Trumpspeak: Re-defining ‘fiduciary’
October 4, 2016 Leave a comment
From CBS News, “Allies call Donald Trump a ‘genius’ if no taxes paid”:
The New York Times reported Saturday that the GOP nominee declared a $916 million loss on his income tax returns in 1995. This move would have corresponded to a tax deduction so large that he could avoid paying federal income taxes for “up to 18 years.”
Since missing the point has become America’s Pastime, much of media (both news and social) is fixated on the tax angle, rather than the loss angle.
The best slap-down of that misplaced feeding frenzy comes from Megan McArdle at Bloomberg. In “Trump’s 1995 Return Shows Good Tax Policy at Work,” she notes (emphasis added):
I mean, the Times story is true as far as it goes: Losing $900 million dollars may save you $315 million or so on future or past taxes. But astute readers will have noticed that it is not actually smart financial strategy to lose $900 million in order to get out of paying $315 million to the IRS. Most of us would rather have the other $585 million than a tax bill of $0.
If that paragraph was less than clear to you, please read (and re-read, as necessary) Ms. McArdle’s article in its entirety.
The idea that the carryforward and carryback provisions of the U.S. tax code are a “nefarious bit of chicanery,” as Ms. McArdle writes tongue in cheek, is the sort of thing that makes accountants smile a wry smile and scratch their heads–which is the bean-counter equivalent doubling over in raucous laughter.
So the question is, why is it “genius” to lose nearly a billion dollars in a single year?
Nice try, Rudy, but it’s not.
But the most fascinating part of this story, to me, was Team Trump’s response; they asserted that Dear Leader was merely fulfilling “a fiduciary responsibility to his business, his family and his employees to pay no more tax than legally required” (emphasis added).
Obviously, somebody at Team Trump got more than a bit creative in their terminology.
The tax return The New York Times obtained was a personal (state) return, not a corporate return. (Trump’s “first and only initial public offering raised $140 million….A decade later, Trump Hotels & Casino Resorts, filed for bankruptcy.”)
Politico‘s Ben White writes, with a fair amount of definitional overkill, in “Fiduciary duty nonsense”:
There’s no evidence yet that Donald Trump violated any tax laws with his mammoth $916 million reported loss in 1995. But the claim by Trump and his surrogates that he had a “fiduciary duty” to his family and investors to pay as little tax as possible is pretty silly. Fiduciary duty, of course, applies to public company executives who have to maximize shareholder value by paying the lowest legal rate. But these are personal returns, not corporate returns. Are his family members going to sue him for paying too much tax? That would be … novel.
University of Delaware’s Charles Elson tells MM: “It’s a stupid answer. In a corporate setting you have an obligation to pay the lowest tax rate you can, but not in a personal setting. It doesn’t apply to his family. I think he misspoke on that one.”
White’s definition is as overly-narrow as Team Trump’s is overly-broad. I get what he’s getting at, but “Fiduciary duty, of course, applies to public company executives…” ignores all the other contexts in which a fiduciary duty applies. Perhaps in his haste to blow Team Trump’s idiocy out of the water, he accidentally made an “in this case” argument sound like an absurdly generalized, hyper-constrained definition.
Here’s one version of the broader definition (emphasis in original):
An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit.
A fiduciary relationship encompasses the idea of faith and confidence and is generally established only when the confidence given by one person is actually accepted by the other person. Mere respect for another individual’s judgment or general trust in his or her character is ordinarily insufficient for the creation of a fiduciary relationship. The duties of a fiduciary include loyalty and reasonable care of the assets within custody. All of the fiduciary’s actions are performed for the advantage of the beneficiary.
What “property or money” belonging to his children or to his employees is Trump acting as a trustee for?
So West is correct insofar that Team Trump’s use of the term in that context is absurd, notwithstanding his overly-narrow definition.
The funniest part of all this, though, is that Trump was supposedly exercising his fiduciary duty to his children and employees by losing money, while ripping off vendors, contractors, customers, depositors and investors.
But that is a topic for a future post.