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Georgetown Professor on Trump tax report: We should not pass any final judgment until we’ve actually seen the returns

Georgetown University Professor of Business Law Thomas Cooke joins Yahoo Finance's Zack Guzman to break down the findings from the New York Times' bombshell report on President Trump’s tax returns.

Video Transcript

ZACK GUZMAN: A bombshell report coming from "The New York Times" in regards to President Trump's taxes and tax history here. The latest report from "The New York Times," citing an unnamed source, claims that the president paid just $750 in federal income tax the year he won the presidency. The report also notes that the president paid no income taxes at all in 10 of the previous 15 years, largely tied to losses that he reported.

It also raised new questions about payments made to his daughter, Ivanka Trump, tied to consulting fees on projects from The Trump Organization tied back to hotel projects in Vancouver and Hawaii. New reports raising a lot of questions that have been spiraling around the president for quite some time, as he has refused to reveal his tax return history. Of course, it's not forced here, but we have seen the precedent here in candidates doing so.

Joining us now to discuss this in a bit more detail is Thomas Cooke, professor of business law at Georgetown University's McDonough School of Business, along with Yahoo Finance's Sibile Marcellus. And Professor Cooke, I would just want to get into what this report claims. Because obviously, it wouldn't be illegal to pay so much or so little in taxes, nor would it be illegal to write down some of these things.

But a lot of people are digging into maybe the ethical questions, particularly around maybe writing off some consulting fees in paying his own daughter tied to these projects. But what, to you, stands out as potentially, I guess, the most damning for President Trump here?

THOMAS COOKE: Well, I think from the public's perspective, the thing that stands out is the amount of taxes, at the end of the day, allegedly paid in 2016 and '17. And that being a ridiculously low amount of $750. I think that's what gets the public's eye this morning.

And again, as a tax professional-- I do teach tax at the university-- that the one concern I would have is that we not pass any final judgment until we've actually seen the returns, we've seen the lines, we've seen the numbers. What is it that generated such a low level of income?

I contacted three friends this morning that I know are ardent Trump supporters. And I said, well, give me your reaction. They all said the same thing-- what's the big deal? I'm not surprised. I suspected that he wasn't paying much in taxes. It's not going to affect how I feel one way or the other. So I think there's a certain segment of the public that's just going to shrug their shoulders and say, you know, what else is new? Now, I understand why the president didn't release his taxes.

And again, one point I want to make very clear is that you could be under audit from now until doomsday, but that absolutely does not stop you from releasing your tax returns.

ZACK GUZMAN: Yeah, and that's a claim that we've heard multiple times from President Trump.

THOMAS COOKE: Now, the president, he's made a strategic decision along, I'm sure, with lawyers and accountants, I'm not showing these returns. And by the way, that is absolutely not going to change between now and election day.

[CHUCKLING]

The last thing he needs is for this story to occupy the news 24/7 for a number of weeks. It's bad enough that it came out last night.

What I found fascinating in the president's press conference last night was, when questioned about this, he responded, as he's done before, this is nothing but fake news. Well, interesting-- no one so far in the White House is denying any of the numbers that "The New York Times" is reporting.

ZACK GUZMAN: Yep.

SIBILE MARCELLUS: Well, you know, when we look at Wall Street, right, where they're obviously looking at this "New York Times" report, too, and Democrats are out there attacking President Trump, saying that he's gaming the system-- but isn't that something that big core-- many big corporations and CEOs actually aspire to do and pay as little when it comes to federal taxes as close to zero as possible? Can this possibly backfire and increase support for President Trump?

THOMAS COOKE: Um, I don't see-- well, I don't see it more on the positive side, because the average person is going to say, I'm not getting that deal. I'm not getting that benefit. So how is this good news to me? So there is a perception, you know, that there is one group that gets super-duper benefits, and then there's the rest of us. I don't see that as positive.

But what you just said is 100% correct. I want to read a quote from a very distinguished judge by name of Learned-- L-E-A-R-N-E-D-- Learned Hand. He said, anyone may arrange their financial affairs so that his taxes shall be as low as possible. You are not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes.

So you're right. You can work within the system, and at the end of the day, pay your fair share. The question here is going to be, is this a fair share? Are certain deductions legitimate? Do they fall under the definition of ordinary and necessary? Or are they excessive?

ZACK GUZMAN: Well, that's what I would like to focus in on here, too, because one of the questions that I had off of this-- and you can point to a couple of things that this report highlights, mainly that the latest in the reporting says that President Trump here would owe $421 million in loans that are coming due in the next few years. Democrats are claiming that could mean that he might have a reason to maybe do whatever it takes to get some of those loans covered here and could be a national security threat.

I'm not sure if a lot of people will buy into that, considering, you know, he might have a little bit more here to back those loans. But one of the questions to, again-- and I'll hit it again-- that stood out to me was the question of skirting, maybe, some payments here tied to paying his daughter, Ivanka Trump, through consulting fees, because that would be a question of skirting things. Because you're not supposed to be allowed to pay family members through consulting fees and using that as an avenue, unless I'm wrong on that. Talk to me about how-- how, I guess, critical that piece becomes.

THOMAS COOKE: Well, two things you've just said-- first is, there maybe a bigger bombshell here, which is the financial debt to entities in other countries, falling due within the next several years. That's a major concern from an ethical point of view. Is there an inherent conflict of interest? Does the President of the United States have an inherent conflict of interest when it comes to recommending or not recommending certain tax reform? That, I think, is a very big unanswered question.

On the issue of the consulting fees, you are correct. Consulting fees should be treated in a very special way. They should not be co-mingled with other income one might gain as an executive of a company. But again, to me, that is an allegation. That's a line item on a tax return. It wouldn't specifically be noted as to who got what.

So again, I don't know what the source of "The Times" information on that point is. I'm rather certain that if it is false, the White House will tell us that it's false. And if it's not, again, that's part of what the IRS is undertaking in its extensive examination.

ZACK GUZMAN: Yeah.

SIBILE MARCELLUS: And one item that really stood out to me in that report was the tax deductions on $70,000 in hairstyling for TV. Now, does that seem legitimate to you or questionable?

THOMAS COOKE: Well, I can tell you in our tax class, we will go through a list of what's ordinary, necessary business expenses. That would more likely tilt the needle towards not appropriate. I thought that was a very-- it's such a small number in the overall scheme of things-- $75,000. But do you know anybody else spending that kind of money on haircuts? I don't-- I think the answer is probably not.

You know, sometimes what you'll find, people really push the envelope. Sometimes, they just go above and beyond what is perfectly legitimate. So that's small potatoes in the overall scheme of things, but certainly worthy of a conversation. And I'm sure, starting tonight, the late night talk shows will have a field day with the haircut issue.

ZACK GUZMAN: Yeah, and I mean, as we said, we'll be hearing more about this as more time goes on to piece all these things together. To your question there, in terms of where the connected dots come from in the Ivanka Trump consulting fee piece, is that they've paired it with consulting revenue that she reported on her own tax returns, according to that "New York Times" report, as well.

But more dots to be connected here, and I appreciate you coming on to chat-- the early dots we got here. Professor Thomas Cooke, business law at Georgetown University's McDonough School of Business, appreciate your time, along with Yahoo Finance's Sibile Marcellus.