I read with great interest today about the fact that Donald Trump has only coughed up $750 in taxes to the IRS in recent years.
My first thought is that I can imagine most Americans would choke on their cereal in reading this. Most would think that the president must either be fraudulent, or he’s not as rich as he says he is.
The fact that President Trump hasn’t paid a whole lot of taxes, plus received a massive tax return from the government, might be a surprise to the majority, but the reality is that the ultra-rich do not pay as much tax as most might think.
And it’s not because they are frauds. Yes, they have access to the best accountants and so pay the bare minimum, but businessmen and women like Trump carry so much debt against their assets that this drags their tax bills way down by way of incurring losses against businesses.
If you’ve heard the saying ‘cash-poor-asset-rich’, then this may be the way the president runs his finances. If you add up the value of his assets, he is mega-rich. But if you look at his liabilities (or the debt he is carrying), then he may not be making as much money as you think. If those assets are sold, then he is rich, but whilst the bank holds control over them, the riches are not gained unless the asset is sold and the bank paid back their portion.
Is Trump fraudulent? No. Gutsy? Yes. Real estate empires – or in fact, most any empire – is generally not built without the help of debt. Very few people have the cash in the bank to fund the opportunities they see in front of them. They need the help of the banks to fund their ventures.
His strategy is not as simple as it sounds though. Yes, you might not be paying a lot of tax, but you have to have a very strong stomach to be able to live with that much debt. Businessmen like Trump borrow tens of millions of dollars – often hundreds of millions – and they could go bust at any moment.
In fact, the majority do and a select few seem to escape the jaws of death and make it to the top. According to Wikipedia:
Although Trump has never filed for personal bankruptcy, hotels and casino businesses of his have declared bankruptcy six times between 1991 and 2009 due to its inability to meet required payments and to re-negotiate debt with banks, owners of stock and bonds and various small businesses (unsecured creditors). Because the businesses used Chapter 11 bankruptcy, they were allowed to operate while negotiations proceeded. Trump was quoted by Newsweek in 2011 saying, “I do play with the bankruptcy laws—they’re very good for me.”
The six bankruptcies were the result of over-leveraged hotel and casino businesses in Atlantic City and New York: Trump Taj Mahal (1991), Trump Plaza Hotel and Casino (1992), Plaza Hotel (1992), Trump Castle Hotel and Casino (1992), Trump Hotels and Casino Resorts (2004), and Trump Entertainment Resorts (2009). Trump said “I’ve used the laws of this country to pare debt. … We’ll have the company. We’ll throw it into a chapter. We’ll negotiate with the banks. We’ll make a fantastic deal. You know, it’s like on The Apprentice. It’s not personal. It’s just business.] This arbitrary and blasé stance is at odds with many small business and wage earners, let alone the state and federal taxes and retirement payments avoided by such Chapter 11 filings.
That is not an easy way to live. Just try not making your car re-payments or home loan for a few months to see how unfriendly the banks are to deal with. Personally, I could not stomach that much risk. I’d prefer to pay my taxes and live a simpler life. So President Trump might not be paying a lot of tax, but he has also paid a high personal price for it. High debt is a very uncomfortable bedfellow.
Not only that, but as he pointed out, he is the only president not to take his $400,000 salary. That’s $1.6 million he has given up since entering the White House.
So back to my original question: is a billionaire is fit to run the country? My opinion is that, yes they are, but the general public will somehow have to be educated on the fact that these guys don’t live lives like you and I. They will enjoy tax breaks that the workers don’t, but they can bring innovation and outside-the-box thinking that governments are going to need to employ as the world changes at a rapid pace.
Covid is going to change the way our world works, and run-of-the-mill politicians might not have the innovation and entrepreneurial flare needed to come up with a new way of running the economies of the world.
Matt Danswan is the CEO of Initiate Media, publishers of SP. He also blogs at www.mattdanswan.com and is the author of NOT Business As Usual.