The release of a 1995 Donald Trump tax return could become the turning point of the 2016 Presidential Election. But how much does this really matter? Let’s do some Q&A on the topic just for fun. I’ll pretend to be an unbiased observer and we’ll let an equally unbiased observer, say, Vladimir Putin, interview me. Here’s how it went:
Vlad: Comrade Roche, thanks for joining me today (shakes my hand, nearly breaking it). I have some questions for you regarding my good friend Donald Trump and his taxes. I hope you can reassure me that this won’t impact my future bromance with him.
CR: Thanks for having me. I prefer “Mister” over Comrade but whatever. Let’s get to it. I don’t want you to be too concerned about your friend’s problems.
Vlad: Okay. Many people say Donald Trump’s taxes expose a lack of business acumen because of his many bankruptcies and the large tax loss in 1995. What’s your view here?
CR: I don’t think this matters nearly as much as some people claim. Trump runs a big business in an industry that is highly susceptible to macroeconomic shifts. The fact that Trump has had huge losses in some of his casino businesses at times is not shocking. In fact, I am surprised he still runs any casinos at all given how much difficulty they’ve proven to be over the years. Still, being a business owner is about having more wins than losses. The losses are inevitable, especially in business cycle sensitive industries like gambling. The bottom line is, Trump’s managed to grow a significant business that is the result of more wins than losses. Focusing only on Trump’s losses is a nice fat fallacy of composition. He’s obviously done well for himself when he could have just inherited millions and turned into a fat lazy idiot. Instead, he went out there and busted his hump to build something bigger than what he was given. I don’t think you can knock him for that.
Vlad: What is this “losing” you speak of? I am not familiar with that word. It must be uniquely American. Let’s move on though. What about Trump’s net worth. Some people say his taxes mean his net worth is much lower than some people think. As one of the world’s wealthiest men I’d like to be reassured about my future Comrade’s wealth. Can you talk about this a bit?
CR: Sure Vlad. But I don’t know how much I can reassure you. The thing is, Trump deals in rather illiquid assets so no one really knows what his assets are actually worth. Still, his tax returns probably won’t shed much light on this anyhow. Real estate moguls are notoriously “asset rich and cash poor”. The fact that they don’t have huge cash flows doesn’t mean they don’t have extremely valuable assets. But let’s be realistic – how much does anyone really care if Trump is worth $1B or $10B? As he says, he’s “really rich”. And it’s true. He is. I don’t think this issue sheds much light on exactly how rich he is and I doubt most voters care whether he’s worth hundreds of millions, 1 billion or tens of billions….
Vlad: Hmm. $1 billion doesn’t sound “really rich” to me. What about the topic that everyone is talking about – the potential that Trump pays no income tax at all. Do you agree that makes him a “genius”?
CR: Well, I would expect Trump to minimize his taxes as much as possible. So yes, if he’s paying no taxes and doing so legally then that doesn’t make him an idiot. “Genius” might be going a bit far though. For me, the more problematic issue is one of internal inconsistencies in the message Trump is portraying. He claims to be the outsider who can change the “rigged” system, but Trump’s tax situation exposes the reality that the system is rigged by the politicians who are bought by the most influential businesses. And all of this lines the pockets of people like Donald Trump. In other words, if Trump’s taxes expose anything they expose the fact that the system is rigged so that people like Trump can get “really rich”. This is deeply worrisome for anyone who thinks that Trump can fix our economic problems when it clearly looks like he has a conflict of interest and tax proposals that might exacerbate all of this.
Vlad: Rigged system. I like the sound of that. So, what can Donald do to clean up this mess?
CR: It’s simple in my mind. He should release his tax returns and show that he pays very little in taxes. And then say, “see, this system is rigged, I know that it’s rigged because guys like me benefit from it disproportionately. And I know how to fix it so that this rigged system can work better for all Americans. As an outsider, I am the only one who can change the system that has been corrupted by insiders like Hillary Clinton”. I think that would be a powerful message here and one that could sling shot a very bad situation into a rather good one.
Vlad: You’re smart Comrade Roche. Thanks for stopping by today.
CR: It’s Mister Roche. But whatever. And for future reference, the shock collar really isn’t necessary. The four men with AK-47’s in the room are enough to keep the interviewee from saying anything bad about you. Worth keeping in mind for your next interview….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.