapers today simply don’t understand the way the real business operates or they are so biased toward electing Hillary Clinton president that they have forgotten what it means to be objective. It is likely a combination of both.
The two newspapers do correctly report that Trump experienced a loss of more than $900 million in 1995. That is a tremendous loss for anyone to bear. In this case, that number is a result of some businesses in which Trump took a risk. The businesses proved unsuccessful, so he lost money. The actual amount of the loss, however, depends upon the tax rules that the federal government has imposed at a given time.
In each tax year, losses up to a given limit in the tax year in which they occurred can legally be used to offset gains. Losses exceeding that limit can be carried over to successive tax years, and can be legally deducted, thus helping offset potential future gains. In the case reported by the Times and the Post, there is no way to determine how many years Trump’s loss would be used to offset other income. If Trump does have $10 billion in assets and he earns a 10 percent annual return on his assets, it is possible that the loss will offset only one year of tax liability.
Our federal income tax system is set up so that business entities pay taxes on income earned. There are strict definitions for income and expenses in the tax code. However, if an individual earns $100,000 from his successful ventures but loses $100,000 on the ventures that were not successful, then the entity has no taxable income. That not a tax shelter or a loophole, it is simply sound, objective logic. The loss offsets the gain.
The media continually slams Trump for his Atlantic City investments, noting that he “stiffed” bondholders and many small contractors. Hillary Clinton says people like her father were small businessmen and she wouldn’t want to see her father stiffed by greedy people like Trump.
Trump’s Taj Mahal Casino Hotel cost roughly $1 billion to build. Trump put up about $100 million of his own money and financed the other $900 million, some through banks and some through bonds. This is the same way each of us typically purchases a house. We pay a 10 percent cash deposit (downpayment) and get a mortgage loan for the balance.
Trump brought in big name entertainment and attractions to his casino to draw crowds and build a thriving business. While Trump’s casino was successful in the beginning, however, its debt burden eventually proved too large. With costs continuing to exceed revenue, he had to place the casino in bankruptcy. Again this is exactly what any business person does in a similar situation.
The roughly $700 million in bonds went into default, since the Taj was unable make the interest payments. The media emphasized that Trump stiffed the investors. The reality was that Trump lost all of his investment, while the bondholders who demanded 14 percent interest on the bonds, eventually got all of the equity in the property. Trump lost all of his investment and lost ownership of the casino’s investors.
Many contractors were not paid the amount that they billed to Trump’s casino. This, of course, is a risk that any contractor takes when providing services, and a loss that was avoided by some of the businesses that understand the billing process in the construction industry. Additionally, according to Trump’s organization, many of the unpaid bills were for extras which Trump was not obligated to pay, while some were simply over-charges for work completed.
Given the general lack of public understanding with regard to the both conduct of real world business and the complexities of the federal income tax code as applied to businesses and entities, Trump has not released his tax returns, knowing full well how the media will slant its coverage. Sunday’s example of biased, one-sided reporting provides ample proof for why he hasn’t. In some years, real-world businesses have losses that are used to offset future income. Without that logical procedure in place, business investment—always risky no matter how well planned—would decline significantly. In such a scenario, our already stagnant economy would soon grind to a halt.
Confusing the matter further, some wealthy individuals have been claiming to offer policy suggestions that are actually contrary to their own business practices. Warren Buffett, for example, says that all wealthy individuals should pay a minimum of 30 percent of their income in federal income tax. Today, Buffet pays about a 14 percent tax rate. The reason is that he employs a team of tax lawyers and tax accountants whose sole job is to figure out how to minimize Buffet’s tax liability. It’s the same thing each of us does when we hire a tax professional to figure out–and minimize–our own personal taxes on our annual tax return filing.
If Buffet really wanted to pay 30 percent, all he has to do is stop shifting his earnings from ordinary income to capital gains and stop taking all of the deductions he’s allowed by the current tax code. Since he does not and will not, it would seem that Buffet’s sincerity in this matter is questionable.
The Washington Post and The New York Times should immediately cease their shameful, biased reporting tactics and return to the days when they once published all the actual news fit to print. And report it in an objective manner.