By any reasonable metric the New York Times special investigation into the Trump family’s dynastic wealth accumulation is a “YUGE DEAL.” Yes, a substantial part of the revelations undercut the Trumpian self-made myth. That in itself is newsworthy and important, but it is not the reason I could not stop reading this story at 1 in the morning. (I’m from New York, so I’ve been clued into Trump exaggerations for decades.) The investigation is much more important as an approachable case study of how wealth is built in the United States and a reality check on the myth of the self-made individual.
Believe it or not myriads of human beings work hard and have good ideas but have little or no wealth to show for it. In all of the complaints about Mexican illegal immigration, the fact that Mexico is the hardest working nation in the world is rarely mentioned. From the 19th century industrialists or robber barons to today’s Silicon Valley tech giants or oligarchs, the story of wealth in the United States has at least partly been one of government handouts, large inheritances and a lot of greed mixed in. In no particular order, here are five lessons on wealth that the Trump family can teach every American:
1. Make friends with politicians and lobby hard. Governments from the local to the federal play a part in picking winners and losers in the economy. Politicians can decide which industries are favored with low regulation, which receive tax breaks, which are awarded contracts. This back-scratching behavior (or rent-seeking as economists call it) represents a substantial part of the wealth created in the United States.
2. Use said government handouts to your advantage. Beginning with the Great Depression and continuing to the post war period, the federal government was very interested in stimulating the economy and building more homes. Fred Trump, the president’s father, and others like him used low or no interest government backed loans (which promoted segregation) to build real estate empires. Welfare for the wealthy is alive and well today. And contrary to what some may believe, job creation or helping the economy are not requirements for receiving it.
3. Hire a small army of skilled professionals to keep and grow your wealth. Clever lawyers, accountants, financial planners, appraisers and wealth managers are a must. As a former attorney, I speak from experience. These well-paid professionals exploit the murky playground between legal tax planning and illegal tax evasion every day. One should never underestimate the importance of appraisers. In order to tax something we often need to know how much it is worth. A “friendly” appraiser can easily make a building worth $10 million in order to get a bank loan or $10,000 for tax purposes. Valuation really is that subjective.
4. Get wealth into the hands of your children early. The wealthy know that wealth begets more wealth. Plans to start passing on wealth to children often start at birth. The earlier money is passed on, the more chance it has to grow. By using trusts and corporate entities all manner of wealth can be passed on and disguised as perfectly valid transactions. For example, taking inspiration from Fred Trump, wealthy parents can “sell” a building to their child’s trust. The trust “pays” for the loan by using rents it collects from said building. By using this sale method the parent can avoid gift tax.
5. Use limited IRS funding to your advantage. While normal Americans are often terrified by the IRS and tremble at the thought of receiving an audit letter, the wealthy know that the IRS ultimately has limited resources and continues to face budget cuts. Once we account for the better paid professionals that the wealthy have working on their side, the IRS is often no match. Consider the myriad of complex transactions that families can engage in, and compare that to the estate and gift tax program at the IRS, which has about 200 attorneys for the entire nation and a law full of loopholes to administer. These attorneys are often late to catch problems, and when they do, the taxpayers attorneys are able to minimize the damage substantially.
For those who care about wealth inequality the value of these lessons cannot be overstated. As a nation, we cannot hope to solve issues of entrenched inequality without a proper diagnosis. Hopefully, this in-depth investigation of the Trump family will allow Americans to start rethinking the hard work and perseverance myth we’ve been sold for generations.
Goldburn P. Maynard Jr. (firstname.lastname@example.org) is an assistant professor of law at the University of Louisville Brandeis School of Law.