The scandal of the true fortune of Trump, a ‘billionaire who does not pay taxes
Donald Trump's assets are so many that surely his bankers are calm despite their debts.
"Is Donald Trump really a billionaire?" Surely many wondered on Sunday night, September 27, after the New York Times dropped the bomb on its report on the president's taxes in which it detailed huge losses some years and limited income in others. The answer is: yes, Trump is a billionaire.
In fact, Trump has several billion dollars: $ 2.5 billion, according to Forbes counts. His portfolio, which includes commercial properties, golf and branding businesses, is worth $ 3.66 billion without taking into account debt. The president has a high level of leverage, which adds up to nearly $ 1.13 billion, but not enough to drag his fortune below $ 1 billion.
To understand how Trump is so rich — and that he seems so poor — it is essential to understand the difference between what is called (a) taxable income and (b) operating income. Taxable income represents the amount that a citizen reports earning to the US Internal Revenue Service (IRS), after subtracting various things, such as depreciation, interest, losses, and, in Trump's case, questionable business expenses. Operating income refers to the amount that businesses raise in their normal operations and in which things like sophisticated accounting tricks and financial maneuvers are ignored.
Many of Donald Trump's businesses generate huge volumes of operating income despite reports of him to the IRS allegedly pointing to low taxable income. This is relevant because operating income, not taxable ones, is a key factor in determining the value of a real estate asset. Investors want to know how much a building generates in terms of annual earnings. What happens next on a person's tax return — at the level of financial alchemy that a seller uses to make his operating profit appear as a loss and therefore tax evasion — doesn't matter much to a potential buyer. .
"You have to see that there is the tax world ... and the real world," says Eric Anton, a real estate broker in New York. "They are very different worlds."
Trump's operating income is real and documented in paper reports from local tax offices, the Securities and Exchange Commission (SEC), as well as the president's business associates. But make no mistake: the news is not that the president is bankrupt (the Times article reflects that tax returns do not indicate a person's fortune). The news, actually, is that Donald Trump apparently avoided huge tax payments despite having significant operating profits on certain properties. In other words, Trump managed to share very little of his fortune with the country he presides over.
Determining Trump's fortune is equivalent to a simple, and enormous, equation: simply add up all the value of his assets and subtract that of his liabilities. Of course, calculating what an asset is worth is not always easy. For a commercial building, for example, you need to examine location, square footage, multiples of valuation, and income (operating income).
Take Wall Street 40, a skyscraper in New York that Trump controls. Documents in the SEC indicate that Trump's operating income in 2019 was $ 18.1 million. The building consists of 115,000 square meters, according to different reports to the SEC.
In various interviews conducted a few months ago, eight New York real estate experts suggested multiples to apply to those income and square footage figures. On average, they calculate that net operating income is equivalent to 5.4% of total value. That means the asset in question is worth about $ 336 million. However, the same experts also suggested valuing the building at $ 400 per square foot (0.93 square meters). With that, we are talking about a total value of $ 466 million. Arriving at an exact valuation is complicated, but if we consider the average of both methodologies we can speak of $ 401 million.
We can apply this exercise to the entire portfolio of Trump properties, with which all its assets would reach about $ 3.7 billion. A key variable in every calculation is net operating income. Trump's accountants could erase it when they prepare their statement, but it is useless to deny it up front since it is fully documented in other administrative processes.
The president's partner on California Street 555, a publicly traded real estate company called Vornado, revealed in a public report that the 70% he owns in the property left him $ 60 million in net operating income in 2019. This means that 30's stake % of Trump's property produced $ 26 million. A document tied to a loan on the building at 1290 Avenida de las Américas, in which Trump has 30%, reveals a net operating income of $ 96 million in 2019, suggesting that the president's share represented $ 29 million. In addition to Wall Street 40's $ 18.1 million operating income in 2019, SEC reports from Trump Tower record $ 13.3 million in revenue, $ 1.7 million from Trump Plaza, and $ 600,000 from Trump International Hotel & Tower. New York City Estimates $ 1 Million Operating Income Inside Trump World Tower; $ 600,000 at Trump Parc; 900,000 in Trump Park East and nearly $ 2.4 million in Trump Park Avenue. A representative of the Trump Organization told Forbes in September 2019 that the president's store on East 57th Street brings him an annual profit of $ 10.7 million. Taken together, Trump's interests in those properties are worth about $ 2.3 billion before subtracting his debt.
Trump's portfolio of golf properties is more difficult to value. He owns 10 traditional clubs in the US, which generated revenues of $ 108 million in 2019, according to an analysis of the president's financial report in 2019. It is difficult to determine the operating margins of those properties, but their performance in the past is a indicator to follow. A 2014 revenue report from the Trump club in Westchester County, New York, reveals revenue of $ 1.1 million from sales of $ 5.6 million, suggesting a 20% margin. Documents related to the Trump club in Jupiter, Florida, refer to margins of 19% in 2013 and 13% in 2014 and 2015. After hearing these figures, seven golf experts calculated average margins of 21% before the pandemic, which suggests that in total the operations in these properties totaled about 23 million dollars in 2019. If these properties left this level of income, together they would mean about 200 million dollars to date. Even if there are losses at all the clubs, they would have a current value of $ 100 million.
The Times story doesn't touch on Trump's golf club revenues at all, but it does refer to his resorts, which are known to be in trouble. There are reports to regulatory authorities in Europe that point to year-over-year losses at the president's three properties in the region. At Trump National Doral, the president's Miami resort, net operating income fell from $ 13.8 million in 2015 to $ 12.4 million in 2016 and $ 4.3 million in 2017, according to documents provided by local authorities. A representative of the Trump Organization told Forbes that profits totaled $ 9.7 million in 2018. The Times reports that Trump bought Doral for $ 150 million and later spent $ 213 million more, a total investment of $ 363 million. Forbes estimates the resort is worth $ 153 million. In this logic, the president would have lost 201 million dollars there.
In mid-September Forbes reported that Doral and the Trump International Hotel in Washington, DC, would face financial problems. The Times story confirms this (and adds details). The hotel in DC opened in 2016, but by 2018 Trump was already reporting $ 55.5 million in tax losses, according to the Times. Either way, that property must be worth something. An investor offered $ 175 million for the hotel before the coronavirus undermined the hotel industry, but the Trumps rejected that proposal. Forbes now estimates the hotel is worth about $ 168 million, so the money drain is sure to continue.
Still, there are plenty of income-generating properties in Trump's portfolio, including the 50% he owns in a Las Vegas condo collection, a licensing business, as well as Mar-a-Lago. All those properties make good money. But there are also his 'toys', which leave nothing: airplanes, helicopters, and houses in New York, Florida and St. Martin. However, although they do not leave money, they do have value.
When we add up all of Trump's assets, both those that leave a lot of money and those that lose, as well as those that do not operate as a business, we have that the total adds up to that figure of 3.7 billion dollars. Real assets are worth real money. However, that is not in itself Trump's fortune. To calculate it, your liabilities must be considered.
In the past, Trump has proclaimed himself the "king of debt," a nickname that stuck with him early in his career, when he was on the brink of bankruptcy, and recently as president, when he runs huge budget deficits federal. As a businessman, Trump has looked more conservative in recent times. Undoubtedly, almost $ 1.1 billion that he has in leverage is a lot. But when you consider his assets of $ 3.7 billion, it's certain that most of his bankers get a good night's sleep.
A large part of Trump's liabilities are concentrated on 1290 Avenida de las Américas in New York, and on California St 555 in San Francisco, the two skyscrapers that he owns in partnership with Vornado. In his most recent quarterly reports, Vornado refers to $ 950 million in debt on his New York property and $ 543 million on San Francisco. That adds up to $ 1.5 billion in total debt, so Trump's 30% stake equals $ 448 million.
The president owes hundreds of millions more on other properties in Manhattan, as has been documented in other SEC reports and real estate records. For Trump Tower he has a loan of $ 100 million. For Wall Street 40 he owes $ 139 million and $ 13 million for Trump Plaza. For Trump International Hotel & Tower he owes $ 6.5 million and $ 10 million for Trump Park Avenue. Adding all of this up is $ 268 million, bringing the total to $ 716 million.
In addition, for Doral, the president applied for loans of $ 125 million, according to publicly registered mortgages. His company secured a $ 170 million loan from the hotel in DC as collateral. The Times story refers to a $ 160 million debt on that loan. Trump has likely already paid off some of the credit. The report on the president's tax return refers to liabilities at his Chicago tower for more than $ 75 million. With all this, that is, 360 million dollars, the sum of liabilities reaches 1.1 million dollars.
Trump has an $ 11 million mortgage on a Palm Beach mansion, plus another loan on a palatial property in Bedford, New York.In addition, he also took out a loan for his DC-adjacent club and two mortgages for one of his golf clubs in New York. Sweater. With all this, the total debts can be rounded to 1.1 billion dollars.
Getting into debt involves paying interest, which reduces the earnings Trump has reported on his tax returns. However, the president also appears to be taking advantage of more extreme methods to lessen his contributions.
Donald Trump has always bragged about taking advantage of the rules of the tax system game. "I'm smart," he declared in a presidential debate in 2016. But that also makes him vulnerable to investigations into his financial profile.
And there is a lot to consider. For example, Trump appears to employ his daughter Ivanka as a “consultant” in his real estate firm, at the same time that she serves as an employee at the company. Donald Trump reported losses of $ 26 million in "unspecified" consulting fees between 2010 and 2018, the Times reported. “If the payments to his daughter were in compensation for her work, it is not clear why (Donald) Trump did it this way,” the Times reported, “instead of reducing his tax liability. An alternative, more risky in fiscal terms, is that the invoices were a way of transferring assets to their children without including a tax for those donations.
The Times also details extravagant expenses, including payments of $ 70,000 for haircuts, included in business expenses. It also reported that Trump Corp., a 100% Trump-owned business, deducted payments from Alan Futerfas, a lawyer who defended Donald. Trump Jr. in investigations into Russian influences on US politics. In another dubious move, Trump labeled his Bedford, New York mansion a business investment, leading him to deduct $ 2.2 million in taxes, according to the newspaper.
These machinations (and many others contained in the report) were successful. In 2016 and 2017, the newspaper reports, Trump paid only $ 750 in federal taxes. The scandal has nothing to do with the fact that he was bankrupt, thus paying that meager amount, but that the president actually has a huge fortune.
