The explosive New York Times report on Donald Trump’s tax returns is a remarkable feat of journalism. The team deserves special praise for making their findings understandable to the general public and not getting bogged down in the details.
Yet, like many other Trump-era revelations, the tax news falls into the “shocking but not surprising” category. Many observers had already assumed that Trump paid little or no taxes, that his claims of brilliant business success were fiction, and that he was deeply in debt. Now, all of that is practically confirmed. But what does this mean for America’s future?
Everyone will come to this question from their own angle. When I read the Times report, I quickly found myself thinking about…the theory of corporate capital structure. Not really.
For many people, without a doubt, the main benefit of tax disclosures will be “$750? Really?” The fact that Trump has paid less tax than tens of millions of hard-working Americans to make ends meet is outrageous. It’s also easy to explain in seconds, which is why it’s the theme of a quickly released Biden campaign ad.
From a substantive point of view, however, Trump’s tax evasion is less important than confirming what many already suspected: his carefully cultivated image of a hugely successful businessman is, as he would say, a fake. news. In fact, he has done a terrible job in running his businesses.
Why is this important? Voters often seem to believe that effective business leaders have the skills and knowledge to lead the nation as a whole. They are wrong about that. Even really great businessmen – people like, say, Herbert Hoover – are often very bad at public policy, including economic policy, because the skills needed to run a business and those required to lead a nation are very different.
In Trump’s case, however, the old joke is true: He’s not a great businessman, he just played one on TV. It should come as no surprise, then, that he has always been unlucky in policy-making. On just about every front, from diplomacy and infrastructure to trade wars and fighting a pandemic, he’s been Midas inside out.
How much will the revelation that he was always an impostor hurt him? Many of his followers will probably refuse to acknowledge the truth, perhaps because they won’t admit how ripped off they were. But to assume that the news will have no effect is probably too cynical. And remember, Trump is running behind Joe Biden, so he has to do more than keep his base — and that may not do much to win over undecided voters.
The most important revelation of the Times report, however, is its confirmation of something else many observers already suspected: Trump has hundreds of millions in personal debt. We don’t know if he has the resources to repay it.
Personal financial problems have always been a red flag when it comes to filling sensitive government positions, as it is an open invitation to corruption.
So the confirmation that the country’s top law enforcement and national security official — whose business empire already provides ample opportunity for undue influence — is drowning in debt is chilling.
Beyond that, corporate finance analysts – I told you I would get there – have long known that high levels of debt, sufficient to pose a substantial risk of bankruptcy, create destructive incentives. Instead of investing in the future, owners of highly indebted businesses are tempted to engage in asset stripping, withdrawing money before creditors claim their claims. This is the accusation leveled against Eddie Lampert, the former chief executive of Sears (and Steven Mnuchin, the secretary of the Treasury).
Debt-ridden business owners are also tempted to take big risks, even at bad odds, because if they’re lucky they might bail out; if they don’t, that’s someone else’s problem. Heads they win, tails the creditors lose.
So now we have a deeply indebted business owner with every incentive to engage in malfeasance – except that in addition to running his business, he runs the United States of America.
But he may be on the verge of losing that special position and the financial defense it can provide.
Think about it. Also consider the fact that Trump constantly complains about nearly non-existent voter fraud — he never accepted the fact that he lost the popular vote four years ago — and repeatedly refused to say that he would accept the election results if he lost. And tell me you’re not terrified of what the next few weeks might hold.
Paul Krugman is a columnist for the New York Times