Trump’s Business Failures Revealed

Ken AshfordTrump & AdministrationLeave a Comment

He’s not a successful businessman. He’s a grifter. During the decade when he was hawking “The Art Of The Deal”, Trump was losing money hand over fist, according to the NY Times, who obtained his tax transcripts from 1986-1995.

If the new tax information does not offer a new narrative of Trump’s career, its granular detail gives a precise accounting of his financial failures and of the constantly shifting focus that would characterize his decades in business. Here are some key takeaways.

“Trump: The Art of the Deal” came out in 1987. It became a best seller — and a powerful vehicle for the self-spun myth of the self-made billionaire that would ultimately help propel him to the presidency.

Trump has long attributed his first run of business reversals and bankruptcies to the recession that hit three years later, in 1990. But the new tax information reveals that he was already in deep financial distress when his master-of-the-universe memoir hit the shelves.

For Trump, the 1980s were a frenzy of acquisition and construction, buoyed by hundreds of millions of dollars of borrowed money. In 1985, for the first time, Forbes’s “rich list” included Trump individually, independent of his father. But his estimated net worth according to the magazine, $600 million, included the real estate empire Fred Trump still owned.

With Trump’s vast debt and other expenses on his properties — among them Trump Tower and the Grand Hyatt hotel in Manhattan, and two Atlantic City casinos — his fortunes were already on the way down. In 1985, his core businesses reported a loss of $46.1 million; they also carried over a $5.6 million loss for earlier years.

Because those businesses were generally created as partnerships, they did not pay federal income taxes themselves. Instead, their gains, and their losses, flowed onto Trump’s ledger. To put his results in perspective, The Times compared them with detailed information that the I.R.S. compiles on an annual one-third sampling of high earners. Most of them appeared, like Trump, to be businessmen who received what is known as pass-through income.

For 1985, the I.R.S. information indicates this: Only three individual taxpayers in the sampling reported bigger losses than Trump.

The tax results for the years that followed trace an arc of continued empire building — and gathering loss.

He bought the Eastern Airlines shuttle for $365 million; it never made a profit, and he spent more than $7 million a month to keep it flying. His new Trump Taj Mahal Hotel and Casino, opened in 1990 with more than $800 million in debt, sucked revenue from his other casinos, pulling them along into the red.

And so, year after year, Trump appears to have lost more money than nearly any other individual taxpayer, according to the I.R.S. information on high earners — a publicly available database with taxpayers’ identifying details removed. Indeed, in 1990 and 1991, his core businesses lost more than $250 million each year — more than double those of the nearest taxpayers in the sampling for those years.

The tax code allows owners of commercial property to write down the cost of their buildings — a valuable tax shelter known as depreciation. In “The Art of the Deal,” Trump cited one of his Atlantic City casinos to show how it works. Built for $400 million and depreciated at a rate of 4 percent a year, he said, it could allow him to shelter $16 million in taxable income annually. But Trump’s example, meant to demonstrate the magic of depreciation, shows something else: Depreciation alone cannot account for the hundreds of millions of dollars in losses he declared on his taxes.

Business owners like Trump may also use their losses to avoid paying taxes on future income. Over the years, those losses rolled into a $915.7 million free pass, known as a net operating loss, that appeared on his 1995 tax returns, pages of which were mailed anonymously to The Times during the 2016 campaign.

The new tax information shows how Trump’s net operating losses snowballed, reaching $418 million in 1991. That was fully 1 percent of all the losses that the I.R.S. reported had been declared by individual taxpayers that year.

And the red ink continued to accumulate apace. In all, Trump lost so much money that he was able to avoid paying any federal income taxes for eight of the 10 years.

For a time, Trump was able to stave off his coming collapse with the help of a new public role: He traded on his business-titan brand to present himself as a corporate raider. He would acquire shares in a company with borrowed money, suggest publicly that he was contemplating a takeover, then quietly sell on the resulting bump in the stock price. An occasional quote from a high-profile associate helped burnish the myth.

“He has an appetite like a Rocky Mountain vulture,” his stockbroker, Alan C. Greenberg, told The Wall Street Journal in 1987. “He’d like to own the world.”

From 1986 through 1989, Trump declared $67.3 million in gains from stocks and other assets bought and sold within a year.

But ultimately, the figures show, he lost most, if not all, of those gains after investors stopped taking his takeover talk seriously.

Amid the hundreds of figures on 10 years of tax transcripts, one number is particularly striking: $52.9 million in interest income that Trump reported in 1989.

In the three previous years, Trump had reported $460,566, then $5.5 million, then $11.8 million in interest.

The source of that outlier $52.9 million is something of a mystery.

Taxpayers can receive interest income from a variety of sources, including bonds, bank accounts and mortgages. Hard data on the workings of Trump’s businesses is hard to come by. But public findings from New Jersey casino regulators show no evidence that he owned anything capable of generating that much interest. Nor is there any such evidence in a 1990 report on his financial condition, prepared by accountants he hired at his bankers’ request.

Trump’s interest income fell almost as quickly as it rose. By 1992, he was reporting only $3.6 million.

Trump responded the morning, unconvincoingly:

1. It just reaffirms that he’s a con man and he’s always been a con man.

2. His supporters don’t care.

But it does beg the question: where does all the money he has NOW come from?

Well, we know that twelve years after the time period covered by the New York Times story, he went on a buying spree—this time with cash.

In the nine years before he ran for president, Donald Trump’s company spent more than $400 million in cash on new properties — including 14 transactions paid for in full, without borrowing from banks — during a buying binge that defied real estate industry practices and Trump’s own history as the self-described “King of Debt.”…

The cash purchases began with a $12.6 million estate in Scotland in 2006. In the next two years, he snapped up two homes in Beverly Hills. Then five golf clubs along the East Coast. And a winery in Virginia.

The biggest cash binge came last, in the year before Trump announced his run for president. In 2014, he paid a combined $79.7 million for large golf courses in Scotland and Ireland. Since then, those clubs have lost money while Trump renovated them, requiring him to pump in $164 million in cash to keep them running.

When asked last year where all of the cash came from, Eric Trump said that his father “had incredible cash flow and built incredible wealth.” But that is at odds with the Times story, which reported huge losses of cash a little more than a decade earlier.

So where did all of that cash come from? Matthew Seitlin suggests that it might have come from Daddy.

…Trump kids were able to inherit in 1997 what they told the IRS was $41.4 million worth of properties before selling them for “more than 16 times that amount” over the next 10 years. When Fred Trump died, he had “just $1.9 million in the bank.”

The Trump children were able to get their hands on their parents’ actual estate and eventually sell it in 2004, with Donald Trump getting around $235 million. Almost immediately afterward, Trump’s spending ramped up, the Times reports.

That might be true. But given that the Times reported that it was Fred Trump’s money his son used to maintain his lavish lifestyle, it is not clear that there would have been enough to also fund major cash purchases.

It is also true that, during that cash spending spree, Trump’s sons made it very clear where the money was coming from. In 2008, Don Jr. said that, “Russians make up a pretty disproportionate cross-section of a lot of our assets…We see a lot of money pouring in from Russia.” Then in 2014, Eric told James Dodson that “We have all the funding we need out of Russia.”

It is probably never a good idea to believe what someone named Trump says. So the truth is that we don’t know where the $400 million in cash came from. What we doknow from the Times reporting is that Donald Trump was an abject failure in business and relied on his father’s wealth until that money dried up. As Jonathan Chait wrote, “you couldn’t invent a more inviting target for a foreign intelligence service to manipulate.”

Getting answers to the questions about where America’s biggest loser got all of the cash he started throwing around in 2006 is why Congress needs to see the president’s tax returns. Until that happens, questions will remain about whether the president himself poses a threat to national security.