\nBy David Cay Johnston | Updated October 3, 2016 – 3:32 PM EDT<\/div>\n<\/div>\n<\/div>\n
The big New York Times scoop<\/a>\u00a0that\u00a0Donald Trump<\/a>\u00a0used $916 million of tax losses to enjoy many income tax-free years raised a question the newspaper didn\u2019t try to answer: How did Trump do it?<\/p>\n Trump, the only major-party presidential nominee in four decades to keep all his tax returns secret, insists \u201cthere\u2019s nothing to learn from them.\u201d<\/p>\n Yet in one day I figured out how Trump\u2019s advisors almost certainly arranged the massive tax losses, skipped out on a massive income-tax bill, and then fashioned a loophole with more valuable tax benefits than the already liberal tax breaks Congress gives big real-estate owners while sticking others with the bill.<\/p>\n Trump dumped the real costs of all this on investors who saw gold in his brand name, but who lost everything even as he was paid tens of millions of tax-free dollars.<\/p>\n All this came from subtle clues on the front pages of Trump\u2019s 1995 Connecticut, New Jersey and New York state income-tax returns. Which sums were on which lines in each state pointed to how Trump must have organized his affairs. Two of the most respected tax professors in America agree with my analysis. Edward Kleinbard of the University of Southern California and Martin J. McMahon Jr. of the University of Florida refined my view.<\/p>\n Trump\u2019s gambit is easy to explain in plain English, but for tax wonks the short version is this: Trump combined tax benefits under\u00a0Section 1231<\/a>\u00a0of the Internal Revenue Code with the exception provisions in\u00a0Section 108<\/a>.<\/p>\n The story of Trump\u2019s income tax-free life begins in 1990 with Trump\u2019s well-documented mismanagement of his casinos and his admission that he paid far too much for \u201ctrophy properties\u201d like the Plaza Hotel in Manhattan and 23 worn-out jetliners for the short-lived Trump Shuttle airline.<\/p>\n These mistakes created about $1 billion of \u201cnet operating losses<\/a>,\u201d or NOLs, under Section 1231 of the tax code.<\/p>\n NOLs are incredibly valuable.\u00a0These tax losses<\/a>\u00a0can be used to offset salaries, business profits, and income from, say, a television show or making neckties in China. Thanks to his $916 million of NOLs, Trump could earn much over 18 years in salaries, profits, and interest, but pay no income taxes.<\/p>\n Net operating losses should reflect economic damage suffered by the owner of the NOLs. But Trump found a way to gain from these losses by spreading the costs around to bankers and investors.<\/p>\n NOLs can be used right away or be applied to reduce taxes from two previous years and up to 15 future years. In contrast, Congress requires that real estate be depreciated for tax purposes over 39 years. The faster a tax break becomes available, the greater its value. Trump\u2019s advisers found a way to convert real-estate depreciation into NOLs that were much more flexible and could be used faster.<\/p>\n Trump claimed to be worth billions in 1990, just as he does now, yet he could not pay his bills. He stiffed hundreds of small-business suppliers, including those for the Trump Taj Mahal casino in Atlantic City, which will go out of business next week. In all he owed more $3 billion, nearly a third of his debt secured by nothing more substantial than his signature on bank loan papers.<\/p>\n Last May, Trump revealed that he took on debt with no intention of paying it all back, which strikes me as fraud. \u201cI\u2019ve borrowed knowing you can pay back with discounts,\u201d he told CNBC in May, boasting \u201cI\u2019ve done well with debt.\u201d<\/p>\n Back then Trump threatened endless litigation unless 70 banks he owed money gave him millions more in new loans at low interest rates and provided him with\u00a0$5.4 million a year for personal spending<\/a>, the equivalent of $10 million in today\u2019s money.<\/p>\n Back then, one billionaire told The New York Times he didn\u2019t know how to spend that much on himself and his family.<\/p>\n What made the litigation threat credible was Trump\u2019s refusal to\u00a0pay more than 150 illegal immigrants<\/a>\u00a0who demolished the Bonwit Teller department store to make way for Trump Tower. A federal judge ruled that Trump conspired to cheat the workers, who never did collect all of their $4-an-hour wages despite an 18-year struggle.<\/p>\n The bankers realized that a man who would endure almost two decades of litigation to avoid paying such meager wages might tie them up for eternity over the billions of dollars owed to them.<\/p>\n When the New Jersey Casino Control Commission took Trump\u2019s side against his bankers, they gave in. The banks canceled close to a billion dollars of Trump\u2019s debts and extended new loans on favorable terms.<\/p>\n<\/div>\n Normally, any part of a loan that is forgiven becomes taxable income, as millions of people who could not repay home mortgages or student loan debt have learned in recent years.<\/p>\n That\u2019s where Section 108 comes in. Three years after Trump bested his bankers, Congress amended that section to let real-estate professionals avoid income taxes on debts that were canceled.<\/p>\n The technique is simple. The taxes due immediately because a debt is forgiven can be exchanged for relinquishing future real-estate tax deductions. Trump agreed to forgo his future right to take about $1 billion worth of depreciation on his casino hotels.<\/p>\n This exchange created a future problem for Trump. Real estate that cannot be depreciated is worth a lot less. Indeed, generous tax benefits drive real-estate investment. So while Trump escaped an immediate income-tax bill, the future tax benefits he gave up would mean that he would likely have to pay income taxes on his salary, fees for licensing his name, and other income.<\/p>\n To solve this problem, Trump sold stock for the first time in 1995. He founded Trump Hotels and Casino Resorts, which which then took ownership of his casino hotels.<\/p>\n That meant Trump got money for selling his casino hotels, while the investors got real estate with greatly diminished tax benefits.<\/p>\n Trump Hotels and Casino Resorts was a complete disaster. It lost money every year. During Trump\u2019s 13 years as chairman, the company lost $1.1 billion. Trump stock fell from a high of $35 to just 17 cents, wiping out investors.<\/p>\n Trump did just fine, though. He was paid $82 million, Fortune magazine estimated. The publicly traded company even took out loans that were\u00a0used to pay off some of Trump\u2019s remaining obligations<\/a>\u00a0to the banks from when he owned his casinos outright.<\/p>\n The $82 million Trump was paid by the publicly traded company bearing his name should have all been received income tax-free thanks to those NOLs. Thus his mismanagement, and the tax benefits he stripped out of the casino hotels before he sold them to shareholders, made him richer and them poorer.<\/p>\n So while Trump made money at every turn, the banks that lent him money, the workers and small businesses who delivered for Trump, and the investors in his casino company all got stiffed. And while they paid taxes on whatever income they did manage to collect, Trump enjoyed at least $916 million of tax-free income.<\/p>\n<\/div>\n In the first debate with Hillary Clinton, Trump did not dispute her statement that he pays no income taxes. Instead he said it shows he is smart.<\/p>\n That may be, but it also suggests the rest of us are chumps for paying our taxes while Trump enjoys all the benefits of the United States government \u2013 little things like individual liberty, the FBI, and a military to protect us \u2013 while bearing none of the burden. If we all did as Trump does, we would, to quote a line Trump employs often, not have our country anymore.<\/p>\n Just three pages of tax forms, years of assiduously following Trump and a deep knowledge of tax law allowed me to determine how he almost certainly arranged to escape income taxes for years while he stuck others with the bill. Now imagine what voters could learn if I had just one complete Trump tax return \u2013 or years of his Form 1040s and Schedules A through E. It would be possible then to evaluate his unverifiable claims that he is a modern Midas worth more than $10 billion.<\/p>\n A complete tax return for 1995 would also make it possible to determine if Trump followed the law, as a statement he issued asserts, or misreported figures to inflate his tax savings.<\/p>\n Trump has been found more than once to have used two sets of figures to short others and benefit himself.<\/p>\n Keep in mind that we know Trump engaged in sales tax fraud, as I detail in my book “The Making of Donald Trump.”<\/p>\n Earlier this year\u00a0I revealed badges of fraud on Trump\u2019s 1984 income-tax returns<\/a>.<\/p>\n Under oath, his own tax lawyer and accountant disowned the return.<\/p>\n Then there\u2019s Trump\u2019s role in authorizing an alleged quarter-billion-dollar income-tax fraud on profits from the Trump SoHo in Manhattan. Hotel financing was said to involve an Icelandic firm associated with one of\u00a0the many Russian oligarchs<\/a>\u00a0whom Trump has said have paid him tens of millions of dollars and are among his best customers.<\/p>\n Trump\u2019s full tax returns would help us understand how deeply he is involved with the oligarchs, whose fortunes and even lives depend on maintaining friendship with Vladimir Putin, the murderous Russian autocrat whom Trump goes out of his way to praise at every opportunity. Trump\u2019s full tax returns would also tell us about his debts to the Bank of China, owned by the communist rulers in Beijing, and his many deals with Middle East potentates and their retainers.<\/p>\n Knowing how much leverage these foreign power brokers have on Trump is highly relevant since he wants to become commander in chief and possess the powers of federal law enforcement.<\/p>\n What I distilled from just three pages of Trump tax documents \u2013 together with other reporting \u2013 provides Congress with ample reasons to investigate Trump\u2019s finances, especially the way the tax code can be abused to cheat others and enjoy tax-free living.<\/p>\n Trump, who demands that Congress press investigations into his opponent over personal emails, surely could have no complaint about the use of federal tax dollars to investigate his finances. After all, while a federal investigation into Trump\u2019s conduct will cost us some of our income-tax dollars, it wouldn\u2019t cost Trump a penny.<\/p>\n Pulitzer Prize winner and recipient of an IRE medal and the George Polk Award, David Cay Johnston is author of five books. His new book, “The Making of Donald Trump,” was published on August 2, 2016. His next one will be “The Prosperity Tax: A New Federal Tax Code for the 21st Century Economy.”<\/em>\u00a0Johnston is a Distinguished Visiting Lecturer at Syracuse University College of Law and Whitman School of Management, and also writes for\u00a0<\/em>The Daily Beast<\/a>\u00a0and\u00a0Tax Notes<\/a>.<\/p>\n This essay first ran in<\/em>\u00a0The Daily Beast<\/a>.<\/p>\n Pandas are cuddly, but not to each other. They muster about as much enthusiasm for sex as a human does for a root canal.<\/p>\n In part because of those lousy libidos, the world’s giant panda population is disturbingly small. A sign at the Chengdu Research Base of Giant Panda Breeding in Sichuan Province says that “saving the giant panda from extinction is of the utmost urgency” – but the urgency isn’t felt by the pandas.<\/p>\n Why are they so un-frisky? Chinese scientists have been studying that question for decades, with an eye toward fomenting fornication. (China owns all of the world’s pandas, including the few that have been born abroad to parents lent out for hefty fees to foreign zoos.)<\/p>\n Panda biology is part of the problem. Females enter estrus only once a year, for a very short time in the spring. They are receptive and fertile for just 24 to 72 hours. A male panda needs to make his move then, or wait for another whole year. “There is perhaps no mammal that is less often in the mood for sex than the female giant panda,” Scientific American said in a 2012 article.<\/p>\n Pandas are also picky: They only want to get down when they have really hit it off with a partner, and that rarely happens.<\/p>\n Captivity is a real mood-killer, too. According to the director of one research center in Sichuan, less than 5 percent of male pandas in captivity can naturally mate. Other researchers say captive female pandas are often unable to enter estrus normally.<\/p>\n In response, Chinese scientists have tried to alter the captive pandas’ habitats to better simulate life – and libido – in the wild.<\/p>\n And then there’s the innocence problem. Panda sex happens so infrequently that the act is almost never witnessed by other pandas, leaving them with very little notion of how to go about it, researchers say.<\/p>\n In hopes of cluing them in, scientists have taken to showing them “panda porn.”<\/p>\n Wonderful ad for a Glashutte watch:<\/strong><\/span><\/p>\n It’s a dig at the new Apple Watch, which now has a GPS chip in it.<\/p>\n The Second Affair<\/strong><\/span><\/p>\n A middle-aged couple had two beautiful daughters but always talked about having a son.<\/p>\n They decided to try one last time for the son they always wanted.<\/p>\n The wife got pregnant and delivered a healthy baby boy.<\/p>\n The joyful father rushed to the nursery to see his new son. He was horrified at the ugliest child he had ever seen.<\/p>\n He told his wife ‘There’s no way I can be the father of this baby. Look at the two beautiful daughters I fathered! Have you been fooling around behind my back?’<\/p>\n The wife smiled sweetly and replied ‘No, not this time!’<\/p>\n Harry Newton who increasingly fears a Donald Trump presidency for the reasons USA Today laid out and which I reproduced in last Friday’s blog. (Click here.<\/strong><\/a>) After I emailed my column out, I had some extra thoughts:<\/p>\n USA Today\u2019s position is mine also. But USA Today said it more eloquently than I could.<\/p>\n I differ with them on one point: I think we\u00a0all<\/strong>\u00a0should vote for Hillary \u2014 even though she\u2019s not perfect. We need to vote for Hillary as an insurance that Donald doesn\u2019t<\/strong> become our President.<\/p>\n Trump as President would be a major disaster for my adopted country, and the country I lived in and loved for 50 years. (I came in 1967.) I\u2019ve watched too many populist leaders become democratically elected and then proceed to destroy their country. Because of our \u201cchecks and balances,\u201d (our three branches of government), an American President has (theoretically) less power than in countries like Iran, Venezuela, Cuba, Zimbabwe, Russia, Turkey, the Philippines, Burma, Saudi Arabia, Bahrain, Kuwait, Sudan, Belarus, Syria, etc. But an American President is<\/strong> commander in chief of our military. Using their military is how leaders in those countries cement their power, become dictators, destroy freedom and hurt their economies.<\/p>\n I\u2019m worried. Trump is clearly unstable. Please read the USA Today piece again. Click here.<\/a>\u00a0<\/strong>And don’t vote for Donald.<\/p>\n![\"00wit_china-panda-sex-master768-v2\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2016\/10\/00wit_china-panda-sex-master768-v2.gif\")
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