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October 03, 2016

Obligatory Post About Trump's Taxes

I'm not really sure why it's a big deal that someone who has an income loss is not required to pay taxes. It's an income tax -- if you have no income, you pay no tax. Even if you already are sitting on a huge pile of money.

Because it's an income tax, not a gross net worth tax. If you have a high gross net worth, but fail to add to it in a year (or experience a loss), then you pay no income tax.

Also, I don't understand the big issue about carrying forward business losses into subsequent years. This is standard tax policy and long has been. There's a reason for it. Not that it matters -- whether there's a reason for it or not, it doesn't change the fact that this is tax law and people are both required and permitted to obey the law.

The reason for the carry-forward rule is that you can, in fact, lose so much in one particular year due to business losses that it could take you ten or more years just to make up ground. In other words, in one year, you can have a very high negative income -- you get wiped out.

It's been determined by legislators that it's not quite fair just to give you zero tax obligation for the one year you lost almost a billion dollars. Instead, they permit you to carry forward part of that loss over the course of subsequent years. You're allowed to use fractions of that big loss you suffered to offset business income in succeeding years.

Again, it makes sense, when you realize that losing a billion dollars in a year will give you zero tax liability in the year you take that loss, but it could take you many years to make that loss back up, and it's not exactly fair that you'd be paying taxes on business "gains" which are not really gains, simply recouping a fraction of what you lost several years before.

That's why you're allowed to carry forward these losses over several years.

Basically, it's a completely rational rule that basically allows people to pay income taxes on their average yearly income over a period of years. If you lose $950, then make $50 million a year for nine years, your average yearly income is negative $50 million per year.

Which people have decided more reflective of your actual income averaged out over a period of years than the contrary rule of taking your full $950 million loss in one year, paying no taxes in only that year, and then paying taxes on the $50 million per year for nine years. (Given that you still are nowhere near having made up all that lost ground yet.)

Let's make this simple. Let's say you lose $100 million in 2014, then make $100 million in 2015.

What taxes should you pay over that two year period?

Without the carry-forward losses rule, you'd pay nothing in 2014, and then about 50% of your income in 2015.

With the carry-forward rule, you carry your 2014 loss into 2015 so that your average income, over the two year period, is $0 per year.

Which is more fair? I think the latter rule is fair. The first rule uses the artificiality of a strict year-by-year accounting to say you "made" $100 million in one year without taking into consideration you lost the same amount the 12 months prior.

Whichever rule you think is fair, the latter rule is law.

Lottery winners similarly reduce their tax liability by averaging income over several years and paying taxes on the average income over a certain number of years. (Five, I think, but I'm not certain of that.) That seems more fair to the IRS than paying a larger fraction of the lottery windfall in one year.

Anyway, not only is the tax part of this not news -- it's the law; always has been; look it up; Google is your friend -- but neither is it news that Trump took a $900 million loss.


Will Rahn calls this a "great catch" but I don't know if it's a great catch -- if you write a book called The Art of the Comeback, this implies you're coming back from a setback.

If the implication isn't obvious there, there's also the fact that Trump's huge wipeout was big news at the time, and ever since -- when people keep talking about Trump's bankruptcies, do they imagine he went bankrupt during flush years?

There is a problem here, though. The problem is that this is all well known, Trump isn't exactly forthcoming about it, and attempts to hide it to the extent that plausibility will allow, and sometimes a bit past that extent.

Trump does not understand the limits of plausible spin.

Let's compare Trump to George W. Bush.

Bush had a secret that wasn't a secret -- he drank too damn much at one point of his life.

He couldn't keep that a secret. Too many people knew about it. He'd cursed out reporters drunkenly. He had become a teetotaler -- something that only alcoholics (or hard drinkers; Bush never confessed to being an actual alcoholic) usually do.

Did he hide this? No, he made this a fairly central part of his political biography. He turned his alcoholism -- or his problem with drinking too much -- into a humanizing detail, and a story about redemption, and a story about why he now has empathy for other people.

He also used it as an explanation, if I recall correctly, of the larger role God wound up playing in his life. I believe (again, going by memory) he linked getting off the sauce with accepting a Higher Power, as they say.

Net result? A major negative on Bush is turned into something which is neutral-but-leaning-positive, a thing that now kind of counts in his favor, rather than against him.

Now, Trump easily could have made his wipe-out a central part of his political biography. He could have talked about having lost it all -- but having summoned within himself the grit and drive to win it all back. He could have likened his own experience to the fate now facing America, with declining income and debt we can never hope to repay and facing bankruptcy in the not-so-distant future.

Instead, he kept insisting he was a winner and always had been and when he lost, that was just proof of how smart he was.

He didn't really deny he'd taken a bath in 1995 -- but he got very evasive when he talked about (or around) it, rather than taking it head on.

As I'm typing this, Trump is making a case similar, sort of, to the one I outline above (though note I've had this post written in my head all day).

But it's a bit late to offer positive spin after having dodged this fact for so long. He could have made this a central positive rationale in his favor -- I've been at the brink and I've fought my way back through grit and wit; I can do the same for America.

Instead, by not ever thinking too much about what spin is plausible (acknowledge the failure, but claim a redemption story and wisdom gained from it) and what spin isn't plausible (I always win, and even when I lose, I meant to do that), I think this is now irretrievably a net loss for him.

By the way, the Italians have a word for the idea of being "too cunning and savvy to accept bullshit as true." I forget the word. I've mentioned it on the site before, but now I forget it. If you know it, let me know.

This idea that permeates Italian society -- of craftiness -- actually fuels cynicism and conspiracy theories, because naturally the people who are the craftiest don't believe anything anyone ever says, even things that are almost certainly true.

Anyway, this habit of Trump's of offering spin that only fairly unsophisticated people could believe alienates people who like to think of themselves as sophisticated (whether they're right about that belief or not).

Like this crap that he's a "genius" for utilizing a completely well-known and frequently-used part of the tax code.

The Italians may have a special word for it, but people everywhere like appearing to be knowing enough to not be taken in by horseshit.

When you offer people horseshit, their ego gets involved, and they wind up deciding something like, "I can't support this guy, because if I do, people will think I believe this bullshit, and I must appear to be craftier and more knowing than to believe that."

I don't understand that algorithm myself -- I think these people aren't crafty enough to realize you can discard such horseshit and yet still decide that, on balance, Trump's horseshit is less stinky than Hillary's -- but such is the thinking of the halfway smart.

I wish the #HalfwaySmartSet could get past the need to look smart for their fellow #HalfwaySmartSet brethren, and actually be all the way smart, but that has never happened in all of history and won't be happening to the GOP chattering classes this year either.

Eddie Dane: Very smart. What were you doing at the club, talking things over with Leo?

Tom Reagan: Don't think so hard, Eddie. You might sprain something.

Eddie Dane: You are so goddamn smart. Except you ain't. I get you, smart guy. I know what you are. Straight as a corkscrew. Mr. Inside-Outski, like some goddamn Bolshevik picking up his orders from Yegg Central. You think you're so goddamn smart. You join up with Johnny Caspar, you bump Bernie Bernbaum. Up is down. Black is white. Well, I think you're half smart. I think you were straight with your frail, I think you were queer with Johnny Caspar... and I think you'd sooner join a ladies' league than gun a guy down. Then I hear from these two geniuses they never even saw this rub-out take place.

Frankie: Boss said to have him do it. He didn't say nothing about...

Eddie Dane: Shut up! Or maybe you still got too many teeth. Everyone is so goddamn smart. Well, we'll go out to Miller's Crossing... and we'll see who's smart.

Note that even though Tom eventually shows himself to be all-the-way smart, Eddie Dane was actually right about Tom being halfway smart here. Were it not for a (somewhat convoluted) plot twist, Tom would in fact have been exposed as halfway smart when they searched for the (non-existent) body at Miller's Crossing, and then executed.

Fortunately for him, some sheenie yegg had planted an entirely different body, that of his male twist, out in the woods.


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posted by Ace at 04:52 PM

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