If you watched a Sunday morning news show this weekend, you saw one of two Trump surrogates: New Jersey Gov. Chris Christie (R) or former New York City Mayor Rudy Giuliani (R). Both men spoke from the same talking point — Donald Trump is a “genius” if he does not pay taxes.
Saturday evening, the New York Times reported that Donald Trump lost nearly $1 billion in 1995, based on tax documents mailed to a Times reporter. As the Times explains, such a gargantuan loss “could have allowed him to legally avoid paying any federal income taxes for up to 18 years,” because Trump can count losses in 1995 against future income in subsequent tax years.
Both Christie and Giuliani had the same spin on Trump’s ability to use his massive losses to offset tax liability in later years. “There’s no one who’s shown more genius in their way to maneuver about the tax code as he rightfully used the laws to do that,” Christie told Fox News’ Chris Wallace. “The man is a genius!” Giuliani proclaimed. “He knows how to operate the tax code.”
Both men also argued that there is nothing illegal about Trump offsetting future income with the truly spectacular losses he took in 1995. On this point, they are correct. Businesses frequently have boom years and bust years, and it would be unfair to prohibit a business from accounting for its past losses in its current year’s tax return. A different rule would potentially discourage businesses from planning for the long term, because the proceeds from investments that took years to pay out could effectively be taxed at a much higher rate than the proceeds from other, short-term gains.
Trump’s colossal 1995 losses, however, do not appear to stem from some kind of long-term investment strategy. Rather, as the Times explains, they “derived from the financial wreckage he left behind in the early 1990s through mismanagement of three Atlantic City casinos, his ill-fated foray into the airline business and his ill-timed purchase of the Plaza Hotel in Manhattan.”
Trump, in other words, made several very bad business decisions — at a time when the United States economy was otherwise doing fairly well — and those bad decisions came back to bite him in 1995, costing him nearly a billion dollars.