Republican presidential candidate and billionaire Donald Trump, shown at a September press conference in Washington, may have avoided paying any federal income taxes for years using the “loss carry-forward” provision. (AP Photo/Manuel Balce Ceneta, File)
Photo: Manuel Balce Ceneta
Photo: Manuel Balce Ceneta

Kempner: Trump’s ‘genius,’ or Tax Law 101?

The word “genius” was brutally maligned this week. It deserves an apology from Rudy Giuliani.

The former New York City mayor labeled his buddy Donald Trump a “genius” because he apparently used nearly $1 billion in business losses to avoid paying any federal income taxes, possibly for years.

I’m sure Trump is a smart cookie.

The billionaire presidential candidate has shared with us that he used tax laws “brilliantly.”

But I don’t understand why losing a billion dollars is genius. (Heck, I’m pretty sure I could do it, given a chance.) Or how listening to accountants suggest what looks like a Tax Accounting 101 maneuver is a sign of capitalistic brilliance.

Others can hash over politics. From a solely business perspective, nothing so far indicates Trump did anything differently from what other businesses would do after suffering a nearly catastrophic failure. (As Trump did in the 1990s with his casinos and the Trump Shuttle airline.)

In fact, as my colleagues have written, Delta Air Lines hasn’t paid federal income taxes on billions of dollars in profit in recent years because of past losses, and it’s just one example.

Sure, it’s weird to have a modern presidential candidate who didn’t pay federal income taxes. It makes some people think something fishy or at least unethical is going on, at least as Hillary Clinton would have us believe.

Looking to maximize tax breaks isn’t just a Trump thing. It’s what lots of Americans pursue.

It’s why it seems like roughly nine out of every eight Americans are accountants or tax preparers. It’s why every Dec. 31 police have to direct traffic at Goodwill centers as people rush to get in tax breaks by donating old Beastie Boys t-shirts, Kiss albums, TV trays and a tidal wave of vases.

There’s no denying the tax code is a mess that has become undecipherable for many Americans. Federal tax laws and regulations encompass more than 10 million words. That’s a whole lot of tax loopholes, switchbacks, tricks and treasures for special interests or anyone with enough time and money to dig.

But Trump’s people may not have needed to do much mining to come up with a strategy highlighted in a New York Times story suggesting he could have used $916 million in losses to sidestep paying federal income taxes for nearly two decades.

“Any student who has taken an intro to tax class should know that a net operating loss can be carried forward to future years,” said Bridget Stomberg, a University of Georgia accounting professor.

“It’s basic,” said Dorothy Brown, an Emory University law professor and scholar in tax policy. “None of this stuff is particularly groundbreaking.”

She told me that if tax attorneys didn’t know to pursue this kind of move, they could be sued for malpractice.

So both Brown and Stomberg seemed confused about where the “genius” and brilliant words apply.

“I don’t think anything about this reflects savvy as a businessman,” Stomberg said.

When there are hairy, complex tax issues, most big business leaders aren’t feverishly scouring tax codes in the middle of the night, creating new tactics on their own. That’s what people like Trump pay their accountants and tax attorneys to do.

“If there’s a genius, it is not the guy who signed the return, but the person who prepared the return,” Brown told me.

Of course, we can debate the justness of a system in which we’re all supposed to pay our fair share unless we have the money to figure out ways to pay less. (Or we make so little that we get a full pass.)

Stomberg told me there’s a rational reason to let business owners use legitimate business losses to reduce their taxes over many years.

“Economics is lumpy. Business goes through cycles.”

The tax provision, she said, is designed so it doesn’t deter businesses from taking risks.

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