Donald Trump’s Business Failures Were Very Real

By John Cassidy

May 10, 2019 

After massive setbacks in the nineteen-eighties and nineties, Donald Trump’s days as a swashbuckling entrepreneur were done.Photograph by Bruce Gilbert / Newsday / Getty

Many of Donald Trump’s tweets aren’t worth paying attention to, but on

 Tuesday morning he posted a pair that demanded inspection. Like many other people, me included, the President had apparently been reading a story in 

the Times that punctured the mythology surrounding his business career.

 Based on Internal Revenue Service transcripts of Trump’s tax returns from 1985 to 1994, the Times report said that Trump’s core businesses racked up losses of more than a billion dollars in a ten-year period. During 1990 and 1991, the story said, Trump’s losses were so large that they “were more than double those of the nearest taxpayers in the I.R.S. information for those years.”

Trump could simply have ignored the report or dismissed it as old news. But, with cable-news networks featuring it prominently, and the Daily News, one of Trump’s home-town papers, running the front-page headline “biggest loser,” he did what he usually does and counterattacked. This is what he wrote on Twitter:

Real estate developers in the 1980’s & 1990’s, more than 30 years ago, were entitled to massive write offs and depreciation which would, if one was actively building, show losses and tax losses in almost all cases. Much was non monetary. Sometimes considered “tax shelter” . . . you would get it by building, or even buying. You always wanted to show losses for tax purposes. . . . Almost all real estate developers did - and often re-negotiate with banks, it was sport. Additionally, the very old information put out is a highly inaccurate Fake News hit job!

The first thing to note about Trump’s argument is that, despite his parting jibe, he didn’t challenge any of the specific figures in the Times story. They show that, between 1985 and 1989, a period when the economy was forging ahead and Trump was busy portraying himself as a billionaire with the Midas touch, his core businesses—apartment buildings, hotels, and casinos—somehow managed to lose $359.1 million. That was only the beginning. As the economy weakened, in 1990 and 1991, Trump’s core businesses racked up losses of $517.5 million. And, between 1992 and 1994, as the economy recovered, they lost another $286.9 million.

By any standards, this is a lot of money to burn through. But what of Trump’s argument that they weren’t real losses of the sort that deplete your bank account and leave you struggling to make ends meet? Were they simply “tax losses”—“non-monetary” deficits that exploited loopholes in the tax code to minimize Trump’s tax burden?

The tax code is certainly friendly to real-estate developers like Trump. The I.R.S. allows developers and landlords to deduct from their profits and income every year a certain portion of the value of their buildings for “depreciation.” But there are limits to this practice. Owners of residential real estate have to depreciate a building over the course of twenty-seven and a half years, which means that each year they can deduct about 3.6 per cent of its value. For owners of commercial real estate, the depreciation period is thirty-nine years, which means that they can deduct about 2.5 per cent of a building’s worth annually. Say that a property is worth two hundred million dollars. If it’s a residential building, its owner can reduce his or her taxable income by about $7.2 million dollars a year. If it’s a commercial building, the deduction is worth about five million dollars.

These are significant sums, certainly. But, as the Times article points out, depreciation charges aren’t nearly large enough to create the massive losses that Trump’s businesses incurred. “Some fraction of Donald Trump’s losses can be attributed to depreciation,” Susanne Craig, one of the authors of the Times piece, wrote in a tweet, responding to Trump. “We found most of it was just bad business.”

If you don’t find this argument entirely convincing, or you think it’s a bit difficult to evaluate without access to Trump’s actual tax returns, look at things another way. Apply the cash test. Ultimately, the real test of any business is how much cash it generates over the years. If it’s a good, well-run business, it will throw off cash. If it isn’t, it won’t. Taken over all, Trump’s businesses didn’t generate much cash. Instead, they groaned—and, in some cases, collapsed—under the burden of all the debt that he took on to purchase them. And Trump himself came perilously close to going bankrupt.

How do we know this? Trump’s financial troubles were public knowledge at the time. Things came to a head in the summer of 1990, when his businesses—which by then included three casinos in Atlantic City, the Plaza Hotel, and the Trump Shuttle airline—were so strapped for cash that they couldn’t meet their interest payments. Some of the dozens of banks that had lent money to Trump were threatening to foreclose on their loans, which could have caused a cascading chain of bankruptcies, including one for Trump personally.

Rather than allowing this, which would have forced them to recognize large losses on the loans they had extended to Trump, the banks eventually agreed to keep him afloat by extending another sixty-five million dollars in credit. “Wrapping up a hard-fought deal with bankers yesterday, Donald J. Trump narrowly avoided missing a payment deadline that could have led to personal bankruptcy,” the Times reported, on June 27, 1990. “But for the developer, who once seemed nearly invincible, the deal comes at a humbling cost: He has been forced to cede management control over his multibillion-dollar empire, at least temporarily, to the bankers who came to his rescue.” The article went on to say that “the banks hope the new cash will give Mr. Trump time to oversee the orderly sale of many of his assets at prices that would allow him to meet his obligations.”

The financial reprieve that Trump’s businesses received turned out to be temporary. In 1991, his Taj Mahal casino, in Atlantic City, filed for bankruptcy protection, and, not very long after, so did his other two casinos—the Trump Plaza and the Trump Castle. In 1992, the Plaza Hotel filed for bankruptcy, and Trump agreed to turn over many of his remaining assets, including Trump Shuttle, to his creditors. With the help of the banks and his father, who repeatedly gave him money, Trump managed to escape the humiliation of personal bankruptcy, but his days as a swashbuckling entrepreneur were done. For a decade, or more, he largely confined himself to licensing deals, entertainment ventures, and minority investments that cashed in on his personal brand, which somehow survived his dramatic fall.

In May, 2019, this is all distant history, of course. But don’t let anyone tell you—not Trump, nor Newt Gingrich, nor any of the President’s other apologists—that the businesses Trump operated were successful, or that the huge losses they sustained were simply tax dodges. They weren’t.

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