PRESIDENTIAL DEBATES : TAX RETURNS & WALL STREET SPEECHES

It is a safe bet that some time before the November balloting, there will be several presidential debates, likely in the format of past debates. The questions will almost certainly cover the full ambit of domestic economics, foreign policy, security and the other usual suspects. There are two issues, lingering unresolved from the primaries, that will also be raised. Phrased pejoratively, they are:

  • What is Donald Trump hiding by refusing to disclose his tax returns as other candidates have been doing for decades?
  • What promises did Hillary Clinton make in her paid speeches to protect Wall Street from more aggressive government oversight and to resist new taxes on the extra-wealthy (familiarly known as the “one percent”)?

Let’s consider these one at a time. Trump first. Trump’s oft-repeated excuse for withholding his tax returns is that he is being audited and no one would ever disclose returns that are under audit.

This is pure hokum. The fact that an audit is underway has nothing to do with the reasons the public should know what is in the filed returns. First, and importantly, every individual who has reportable income must sign an oath at the end of the tax return that reads, in relevant part: “Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct and complete.” If it’s a joint return, the spouse must also sign the oath.

This means that, when submitted, the disclosed income fully accounts for reportable gross income as defined by the Internal Revenue Code and relevant regulations. While it is theoretically possible that an audit might reveal that too much income was reported, this would be a very unusual case, especially if the return were prepared, as surely Trump’s were, by a professional tax advisor/accountant/tax attorney. In any case, people who inadvertently report too much income would likely not be too worried about disclosing their generosity, no matter how misplaced.

On the other hand, if one had made much publicly of how wealthy he was and the under-oath return showed significantly less income, there would be a serious credibility question, among other things.

The other aspect of audits is, of course, that they examine whether the taxpayer has claimed inappropriate deductions, exemptions or exclusions. This is where the real fodder sits. No doubt Mr. Trump’s tax returns are very complex, given the multitude of companies, partnerships and other legal entities likely connected to his vast real estate holdings and other business ventures. No doubt he has aggressively sought to limit his tax liability, which is everyone’s right as long as avoidance does not slip into evasion.

Much about the way Trump does business would likely be revealed by disclosure of his tax returns. For example, the extent of his charitable contributions would be revealed.   Trump has crowed often about his generosity (despite questions that repeatedly arose about the lack of evidence that promised monies were actually paid) The returns would also likely show the extent to which his business expenses are incurred in off-shore business operations designed to reduce taxes paid in the United States (which may be lawful under the current tax system but would be relevant to his political claims made about how our economy can and should operate).

Even if the audit later revealed that all of the claimed deductions/exemptions/exclusions were entirely proper under current tax law, there is no reason to withhold the data until the auditors finish their work. Moreover, the tax code is complex, so it would not be surprising if adjustments were proposed by the auditors. This would not indicate, necessarily, any nefarious behavior on Trump’s part … but it might. Trump would, of course, benefit politically if his return were found 100 percent correct, just as he would be hurt if significant problems were uncovered. He appears to be more concerned about the risks of a bad audit than the rewards of a clean bill of health. This issue will definitely come up in the debates and we can only hope that the questioners have done their homework and don’t sit still for a repetition of the “audit excuse.”

Now, to be fair, we must also consider the question of Hillary Clinton’s paid speeches to firms on Wall Street following her service as Secretary of State. There seems little doubt that either Trump or the debate moderators will raise the issue of Clinton’s refusal to disclose the speech transcripts, assuming such exist.

Is it plausible to believe that Clinton, aware of the intense interest in everything she said and at least contemplating if not already decided to run for President, would make damning statements that, regardless of contractual assurances of privacy, would eventually leak out? Is it plausible to believe that since nothing has leaked out, nonetheless there is a vast conspiracy of silence at work here for which Clinton is “bound” to deliver reciprocal benefits to Wall Street if elected? It is possible, but it seems extremely unlikely that a political pro like Clinton would make anything reasonably resembling a reciprocal commitment to Wall Street when speaking to hundreds of people she didn’t know, any one of whom might be secretly recording the statements.

On the other hand, whatever she did say was not likely a “spit in your eye” to her paying hosts. Nor is there any reason to expect her to behave that way. Would any expressions of gratitude for the opportunity to speak be twisted and used against her politically? This would be a legitimate concern if, as is very likely, she was already determined to make a run for the presidency. Clever pundits on the right have already conjured up inventions of what she must have said, even though they have no hard information about what she did say.

We have seen a few scattered reports attributed to unidentified attendees at the Goldman Sachs speeches indicating that the speeches were coddling up to bankers. Since we don’t know the politics of these unidentified sources, and there are other interpretations from attendees indicating they heard nothing out of the ordinary (“It was one smart person talking to another smart person about global macroeconomics,” according to another unnamed source), there is simply no basis for speculation about the content of the speeches.

Some “observers” have argued that no one gets paid more than $200,000 to speak without an expectation of reciprocal pay-off down the road. Maybe, but there are plenty of reasons a firm like Goldman Sachs would want to bring a big-name speaker like Clinton before its audience. One is that it makes Goldman look more powerful to its audience of employees and investors – this is a common explanation for the high fees earned by “big name” speakers all the time. In other contexts, big fees are paid to big names to draw attendance to an event, for the simple reason that people are interested in seeing and hearing famous people, even those who, unlike Mrs. Clinton, have little of substance to say. A little research into the speaker marketplace will substantiate the argument that high fees are commonplace.

Clinton’s critics have not had much to say about one of her appearances as the keynote in connection with a 2014 Goldman Sachs 10,000 Women: Proving the Case for Women Entrepreneurs dinner. The criticism is, it appears, a one-way street.

All that said, this issue is not going away. One hopes Mrs. Clinton and her advisors are prepared to address it forthrightly when the time comes, as it certainly will. There is reason to hope that once disclosed, these speeches will contribute less to Mr. Trump’s campaign than the revelations of his tax returns will add to Clinton’s chances.

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