​Trump's tax game


I wrote this in October of 2016. I had no idea how prescient it would be.
 
Trumps greedy long game - Trumps' heirs would receive at least $4 billion benefit at the expense of the US taxpayer
 
Donald's 1995 tax return was recently released. It's interesting that he had a tax loss of almost $1 billion in that year, but that, along with tax deductions, is business. Really nothing to see there. But it got me thinking.
 
The tax system is complex for businesses. One of the features is that it allows businesses to recognize depreciation of assets. Most governments do this in some form to encourage investment. If you invest $1,000 on an asset that is allowed to depreciate over 10 years, you can subtract $100 per year from your income each year for the next 10, until the tax value goes to zero. This reflects the value from a tax perspective, not the actual value.
 
If you then sell the asset for $50, you then owe taxes on $50 (sales value minus depreciated value). There's an important exception though. If you die before selling it, your inheritors can place a fair market value on it, so when they sell it, no taxes will be due.
 
Now let's make a few assumptions:
  • The value of Trump's estate is $10 Billion. (His claimed net worth).
  • Most of that value is in real estate.
  • The real estate has likely been depreciated down to a fraction of the purchase price.
  • Purchase price was relatively low to start with.
  • Real estate has appreciated tremendously over the last 30 years.


So let's say the tax value of his property is $1 billion, depreciated from the $3 billion purchase price. That means that Trump has had tax free earnings of $2 billion. This is totally fair and ok. It is part of our tax code and encourages investment.


Under our current laws, with an inheritance tax applied, if his kids were to inherit that property, they would assume the fair market value and owe an estate tax of about 40% on most of that value. Immediate sale of the property at the fair market value would incur no additional income tax. They would need to come up with 40% of the market value.


If however, our lawmakers decide that there should be no estate tax, the equation changes. Upon death, the kids would owe no taxes. Only when they sold the property would they be exposed to taxes. This is the key though. Their base value for tax purposes is the value of the property when they inherit it. Not the $1 billion depreciated value, not the $3 billion purchase price. So Trump would get the tax depreciation, his kids would get the property with the full value basis, and the American taxpayers get cheated out of $4 billion in taxes. If they turned around and sold the property at $10 billion, they would owe no taxes--not one cent.



Now, for anyone wondering about Trump's motivation let's do a cost-benefit analysis.



Cost: pick a number. I'm sure most of his funding is from PACs and donations, but he has probably chipped in some of his own money. He has not been able to put full attention into his businesses, but he has large capable staff members to do that work. He holds events at his properties when he can, so that undoubtedly offsets some of his costs. According to Fortune magazine, he spent $566 million, but his businesses received 11 million.



Benefit: first, his name and brand is now bigger than ever. Whether he wins or not. If he gets to the presidency and can influence the tax code to eliminate the estate tax, his heirs stand to gain $4 billion.


There are other parts of the tax code hat would benefit him too. From the NYT, "...he would make the code more favorable for his interests by proposing to cut the rate for limited liability corporations and partnerships — the entities in which he holds his real estate assets — to just 15 percent from ordinary income rates."



Trump has no downside and a ton of upside by achieving the presidency of the US. Removal of the estate tax does not and will not help the bottom 99.5% of the people of the US. On the contrary, it will simply shift more tax burden to the middle class.

Edit: There is also all the revenue he is pulling in by trips to his properties, foreign dignitaries staying at his properties, etc. You can bet that no representatives who want to do business with the US are getting discounts on their rooms. The mind boggles at the potential for essentially laundered payments to the first family. I am not saying it's happening, but there is unique potential for it to happen in this presidency.


Popular posts from this blog

Complain to Gain - Assertiveness is good

We all know this. There are sayings, e.g. "The squeaky wheel gets the grease." "Stand up for yourself," "Fight for your rights." It is nice to see some reinforcement of this though. Here are a couple of recent examples from my family. Not long ago, we went to a restaurant in Dublin, California called Stacey's at Waterford. (Scott Adams of Dilbert fame is one of the owners). During the course of a very pleasant meal, everyone had basically finished but one. The waitress came to remove the plates and took all but the one plate. Etiquette 101 says not to do this because the slow eater in the bunch then feels rushed. After we got home, my wife called the restaurant back to point this out to the manager (we did not want to make a fuss at the restaurant). We weren't looking for anything, but at the end, the manager ended up sending us a coupon for money off on our next visit. This worked for us, because we got some cash equivalent, and it worked for them...
Read more

Health and Diet Update June 08

Image
Here is my current weight loss progress. It has been going great, but in early May I hit a bit of a plateau, so I decided to shock my system with a PSMF diet as outlined in the Rapid Fat Loss Handbook . You can see from the chart that it restarted my weight loss and I hit 200 in the first week of June. I am now tapering off that diet and I will work towards a more moderate loss of about 0.5 - 1 lb per week while working harder on my fitness regimen. I hope to get down to about 180 by the end of the year. I think a good target weight range for me is 180 to 185 lbs. I had a physical about a month ago and had a lot of good news. My blood pressure had been in the high range, pushing hypertension for several years. It was in the 140-150 over 90-100 range. In early May it was 124/70. That is darn close to good on the systolic and the lowest diastolic I have ever had. I also did the full blood workup and those results were very encouraging too. My triglycerides, which had been extremely hig...
Read more

Anthropogenic Global Warming

Image
I will call people who believe in anthropogenic global warming (AGW), warmists, those who are less certain, denialists. I hope it insults both sides equally. My BS degree is in earth science. I work for an oil company. I believe in the scientific method. I believe that government has a legitimate role to play in society. I am not a Neanderthal. I have biases. Some may think that because I work for an oil company, I desperately want to see the warmists fail. Look, I'm too close to retirement for anything that happens now to have an effect on my personal earnings or career, so I don't think that comes into play. And by the way, I live on this planet. If humans are doing something to damage the planet, I want it to stop. I want us to take action to fix and reverse the harm. I may be retiring within fifteen years, but I hope to live a lot longer than that, and I want my kids to inherit a good place. I have read a lot about the science, politics, and economics of the CO2/glob...
Read more