Trump Family Finance

James Freeman
Wall Street Journal
October 3, 2018

Being Fred Trumps Son was good for business. Being President, not so much

No surprise, the New York Times story is the one getting most of the attention today. According to the Times:

Mr. Trump won the presidency proclaiming himself a self-made billionaire, and he has long insisted that his father, the legendary New York City builder Fred C. Trump, provided almost no financial help
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But The Times’s investigation, based on a vast trove of confidential tax returns and financial records, reveals that Mr. Trump received the equivalent today of at least $413 million from his father’s real estate empire, starting when he was a toddler and continuing to this day.

Much of this money came to Mr. Trump because he helped his parents dodge taxes. He and his siblings set up a sham corporation to disguise millions of dollars in gifts from their parents, records and interviews show. Records indicate that Mr. Trump helped his father take improper tax deductions worth millions more. He also helped formulate a strategy to undervalue his parents’ real estate holdings by hundreds of millions of dollars on tax returns, sharply reducing the tax bill when those properties were transferred to him and his siblings.

Tax lawyers and accountants can now debate the particulars. Regardless, the Times story makes a forceful argument that estate taxes encourage wealthy entrepreneurs to pursue complicated schemes to shield their fortunes. Since the Times piece claims that Fred Trump’s building projects were often supported by government programs, the story also makes a strong case that housing subsidies sold by politicians in the name of keeping housing “affordable” often end up enriching property owners who are hardly in need of assistance. Unfortunately, you won’t find these lessons in a list of Times “Takeaways” from the paper’s inquiry into Trump family finances.

Was the President’s father a crook? The Times notes:

In a statement on behalf of the Trump family, the president’s brother, Robert Trump, said, “All appropriate gift and estate tax returns were filed, and the required taxes were paid.”

The Times maintains that the Trumps often undervalued assets to reduce taxes owed on them and adds:

These maneuvers met with little resistance from the Internal Revenue Service, The Times found. The president’s parents, Fred and Mary Trump, transferred well over $1 billion in wealth to their children, which could have produced a tax bill of at least $550 million under the 55 percent tax rate then imposed on gifts and inheritances.

The Trumps paid a total of $52.2 million, or about 5 percent, tax records show.

This column should clarify that while it’s definitely a scandal that the founders of any business would be expected to hand over more than half of what they built to the feds, Timesfolk are upset because they believe the Trumps should have been required to surrender more than $52 million.

As the Times acknowledges, much of the story detailing Fred Trump’s success and support of his son’s business career is not news. The Times notes an episode in which Fred Trump found an unusual way of financing his son’s struggling casino operations. The story is recalled in a new book on Donald Trump’s lender Citibank co-authored by your humble correspondent, but this column did not break the story. All the way back in January of 1991, Neil Barsky reported in The Wall Street Journal :

Donald Trump can add another individual to his long list of creditors: his father, the quiet real estate mogul Fred Trump.

At least that’s what New Jersey casino regulators are saying. The regulators, who scrutinize what comes in and out of Atlantic City casinos, say it appears that the elder Mr. Trump helped his son make the $18.4 million interest payment on Trump Castle bonds in a rather unconventional manner by buying chips in his casino.

The regulators confirmed that on Dec. 17, an attorney they identified as Howard Snyder, acting on Fred Trump’s behalf, purchased more than $3 million in chips from the Trump Castle casino. Mr. Snyder did not gamble with the chips and promptly left the casino under police escort, according to regulators...
One person close to the transaction said it was likely that Fred Trump purchased the chips rather than loan the funds directly to Mr. Trump because he wanted to avoid having to compete with other creditors in the event he wanted the money returned. Now, this individual said, all the elder Mr. Trump has to do is redeem the chips in the casino.

“It is the ultimate first mortgage,” the individual said.

And Fred Trump was the ultimate dad when it came to helping his son succeed in real estate. As for whether the elder Trump’s tax avoidance crossed the line into evasion, we can’t get his side of the story because he died in June of 1999. This also means that a libel suit can no longer be filed on his behalf.

In any case, the real estate empire created by Fred Trump and now owned by his son does not appear to be mixing well with politics. Forbes magazine reports on leaner times at Trump Tower:

Nike abandoned its attached flagship store earlier this year, and Ivanka Trump’s accessories business closed up shop as well. What’s left is basically nothing but Gucci, Starbucks and The Donald, wall-to-wall. Trump Bar sits atop Trump Grille, next to Trump Café, the Trump Store and Trump’s Ice Cream. It is unlikely Trump pays himself rent for any of them. “Things are all different now,” [Trump Organization executive Barbara Res] says.

That difference includes profits. Net operating income dropped 27% between 2014, the year before Trump announced his run for president, and 2017, his first year in the White House. When the real estate mogul descended the escalator to launch his campaign, in this very building, no one could have predicted the chain of events that would lead to this point…

While the experiment continues to unfold, in real time, the early results are in. Much as he’s trying—and he’s definitely trying—Donald Trump is not getting richer off the presidency. Just the opposite. His net worth, by our calculation, has dropped from $4.5 billion in 2015 to $3.1 billion the last two years, knocking the president 138 spots lower on the Forbes 400.