Economist Channel

Source: Wall Street Journal

"President-elect Donald Trump owns a helicopter in Scotland.

To be more precise, he has a revocable trust that owns 99% of a Delaware limited liability company that owns 99% of another Delaware LLC that owns a Scottish limited company that owns another Scottish company that owns the 26-year-old Sikorsky S-76B helicopter, emblazoned with a red “TRUMP” on the side of its fuselage."

So write Jean Eaglesham, Mark Maremont, and Lisa Schwartz in the Wall Street Journal

"WTF?" wonders the incredulous reader. Why does Mr. Trump structure his finances with such mind-boggling complexity, to say nothing of astronomic legal costs? The article is pretty thin on explaining the logic of all this.

You can see the Journal writers struggling for a narrative. Is this about Mr. Trump's "conflict of interest" issues? Is this something nefarious about Mr. Trump, efforts to hide something? (You can be sure earnest investigative reporters at the Times will be beating both drums for the next four years. And just as sure that nobody will pay much attention unless they can tempt Mr. Trump into saying something stupid about it all.)

Let me suggest a productive narrative. Mrs. Clinton's email saga laid bare for all of us to see the financial arrangements of prominent public figures -- "charitable foundations" to funnel money around, all "legal." In my view, rightly felt disgust at that look into our political system had a lot to do with the election. Mr. Trump's financial arrangements lay bare for all of us to see the financial arrangements of the super-wealthy in this country, also massively complex, perfectly "legal," and smelling equally of last week's fish. The right response is equal disgust at the obscene tax code and crony capitalist system that produces this mess.  Mitt Romney's taxes were 550 pages long, and he only had investments, not operating companies! Fellow peasants, get out your pitchforks!


What are all these shell companies about? I would love to hear from some of the attorneys who set these things up. But we get some hint from the article

LLCs registered in Delaware are widely used for real estate because of their tax advantages.

Delaware LLCs don't have to publish any financial information or even disclose the identity of the owner. In addition, the most a member of an LLC can lose if the company fails is normally the amount he or she has invested in that company

I actually know something about this because, like Mr. Trump I own an aircraft. Mine doesn't even have an engine, but the law is the same. When you register an aircraft, the state sales tax authorities come looking for you and want their share. If you register the aircraft in a Delaware LLC, they have a much tougher time finding you. Google "Delaware Aircraft Registration" and many ads from very nice companies will pop up explaining it all. If your airplane is worth less than $100,000, it's not worth the bother. (Disclosure: I paid the sales tax. Chump that I am.) If its worth millions, it is very much worth the bother. Google the FAA aircraft registry (public, online) and you will see lots of Delaware owners. Hint, there aren't a lot of airports in Delaware.

I suspect this is about a lot more than sales taxes. There has been another drumbeat that Mr. Trump should sell or transfer his businesses to his children. This is ridiculous to anyone who pays taxes. If you actually sell a business you pay a huge capital gains tax, and if you transfer it you pay a huge gift tax. The affairs of real estate moguls are exquisitely structured to avoid estate and gift taxes, through vehicles and trusts that need to operate over long spans of time. It helps a lot to have very complicated structures where nobody knows what anything is worth.

(The second big advantage, mentioned in the above ads, is protection from liability. If the plane crashes into a puppy farm, they won't be able to go after Mr. Trump's other assets.)

The journal article also tries on the narrative that we don't know how much Mr. Trump is really worth, I think keeping up the spin from the campaign that maybe he was lying about his billions. But that too deserves a better narrative. We don't know how much he's worth. Neither does Mr. Trump, pretty obviously. Why did he set up his businesses so it is impossible for even him to know how much he's worth? Well, stated that way, one conjectures it's a pretty good idea for the IRS to be unable to figure out how much you're worth too!

Every time a sensible person pipes up that we should repeat 1986, lower marginal rates of the federal income tax, broaden the base, and simplify the tax code, our friends on the left (including a lot of prominent economists, who should know better than to echo propaganda) scream "tax cuts for the rich!" Reading this story, I can imagine just how much Mr. Trump's lawyers and accountants chuckle when they hear that. Personal income taxes? Who even bothers with those!

What has happened to America that, if you have the money to buy a plane, it is perfectly normal to route that purchase through a network of Delaware LLCs? What has happened to America that any citizen living on an investment portfolio should file 550 pages of personal tax returns? What has happened to America that if you ask for estate planning, even just on the web, it is perfectly normal that any citizen should set up a living trust, a trust A and trust B to get spousal exemptions, a descendants' trust to preserve the generation-skipping limit, and if you have any real money a grantor retained annuity trust and so on? What has happened to America that every wealthy person, and especially sports personalities, politicians and moguls, sets up a "charity" so they can write off private jet travel, the salaries of their entourage, and "employ" their relatives? Workers of America (and by this I mean rather unfashionably people who, like, actually work, and therefore pay taxes) unite, you have nothing to lose but your piles of papers and what should be your seething sense of injustice!

Really, and I appeal to my friends on the left here: Seeing this insanity, don't you want to throw it all out and have a simple VAT or consumption tax -- and nothing else? Both Mr. Trump and Mrs. Clinton would pay a lot more taxes! (The Hall-Rabushka proposal is one good implementation.)
Drain the swamp, please, Mr. Trump. The tax code is a good place to start. When all the lawyers and accountants who set these things up for you are driving for Uber,  you will know you have done a good job.

(Previous Trump Tax post here.)