It's earnings season for accounting firms, except it's really not "earnings"; rather it's just "revenues" and the rest of it is marketing. I complained about accounting firms' reporting enough last month when Deloitte released its revenues so I'll spare you a repeat performance. Instead, I'll mention that PwC released its global annual review yesterday and you could probably characterize their results as "fine."
PricewaterhouseCoopers had $35.9 billion in global revenues in its latest fiscal year, up 1.5% from the previous year, the Big Four accounting firm said Monday.
That growth rate is based on revenue at each year’s average foreign-exchange rates. PwC’s revenues for the fiscal year ended June 30 were up 7.3% when exchange rates are held constant, the way PwC prefers to measure its growth.
If you're keeping score at home, you should know that PwC's $35.9 billion is only good for #2 among the Big 4. Deloitte is officially the biggest of the Big 4 again with its posted revenues of $36.8 billion. Whoopee.
Net operating losses
So Donald Trump had a lot of net operating losses and might've used them to offset years of income. This New York Times report says the average NOL in 1995, the tax year of Trump's $916 million loss, was $97,600. And as big as Trump's NOL is, $97,600 is a decent loss for any taxpayer to offset some income. In any case, a lot of people expressed some skepticism at the characterization of NOLs in the NYT's original report. Here's Megan McArdle at BloombergView:
To judge from the reaction on Twitter, this struck many people as a nefarious bit of chicanery. And to be fair, they were probably helped along in this belief by the New York Times description of it, which made it sound like some arcane loophole wedged into our tax code at the behest of the United Association of Rich People and Their Lobbyists. They called it “a tax provision that is particularly prized by America’s dynastic families, which, like the Trumps, hold their wealth inside byzantine networks of partnerships, limited liability companies and S corporations.”
Every tax or financial professional I have heard from about the New York Times piece found this characterization rather bizarre. The Times could have just as truthfully written that the provision was “particularly prized by America’s small businesses, farmers and authors,” many of whom depend on the NOL to ensure that they do not end up paying extraordinary marginal tax rates — possibly exceeding 100 percent — on income that may not fit itself neatly into the regular rotation of the earth around the sun.
Yes, McArdle's right, all kinds of "people" use NOLs and I agree that the timing is somewhat arbitrary, but the Times description isn't wrong. This Wall Street Journal article from a couple years ago explains:
The top 1% of Americans–who have a net worth of more than $7.8 million–hold nearly half their gross assets in unincorporated business equity and other real estate.
That means they get to use NOLs! And you know who doesn't? People who don't hold assets in business equity and other real estate. Back to NYT, in a follow-up article that discusses NOLs:
[T]he rule also reflects an inequity in how income earned through labor is taxed compared with income earned through capital. Mere wage earners cannot avail themselves of the provision Mr. Trump and other business owners use to avoid taxes.
Look, almost everyone agrees that it makes no sense for a business to lose $1 million in Year 1 and pay no taxes and then earn $1 million in Year 2 and pay taxes on the income. But how our system taxes labor versus how it taxes capital does illustrate how that system favors business over individuals.
Knowing how to take advantage of those rules isn't afforded to your average working class hero or white-collar stiff, but they afforded to people like Trump who hold most of their wealth in businesses. His surrogates claim this whole situation makes him a genius. But I think most people understand that losing nearly a billion dollars is a pretty lousy tax avoidance strategy.
If you can't get enough of Trump tax stuff, Joe Kristan has a great roundup.
Has Donald Trump released his tax returns?
Nope! I think we're all at the mercy of someone mailing another manila envelope to the New York Times or the Washington Post or Going Concern.
Previously, on Going Concern…
In other news:
- Boeing’s Unique Accounting Method Helps Improve Profit Picture
- Deloitte to merge 9 of its European member firms
- Your accounting firm isn't worth squat – An open letter to a Senior Partner
- Why Are Politicians So Obsessed With Manufacturing?
- Marijuana plants in the front yard tip police to grow operation
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