Love him or hate him, this why Trump's finances matter
Not Pretty, Not Rich is a newsletter about money, finance, and the economy written by me, Sam Becker.
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Why the president’s finances matter
The New York Times published a bombshell story Sunday about Trump’s finances.
President Trump has fought tooth and nail to keep his finances under wraps for the past five years or so. He’s the only recent presidential candidate who hasn’t released his tax returns for public scrutiny, something politicians typically do in the name of transparency. In the past, he’s said that he hasn’t done so because he’s currently being audited by the IRS (true).
All of this has created a fervor around what those tax returns could contain — why is he fighting so hard to hide them if there’s nothing sexy in them? Well, now we have at least a partial picture of the president’s finances as the New York Times has gotten a hold of 18 years worth of tax return data.
I don’t mean to dig into the politics of this revelation, or try to convince you whether you should vote for the guy or not based on this release. That’s up to you. But since this is a money-focused newsletter, and this story is focused on Trump’s finances, I think we should talk about why the president’s finances matter.
Based on the NYT story, there are a few key things that I think we should discuss:
Trump pays very few taxes.
He appears to be broke — or at least has very little liquidity.
He personally owes someone (or someones) a lot of money.
1. Trump’s tax bills
The headline figure from the New York Times story is $750 — that’s how much Trump paid in federal income taxes in 2016 and again in 2017. And in ten of the previous 15 years, he paid no income taxes at all. This should be surprising because, as a self-described billionaire, you’d expect him to pay more in federal income tax than, say, your average fast food worker.
Another big item: He also received a $72.9 million tax refund at one point. This, it appears, is the source of the federal tax audit he’s cited in the past.
As for how he’s managed to do it? The short answer is by writing off his business losses and expenses. One which you’re likely to hear a lot about is the $70,000 he paid to style his hair during filming of “The Apprentice.”
In effect, Trump and his accountants have used almost every tax avoidance trick in the book — that doesn’t mean that all of this is moral or ethical, but it’s essentially the same way that companies like Amazon end up paying no federal taxes, either.
And it’s important to keep in mind that tax avoidance and evasion are different — tax evasion is a crime, tax avoidance is not.
But the key takeaway from Trump’s tax bills here is that he’s been getting away with paying very little for almost two decades now. That, and his businesses appear to be losing a lot of money year after year (with some exceptions), which has allowed him to keep his tax bills low.
2. His businesses lose a lot of money
The president appears to be cash-poor, as they say. His businesses are losing money, he’s refinanced and borrowed against many of his properties, and as a result, is in significant debt. What this means is that while he may have considerable wealth (we may find out in the future), he doesn’t appear to have much money — at least not nearly as much as he’s portrayed.
Despite that, he’s been blowing through a lot of money over the years (like the $70,000 in haircuts) by justifying what may be considered personal expenses as business expenses. His homes and airplanes, too, may fit into this category.
And it’s worth harping on, too, that his businesses are losing a lot of money, further allowing him to write-down his tax liabilities. The report says that Trump has claimed $315 million in losses since 2000 on his golf courses alone.
3. The president’s debt
The president’s debt, in my opinion, is the real focal point of the Times’ story. The president personally owes $421 million in loans. Personally responsible — this isn’t his business, it’s debt that Trump, the man, is on the hook for.
From the Times:
“Should he win re-election, his lenders could be placed in the unprecedented position of weighing whether to foreclose on a sitting president.”
But the other big thing here is that we don’t know who these lenders are. We know that most, if not all banks in the U.S. have steered away from Trump, who’s notorious for not paying what he owes. Deutsche Bank has stepped in to lend the Trumps money in the past, however.
But it’s entirely possible, and maybe likely that these debts are owed to foreign lenders. And it can be particularly problematic if a foreign country has some kind of leverage over the American president.
Eric Trump famously said that the family’s business gets all the funding it needs from the Russians, so it’s not too difficult to put the pieces together here.
Why this story matters
This story is sure to evolve, and we’ll get more details as time goes on. But it’s important because the president makes decisions that affect all of us. And it appears that Trump is in a tight financial spot, which means that he could, possibly, be leveraged or blackmailed.
In other words, there are national security implications at play. His financial situation may explain why this president has been so friendly to hostile foreign powers: Because he owes them money.
This is why it’s important that our politicians are transparent with their finances, so we know that they have no ulterior financial motives, and are working in the best interests of the American people.
Now, I’d be surprised if this story actually has a tangible effect on the election. But it does make for a good reason discuss why a president’s finances are important, and why we should demand financial transparency from our leaders. Keep this all in mind as you vote during the next five weeks.
Until next time,