President Trump’s suggestion that his billion-dollar losses in the 1980s and 1990s were the result of standard accounting practices tells only part of the story, according to tax experts who claim the huge numbers suggest his actions were far from normal.
Instead, they say he aggressively pursued loopholes that went beyond accepted practice, which even then could not explain how he apparently lost $1 billion over a decade.
But other commentators say the numbers offer limited insight into either his business acumen or his lack of it, offering only a partial view of the workings of his companies.
Trump’s financial fortunes have been in the spotlight since the New York Times reported that IRS transcripts showed his businesses lost more than $1 billion from 1985 to 1994 at a time when he was building an image as a real estate tycoon.
Critics seized on them to cast doubt on his business prowess, but in a series of tweets, the president claimed it was part of a “tax shelter” strategy that real estate developers commonly used to lower their liability.
“Real estate developers in the 1980s & 1990s, 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,” he wrote.
Showing losses was part and parcel of being a real estate developer, he argued: “It was sport.”
….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!
— Donald J. Trump (@realDonaldTrump) May 8, 2019
Although real estate developers can claim lucrative breaks, such as writing off depreciation even when the value of their property increases, two leading specialists said Trump’s losses and maneuvers went beyond common practice.
“Is what Donald Trump did normal? It appears not,” said Steve Wamhoff, of the Institute on Taxation and Economic Policy.
“It appears that Donald Trump took a lot of those breaks and pushed them to an extreme that not many other people did.”
Trump has never hidden how he used depreciation in particular to reduce his taxable income.
“I don’t have to please Wall Street, and so I appreciate depreciation,” he wrote in his 1987 bestseller The Art of the Deal. “For me the relevant issue isn’t what I report on the bottom line, it’s what I get to keep.”
Cindy Hockenberry, of the National Association of Tax Professionals, indicated that although the numbers were far from routine, people in what was Trump’s line of work could have large deductions.
“Depreciation can be a very large deduction that is allowed under the tax code, a deduction that can cause losses,” she said. “It’s a legitimate expense without actually having to shell out cash. Some in the real estate business think of depreciation as a tax shelter.”
Back then such losses could be carried forward for up to 15 years to offset income, but she added it was difficult to know exactly how Trump managed his finances without seeing more paperwork.
Peter Morici, a University of Maryland economist, said tax losses 30 years ago should not be taken as a measure of Trump’s success when he had continued building his empire for years more.
“Without full tax returns we can’t say that it does reflect a great business failure,” he said.
“What they are basically trying to do is use incomplete information to draw a negative inference about Donald Trump and that’s wholly unfair.”
But where Trump goes further than other developers, says Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center, is that not only did he manage to post sizable losses every year for a decade, but that he did so with loans that were later forgiven.
“Trump was a very aggressive taxpayer,” he said. “Trump staked out tax positions that in my experience as a practicing lawyer other people would not have staked out.”
Generally when debt is written off, the balance has to be declared as income, something Trump opted not to do when his loans were later restructured, said Rosenthal, according to documents filed in bankruptcy courts.
The result was years of losses which were rolled over to offset future earnings, he said, in a way that “crosses the line of lawfulness”.
For Wamhoff, the huge deficits suggest both an accounting strategy and real operating losses.
“To me it looks like a combination of him being a terrible businessman and using a lot of special tax breaks and loopholes,” he said.
