Rudy Giuliani Should Not Do Securities Law

Meet the Press hosted the adulterous racist lying former mayor of my city. Rudy Giuliani’s task was to defend Trump’s 1995 tax return:

Yeah. I'm the right person to level this charge, because I've never made such a charge, and I've prosecuted people who've committed rape.

He had already tossed out the name of Juanita Broaddrick but no prosecutor should ever bring charges based on false smears posted on right wing websites especially when the alleged victim declared no rape ever occurred. But I digressed into territory unrelated to the tax issue. Rudy did tell Chuck Todd:

And I think your bringing up my personal life really is kind of irrelevant to what Hillary Clinton did.

Of course Rudy does not want to talk about how he has cheated on his former wives but there is zero evidence that Mrs. Clinton ever cheated on Bill. So let’s turn to the issue of the day by noting this from Chuck Todd:

Today's New York Times has a front-page exposé that Trump declared a loss of $916 million on his 1995 tax return, which means it could have allowed him to avoid paying federal income taxes on nearly a billion dollars' worth of income over an 18-year period, all legal, by the way. The losses came from mismanagement of three casinos, his airline, and the Plaza Hotel in New York. The Times received the 1995 documents in the mail anonymously with a return address of Trump Tower. And his former accountant, who's now retired, verified them.

Was it “all legal”? John Hempton challenges this claim:

Donald Trump did not repay all the debt associated with those investments. Either the loss is a real loss and the Donald was really was out of pocket by $916 million (in which case he has legitimate NOLs) or the loss was passed on to someone else by The Donald defaulting on debt - in which case Donald Trump should be assessed for income from debt forgiveness. After all if the debt is forgiven it is not Donald Trump's loss. The loss is borne by the person who lent Donald money and did not get it back. That - clearly stated by example - is why most income tax systems assess debt forgiveness as income.

He goes onto explain a scheme called “debt parking”. If this is not illegal, it certainly should be. But let’s return to Rudy:

And then somewhere around paragraph 18 they point out there was no wrongdoing. Now, people have a hard time understanding how taxes work. If Donald Trump hadn't taken those losses, he could have been sued by his investors. He could have been sued by his business partners..I mean the reality is he's a genius.

Debt parking strikes me as wrongdoing but genius? This scheme is child’s play compared to what U.S. multinationals like Apple and Google pull off. Not only do they have to play games with transfer pricing but they also have to figure out how to avoid that repatriation tax. Now that’s genius but are we going to say Base Erosion and Profit Shifting is all “perfectly legal”? Even if one did, this notion that Trump’s shareholders could sue if he did not dodge taxes is wrong on so many levels. First of all – this was a personal tax return not the return of a corporation. Secondly, a lot of corporations do not engage in blatant income shifting and they will not be sued if they fulfill their obligations under FIN 48. What gets CEOs and CFOs sued is using dodgy tax gimmicks and not letting shareholders know that their low effective tax rate is at risk.