Tuesday, October 4, 2016

Finacial Illiteracy and Trump's Taxes

Most Americans know nothing about how taxes work, so if you say that someone or some company "doesn't pay taxes" they get all outraged.

Donald Trump is in the news again for two reasons.   One is pretty bad and the other is very neutral.  But oddly enough the press - and even the Democrats - are playing up the one that is neutral and ignoring the one that is potentially very bad.

Why?  Because Americans are ignorant about taxes and the law, and if you have to explain things in anything longer than a tweet, they lose interest and don't understand what you are getting at.

The New York Times reports that from a leaked 1995 tax return that Donald Trump reported a nearly billion-dollar loss.  The media gleefully reports that this means Trump "might not have had to pay taxes for a decade or more" as if this was some sort of criminal action.

The reality is, of course, that in the 1990's Trump's financial empire imploded.  He lost many of his properties (even if his name remained on them) and he lost his airline and his yacht (the Trump Princess once the world's largest private yacht).   He wasn't broke, as he "crammed down" his lenders and ended up with a cushy deal that kept his name on his buildings and a nice yearly fee as a "consultant" or manager of these properties.

But he indeed may have taken a billion-dollar loss that year.   And here's something funny - you don't pay taxes on losses.   Simple concept - it eludes most.    And if you lost a billion dollars one year and "made" a hundred grand the next, it doesn't mean you "made money" the next year, as you have a billion-dollar hole to dig yourself out of.   So you can "carry over" losses to the next year or even the year after, or even beyond, depending on whether the losses were active or passive.

Oh, wait, that doesn't fit into the 140-characters of a tweet, don't it?   So no one "gets" it and they just hear "he didn't pay taxes while I have to!" and think he did something illegal, which he may or may not have done, but the "leaked" tax return from 1995 doesn't indicate either way.

Emotional thinkers, however, latch onto the "he didn't pay taxes" mantra and assume it means he is a bad person.   Well, he is a bad person but not necessarily because of the taxes.

Meanwhile, another story breaks about the Trump Foundation which is really scary and no one notices because it is a complicated story and again, can't be explained in a tweet.

According to the New York Times, Trump started a Foundation to distribute his wealth to charity.   Problem is, he never distributed his wealth to charity, but instead solicited money from other people, who donated millions of bucks to his foundation.

Nothing wrong with that, but if you are going to raise money from others, you need to register as a charity, which Trump failed to do.   Well, OK, that's a technical violation perhaps.  But it gets worse.

Not only has Trump failed to donate any of this money to charities (to wounded veterans as promised) but it appears he used the money for his personal use and for political donations both of which are prohibited by law, not to mention sound pretty low for money ear-marked (by himself no less) for wounded soldiers.

Worse yet, the political donation was to the Attorney General of Florida, who subsequently dropped an investigation of "Trump University".   So one could argue that Trump used this charity money as a slush fund to pay political bribes, and that is pretty darn low.

If these allegations are true, then Trump has done something not only illegal, but immoral as well (using charity money earmarked for veterans to pay himself as well as pay political bribes).

But where is the outrage?   There isn't any because Americans are emotional thinkers and financially illiterate.  They understand the emotional argument of "didn't pay taxes" even if it doesn't indicate any wrongdoing or malfeasance on the part of Trump.   They don't understand the complex argument about not registering as a charity as it is too convoluted and complex.   Perhaps the dems should drop the tax argument and use the tweet "Trump steals from charity" instead.   People might actually get that.

Sadly, none of this will be thoroughly investigated until well after the election, so we likely won't know anything definitive about his taxes or the Trump foundation until well after November 8th.