It's Even Worse Than You Think Read online

  The official White House announcement falsely stated that Trump paid $38.4 million of income tax, improperly counting the payroll taxes Trump paid as a self-employed individual. Most news organizations went with press secretary Sean Spicer’s inflated number instead of checking his words against the document that they had while preparing their own stories on my scoop, a reminder of how much American journalists rely on official statements regardless of their accuracy rather than documented facts.

  The next day Trump went on Tucker Carlson’s Fox show and inflated the numbers far more than Spicer had. “The income was actually $250 million for the year and if you notice there was about $100 million in tax deductions and depreciation and various other charges so actually the income was at the 250 level,” Trump said.

  Watching the show, I burst out laughing. What Trump told Carlson indicated that the self-proclaimed greatest expert in the world on taxes did not understand his own tax return or he had inflated his reported income by two thirds.

  “Fake news!” I shouted at my television, startling my wife.

  What hardly anyone, except financial columnist Allan Sloan, reported was that Trump could recoup the Alternative Minimum Tax paid in 2005 in future years. That’s because of a special rule for real estate investors that lets them get AMT refunds for years when the rules limit their ability to use their tax favors.

  That rule does not apply to the vast majority of Americans who are forced to pay the AMT ever since Ronald Reagan signed it into law for the 1987 tax year. Most of the AMT is paid by married couples with more than two children who own their homes and live in high-tax states, which also happen to be the states that tend to have the most good-paying jobs. Under the AMT people cannot take personal exemptions for themselves and their children; they lose the standard deduction; they cannot deduct state income and local property taxes; cannot deduct miscellaneous items such as union dues or cleaning official uniforms; and they get to deduct fewer catastrophic medical bills. A family can be hit with the AMT just because they have seven or more children. Running up big medical bills saving the life of a child with cancer can result in a higher tax bill because of the AMT, and no family in this situation can do anything but pay. Congress, however, by its grace lets Trump and other real estate investors recoup in subsequent years most or all the AMT they pay in one year.

  Whether Trump scrupulously followed the law in his tax returns cannot be determined without seeing his other returns, including all the schedules and attachments. What we do know is that Trump has publicly warned Robert Mueller, the special counsel looking into Russian efforts to help Trump win the election, to stay away from his tax returns and business deals. The documents Mueller subpoenaed and witnesses he called before a grand jury make clear, however, that Mueller was not deterred by Trump’s threats. This raises the question, what does Trump have to hide?

  Mueller’s inquiry is focused on Russian interference in the presidential campaign, including a June 2016 email to Donald Trump Jr. that suggests the Trumps knew the Kremlin was already working behind the scenes to elect Trump. The email states that as “part of Russia and its government’s support for Mr. Trump” the crown prosecutor (Russia’s attorney general) wanted to deliver damaging documents about Hillary Clinton. President Trump and his namesake son, who got the email and said he “loved” the offer of sub rosa assistance, have told at least six different stories about the email and subsequent events, all proved to be false.

  But even if Mueller’s team finds tax fraud, the federal tax system is so riven with favors and court rulings on behalf of aggressive tax avoidance by the rich that Trump might be able in civil or criminal court to defend them.

  While the integrity of Trump’s tax returns is unknown, other public documents show that he has cheated on his income taxes and that he has officially acknowledged sales tax fraud.

  Without a thorough audit of Trump’s tax returns back to 1990 there is no way to know if he cheated on his taxes in the last thirty-six years. And there is no way to know if any cheating was civil, which means the punishment would be financial penalties and interest charges, or criminal. We also cannot get a sound idea of whether his tax returns were meticulously prepared to survive the most rigorous IRS audit with no change or even the government refunding money to him, as it does in about a sixth of audits.

  His tax returns, even with all the attached schedules that for Trump no doubt run to more than a thousand pages a year because he owns more than five hundred businesses, are only the starting point. It is the books and records that Congress requires businesses to keep that matter. And for wisenheimers who think that the absence of records will protect them, the law sets a simple standard: no documentation, no deductions for business and other expenses.

  What we do know is that Trump has in fact manipulated financial records to cheat on his obligations to government. New York City auditors proved that after being forced into a long fight just to get access to Trump’s books and records for the Grand Hyatt Hotel, his first big project.

  Trump and some of his enterprises have been the subject of multiple criminal investigations into financial transactions, some with American and Russian crime figures, that make no obvious economic sense. In the mid-1980s he retained Joseph Weichselbaum, a mob associate with two felony convictions, to supply helicopters for high rollers and to manage his personal helicopter under unusual financial arrangements. After federal agents arrested Weichselbaum as a major international drug trafficker in 1985, he confessed.

  Trump continued to retain Weichselbaum and even risked his casino license by writing a letter—a letter he initially denied existed—pleading for a light sentence, calling Weichselbaum “a credit to the community.” Weichselbaum asked that his case be moved to Florida or Manhattan, but instead it was mysteriously moved to the New Jersey court of Judge Maryanne Trump Barry, Donald’s older sister. She later recused herself, but her brother’s pleas for mercy worked. While the mules who drove cocaine and marijuana from Miami to Ohio got up to twenty years, Weichselbaum served just eighteen months. To qualify for parole, he said he had a job as Trump’s helicopter consultant. While he paid only $600 of his $30,000 in fines, saying he was a pauper, Weichselbaum moved into a multi-million-dollar Trump Tower apartment bought by his girlfriend. Trump has declined to answer my questions about this relationship, including the obvious one: Did he finance Weichselbaum’s drug business?

  Hiding the records and manipulating financial figures for his benefit and to the detriment of his legal obligations was bad enough when Trump was merely a businessman short on integrity. But after he became president, Trump continued these vile practices, as shown in the earlier chapter on his continuing refusals to pay. Trump made another promise to voters, that he would build a wall and make Mexico pay for it. But would Mexicans pay for it? Or Americans?

  Trump’s Wall

  When Donald Trump launched his campaign in 2015, he asked people to trust him on many things, none more than his plan to wall off America from the south and stick Mexico with the bill.

  “I would build a great wall, and nobody builds walls better than me, believe me,” Trump said in kicking off his campaign at Trump Tower. “And I’ll build them very inexpensively. I will build a great, great wall on our southern border and I will have Mexico pay for that wall, mark my words.”

  Two weeks later, in the wake of intense criticism of his initial remarks, he tweeted a stance both softer and more aggressive. “I love the Mexican people, but Mexico is not our friend. They’re killing us at the border and they’re killing us on jobs and trade. FIGHT!”

  Soon a standard feature of Trump rallies was his calling out to the crowd with the question “Who is going to pay for the wall?” The crowd would shout back “Mexico!”

  Trump would not reveal his financing plan, just as he would not reveal what he said were his plans to replace Obamacare with something better and cheaper, or to lower taxes without increasing the federal debt, or extinguish “radical Islami
c terrorism,” or destroy the Islamic State in Syria and the Levant (ISIL, or as he called it, ISIS), or many other policies. When pressed for answers, his mantras were “trust me” and “believe me” and “I’m not going to give away my negotiating strategy.”

  He told supporters and skeptics alike to remember that he was a great negotiator, so not to worry because he would make it happen.

  At the end of August 2016, with questions mounting about how he would get Mexico to pay for the wall, Trump made an unscheduled trip to Mexico City in his personal Boeing 757 jet. Mexican President Enrique Peña Nieto agreed to receive him. The trip’s purpose, the campaign said, was to deal with financing the wall.

  Going to the Mexican president would be seen, in most sophisticated negotiations, as a sign of weakness on Trump’s part. Besides, he held no office, so why would Mexico negotiate with him? And Trump evidently paid no heed to the Logan Act, a law Congress passed in 1799 that makes it a felony to negotiate in any dispute between a foreign power on behalf of the United States without authorization, which Trump obviously did not have. Then again, no one has ever been prosecuted under the Logan Act, though it has caused some lawmakers serious political problems.

  What happened in that meeting would become the first of many diplomatic matters involving Trump that would tarnish the reputation of the United States both before he took office and after.

  Trump’s version when asked at a press conference afterward who would pay for the wall: “Who pays for the wall? We didn’t discuss. We did discuss the wall. We didn’t discuss payment of the wall. That’ll be for a later date.”

  He also said, “Mexico will work with us and especially after meeting with their wonderful, wonderful president today they want to solve this problem along with us and I am sure they will.”

  It turned out that Trump, the self-proclaimed master negotiator, had not worked out an agreement with the Mexican president or even a joint statement on their talks. He also had not told President Peña Nieto in advance what he would be saying, an amateur mistake in high-level diplomatic talks that anyone worthy of calling himself the world’s greatest negotiator would never make.

  Just hours after Trump spoke, the Mexican president used his Twitter account to give his version of events. Translated from Spanish, he tweeted, “At the start of the conversation with Donald Trump, I made it clear that Mexico will not pay for the wall.”

  Team Trump scrambled to respond. The campaign issued a statement suggesting that they also had become aware of the Logan Act. The statement said that the Mexico City meeting was merely “the first part of the discussion and a relationship builder. . . . It was not a negotiation, and that would have been inappropriate. It is unsurprising that they hold two different views on this issue, and we look forward to continuing the conversation.”

  Peña Nieto did not stop with his tweet.

  “I let him know that the people of Mexico felt wronged,” he told a television interviewer. Trump’s positions constituted “a threat to Mexico,” he said, adding, “I am not prepared to keep my arms crossed and do nothing.”

  Peña Nieto also lectured Trump on negotiating style. He made no mention of the lack of advance preparation for the trip, or the lack of an agreed-upon statement at the end. Instead, appearing on a Spanish-language television program associated with CNN, Peña Nieto said, “That threat must be confronted. I told him that is not the way to build a mutually beneficial relationship for both nations.”

  What happened when Trump returned from Mexico would become an early indicator of how Trump would behave as president, disregarding facts he did not like and relying heavily on the “best” advisers, those experts he has said reside in his own head.

  Speaking to a rally in Phoenix the night of his meeting in Mexico City, Trump upped his rhetoric about the wall, knowing he had annoyed and perhaps angered the Mexican president.

  “On day one we will begin working on an impenetrable, physical, tall, powerful, beautiful southern border wall,” Trump announced. “We will use the best technology including above- and below-ground sensors—that’s the tunnels. Remember that, above and below.” The crowd went wild.

  Trump said that in addition the wall would have towers, which implied federal agents with guns who could look into Mexico as well as America. He also promised aerial surveillance and more federal agents, all to “supplement the wall, find and dislocate tunnels and keep out criminal cartels and Mexico—you know that—will work with us. Mexico will work with us, I absolutely believe it,” repeating that phrase.

  Based on what Peña Nieto had said, however, Trump had no factual basis to support what he himself said.

  Throughout the campaign, bankers, diplomats, government finance authorities, journalists, and many others all scratched their heads trying to figure out how a sovereign nation could be forced by another sovereign nation to pay for a wall that would offend its own citizens. Peña Nieto had made it clear the wall offended Mexicans, as did many of Trump’s other remarks, especially launching his campaign with a declaration that the government Peña Nieto headed was sending rapists and murders, mixed in perhaps with a few good people, north to the United States.

  After winning the election, Trump had to come up with some plausible plan to fulfill his absolute and never qualified promise that Mexico would pay for the wall. His first response was to attack journalists as dishonest.

  Then he said that the United States would front the money for the wall and get it back later from Mexico, still without saying how the reimbursement would be done. That tectonic shift from “Mexico pays” to “America pays first” received extensive news coverage. Trump evidently didn’t see any of it. Two weeks before taking office he tweeted, “The dishonest media does not report that any money spent on building the Great Wall (for sake of speed), will be paid back by Mexico later.”

  Journalists reporting what he tweeted noted that in seeking votes Trump never said Americans would pay and Mexico would pay back, which in commerce would be considered a bait-and-switch scam.

  Finally, six days after Trump assumed office, the White House spoke of Trump’s plan to make Mexico pay for the wall. It was not in a document thick with policy points or an economic analysis. There were no written statements. No flock of friendly experts stood at the ready to answer questions. Instead, Sean Spicer, the White House press secretary, casually informed reporters on Air Force One. They were flying back following a Trump talk at a closed Republican congressional retreat in Philadelphia.

  The president was considering a comprehensive tax plan that could include imposing a 20 percent tariff on Mexican imports, Spicer said.

  Spicer’s exact words sowed some confusion about just how a tariff works. But he eventually made clear that the tariff, which he called a tax, would be 20 percent. A tax on “$50 billion at 20 percent of imports . . . that way we can do $10 billion a year and easily pay for the wall just through that mechanism alone.”

  Spicer’s remarks made clear that the tariff would apply to everything coming from Mexico. Fresh winter tomatoes, automobiles and car parts, oil, and beer would all be levied until the cost of the wall was covered.

  Another remark by Spicer showed how ill-prepared the White House staff was. Spicer, who faithfully expressed Trump’s wishes from his first appearance when he insisted the inaugural crowds were the biggest ever, said, “Right now our country’s policy is to tax exports.”

  Taxes on exports are prohibited by the Constitution. Article I, Section 9, states: “No Tax or Duty shall be laid on Articles exported from any State.”

  What Spicer could have said, had he known or been briefed by someone with knowledge, is that the corporate income tax is baked into the price of American-made exports. That tax cost could be eliminated by replacing the corporate income tax with a value-added tax or VAT, which can be applied to domestic buyers only. But Trump was not calling for repeal of the corporate income tax, only lower tax rates. There is no indication Trump was planning as part of the Me
xico wall scheme to make such a substantial change in tax policy, leaving White House ignorance about the Constitution as the only logical explanation for Spicer’s comment.

  There was a big problem with the plan to slap a tariff on Mexican goods, a surprising problem given Trump’s assertions about his world-class expertise in economics and taxes.

  A tariff on Mexican imports meant that Americans, not Mexicans, would be paying for the wall.

  A tariff is a form of tax, and it would increase prices on goods subject to the tariff, though not with the transparency of a sales tax paid at the cash register. Instead the tariff would be built into the price ultimately paid by consumers, hiding it from those not familiar with how tariffs work or who don’t ask why a car made in Mexico suddenly costs more than a comparable one made in Canada or Brazil or Kentucky.

  A 20 percent tariff on imports from Mexico would mean that tomatoes from south of the border that cost $1 at the supermarket would rise to $1.20 to cover the tariff. An automobile made in Mexico and sold in Iowa that had cost $10,000 would now cost the buyer $12,000 because of the tariff.

  Sales of Mexican tomatoes and cars built in Mexico might dip a bit because the tariff would make them too costly for some consumers. For Mexicans that would mean less income. Viewed that way, the tariff could be seen as a plan to punish Mexico. Certainly Mexicans would see it that way. Still, the tariff would not make Mexico pay for the wall except in the sense of economic punishment.

  To avoid losing customers, some American business owners might cover the tariff’s cost by trimming their payroll, perhaps holding down wages or shedding some workers. Or they could take part of the hit themselves. Greengrocers and car dealers might decide to absorb part of the tariff. Those tomatoes might then sell for $1.16 and that car for $11,200 with the four cents per tomato or $800 per car reducing profits.