The president doesn’t exactly have a sterling reputation for discretion, but if there’s one area where he exhibits a remarkable, vault-like secrecy, it’s the substance of his own finances. Repeatedly saying he’s “really rich” is one thing, actually proving it is another. The gilded atrium of Trump Tower on Fifth Avenue symbolizes the opulence and glamour that President Trump has always wanted to project, but the bombshell report on Donald Trump’s tax returns is a remarkable feat of journalism. The team in my opinion deserves special praise for making their findings comprehensible to general readers and not getting lost in the details.
Yet like many other revelations in the Trump era, the tax news falls into the category of “shocking but not surprising.” Many observers had already surmised that Trump paid little or no taxes, that his claims of brilliant business success were a fiction, and that he is deep in debt. Now all of that is virtually confirmed. But what does it mean for America’s future?
Everyone will come at this question from their own angle. When I read the report of the Times, I quickly found myself thinking about… the theory of business capital structure. No, really!
For many people, no doubt, the main takeaway from the tax revelations will be “750 US-Dollar?!” “Really?!” The fact that Trump paid less in taxes than tens of millions of hard-working Americans struggling to make ends meet is an outrage. It’s also easy to explain in a few seconds, which is why it’s the theme of a quickly released ad from the Biden campaign.
From a substantive point of view, however, Trump’s tax avoidance is less important than the confirmation of what many already suspected: His carefully cultivated image of being a hugely successful businessman is, as he would say, fake news. In fact, he has done a terrible job of running his businesses.
One telling might be the 43rd floor of a “forgettable” office building in San Francisco.
This office space represents just one of a number of opaque financial arrangements. Which examines the money flowing into the president’s private coffers. The leaseholder for this empty floor in this instance is the Qatar Investment Authority, a sovereign wealth fund, an investment arm of the Qatari government. Trump owns 30% of the tower – a stake worth around 500 million dollar after debt, making it the most valuable asset in his entire portfolio and just the sort of arrangement the founding fathers feared, calling such arrangements a possible violation of the Constitution. “A foreign government, it seems, has been secretly paying the president of the United States for more than a year.
Some of the better known financial scandals involving the Trump family business from the past few years, including the jacked-up membership fees at Mar-a-Lago and Trump’s indefatigable and somewhat inexplicable attempts to build a skyscraper in Moscow. Upon assuming the presidency, Trump refused to divest himself from his commercial interests, proclaiming that it would be sufficient for him to leave his business in a trust for his sons to run. But the president is still “ the owner of over 100 entities,” which taken together, make up the Trump Organization, one of the most unusual businesses in America.
But why does this all matter?
Voters often seem to believe that effective business leaders have the skills and knowledge to lead the nation as a whole. They’re wrong about that. Even genuinely great business people – people like, say, Herbert Hoover – are often very bad at public policy, because the skills needed to run a business and those required to steer a nation are very different.
In Trump’s case, however, the old joke is true: He isn’t a great businessman, he just played one on TV. It should come as no surprise, then, that he has been consistently hapless at devising policy. On just about every front, from diplomacy to infrastructure to trade wars to fighting a pandemic, he has been Midas in reverse.
How much will the revelation that he has always been a fraud hurt him?
Many of his supporters will probably refuse to acknowledge the truth, perhaps because they won’t admit to themselves how completely they were scammed. But assuming that the news will have no effect at all is probably too cynical. And remember, Trump is running behind Joe Biden, so he has to do more than keep his base – and this may not do much to win over undecided voters.
The most important revelation from the report, however, is its confirmation of another thing many observers already suspected: Trump has hundreds of millions in personal debt. It’s unclear whether he has the resources to repay it. The for example Trump International Hotel in Washington, D.C., located in the landmark Old Post Office building, opened to immediate controversy just weeks before the 2016 election. It looked like a place where it would be remarkably easy for D.C swamp creatures and foreign governments to spend money and try to curry favor with the president – and it was, at least to a point. But Trump had to take out an enormous loan from Deutsche Bank for renovations; operating costs were high, making profit margins low. Security issues and the deteriorating value of the Trump brand made it “less of a cash cow and more of a money pit.” The hotel was put on the market last fall. In April of this year, after the pandemic hit, the Trump Organization sought relief on the hotel’s lease payments.
Personal financial trouble has always been a red flag when it comes to filling sensitive government positions because it’s an open invitation to corruption.
So the confirmation that the nation’s chief law enforcement and national security official – whose business empire already offers many opportunities for undue influence – is drowning in debt is in my opinion quite chilling.
Beyond that, analysts of business finance have long known that high levels of debt, enough to pose a substantial risk of bankruptcy, create destructive incentives. Instead of investing in the future, the owners of highly indebted businesses are tempted to engage in asset stripping, getting the money out before the creditors stake their claims.
Owners of debt – hobbled businesses are also tempted to take big risks, even at bad odds, because if they get lucky, they might save themselves; if they don’t it’s someone else’s problem. Heads they win, tails the creditors lose.
Donald Trump’s real plan in my opinion from the beginning was to turn the presidency into a business. For some free-market conservatives who keep touting the efficiencies of the private sector, that may have sounded like a dream come true, but what if the business turns out to be a bad one – recklessly managed, drained of cash, gutted of expertise?
The pandemic has provided an obvious test case, presenting the president with a virus that not only has killed more than 200,00 Americans so far but also continues to decimate his considerable stakes in the hospitality industry. Taking the pandemic seriously should have been a no-brainer for him, buoying his political capital and rescuing his net worth – yet he has refused to do it, pushing states to reopen early and holding indoor rallies.
As much as Trump says he loves money, he seems to have a hard time holding on to it. I estimate that if Trump had only done what ethics officials wanted him to do liquidating his assets when he took office, and having invested such proceeds in a nice, boring mutual fund or ETF modeled on the S&P 500 – the president now would most probably be about 400 million US-Dollar richer.
But now we have a deeply indebted business owner with every incentive to engage in malfeasance – except that in addition to running his business, he’s running the United States of America.
But he may be about to lose that special position and whatever financial defence it may provide.
Think about it. Also think about the fact that Trump constantly complains about almost nonexistent voter fraud – he has never accepted the fact that he lost the popular vote four years ago – and that he has repeatedly refused to say that he will accept election results if he loses. And tell me that you aren’t terrified about what the next few weeks may hold.