Four years ago, I published several commentaries and blog posts addressing the legal issues raised by the potential release of President Trump’s tax returns. While those posts focused upon arcane legal minutia regarding disclosure of tax returns filed with the IRS, I also speculated on what we might learn from the returns. Now that we know more about the data in the returns, I am offering my analysis of that data based upon what I have learned from my decades of reviewing complex tax returns.
The reporting so far has identified several matters worthy of comment. Specifically, the returns show that —
The President paid less in federal income tax for many years than my daughter’s former nanny.
The President and his advisors used several approaches (some routine and some debatable) to minimize his tax liability.
The President regularly reported hundreds of millions of dollars in losses through his business ventures.
The President owes unidentified lenders roughly $500 million (much of it personally guaranteed) and much of that debt must be repaid during the next four years.
Not much of this is particularly surprising to experienced tax professionals, but I believe that the public and the mainstream media have focused upon the wrong parts of this story.
That Mr. Trump has rarely paid federal income tax is unremarkable. The tax laws allow many wealthy individuals and corporations to pay seemingly tiny amounts of federal income tax. Particularly in the real estate industry, the law contains incentives and subsidies which can drastically reduce the tax liabilities of developers. Those who object to the fact that aggressive use of these provisions allowed the President to pay only miniscule amounts of federal income tax, however, should not direct their ire at the President; no one is obligated to pay more income tax than they lawfully owe. Critics should instead focus upon a future legislative debate about tax reform. Similarly, facts like the President deduction of $70,000 for hair styling services is titillating (of course, the late night comics should have fun with that one), but not proof of illegal behavior or unfitness for office.
The fact that the President has reported enormous losses on his tax returns is of somewhat greater importance. Reporting losses is not illegal. But, the President has sold the myth of his success as a businessman as a qualification for the presidency. The “emperor has no clothes;” Mr. Trump is a failed businessman who has lost many millions and left others to face the consequences of his failures. A host of lenders, Atlantic City casino workers, students at Trump University, contractors, and service providers already knew that. Long ago, they learned the hard way that Mr. Trump is a man who does not pay his bills. The returns show that, while Mr. Trump may be a genius at self-promotion, he is not a successful businessman.
The most important fact shown by the returns is that the President has borrowed roughly one half billion dollars, most of which he has personally guaranteed. Particularly critical is the fact that those loans must be repaid during what would be the President’s second term in office. the evidence suggests that. In all likelihood, Mr. Trump does not have the money to repay those loans. So, a collection of lenders (whose names and nationalities remain undisclosed) will hold the power to personally bankrupt the President of the United States while he serves in office.
National security is at risk when government officials are in financial peril. For example, while I held a security clearance while working for the Justice Department, my superiors were concerned about my financial solvency, particularly any debts I owed. They rightly worried that, if I were insolvent or bankrupt, I might be subject to blackmail or financial pressure to serve the interests of my lenders—not the interests of the United States. The bottom line is that anyone with that type of financial baggage would never pass a routine government security screening and would not be trusted with important government affairs. The risk of outside influence is too great.
Today, we know that President Trump is likely insolvent and has no apparent means to pay debts which would come due during a second term. Whoever, the lenders are, they will have the power to financially blackmail a sitting President with the threat of personal bankruptcy. Even worse, the lenders may well be foreign people or entities who would use that power to influence the President’s conduct of the policies of our country.
That is what keeps me up at night and which should scare all of you. Even worse, the President’s efforts to keep his financial affairs secret raises the risk that the lenders are less patriotic than Citicorp or JP Morgan. In my opinion, the President’s personal debts ought to be disqualifying. That is the real story.