One of the few interesting arguments Donald Trump has made on the campaign trail has been his insistence that, because he has a way of not paying his taxes, he’s a financial wizard amply positioned to reform the nation’s tax system. He likes to assert that Hillary Clinton, despite her years in public service, failed to provide that reform.
So this week’s investigative report from The New York Times on a tricky tax tactic Trump employed in the early 1990s to absolve himself of taxpayer responsibility is worth consideration.
Turns out Trump avoided telling the IRS about hundreds of millions of dollars in taxable income using an inventive strategy that’s so out there in the form of accepted tax reporting rules as to be rated a failure — even at the time — by some of the country’s smartest tax attorneys.
Trump, faced with the inability to repay hundreds of millions of dollars to Trump casino bond-holders, managed to persuade or pressure those investors into swallowing huge losses. The money squandered was their money, and they had the right to write off the shortfalls with the IRS. But because forgiven debt counts as taxable income, Trump should have reported it as such. Instead, his financial team came up with a novel approach to avoid telling the IRS. As one expert told The Times, Trump was getting something for nothing, and that’s hardly fair to hard-working business people who risk their livelihoods to make good, and hardly fair to workers who pay their taxes with the expectation of fair play across the board.
The loophole the blustery billionaire used, that tax attorneys found legally dubious at the time, traded worthless Trump partnership equity for debt. In a 25-page letter from tax experts on Trump’s avoidance scheme at the time, attorneys warned the plan was full of red flags and argued the strategy would likely fail before the IRS.
Remember that, unlike other serious presidential candidates, and candidates lower down the food chain, Trump has not opened his tax records to public review. So it remains unclear whether his strategy was challenged by the feds or if it worked.
But tax experts interviewed by Times reporters say Trump’s use of the legal fiction placed him far outside the scope of other real estate developers also looking for tax protection. Meaning, Trump was no regular business guy trying to do his best with a goofy tax code. What Trump was trying to do was much more risky and likely illegal under rules at the time. And he talks with a straight face about a system rigged against him.
Efforts to close one of the tax loopholes bore fruit in 1993. The bigger loophole that Trump worked to exploit was closed in 2004. And guess who voted with other senators to close it? Sen. Hillary Clinton.
Many Trump supporters say they could never vote for Clinton because of her e-mail and foundation controversies. But Trump’s business practices have consistently painted a portrait of a man only in the game for himself. Can anyone really believe he will turn that selfish self-interest into legitimate public policy reform?
What would be in it for him?
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