What’s so wrong—or deviously clever—about all that? Well, Trump’s trick, according to Steve Rosenthal of the Tax Policy Center, is all about what he did after the bank wrote down his debt. “So Trump would borrow money from banks, spend it all, and go back to his creditors and find a way to avoid paying the whole loan back,” said Rosenthal. “But when a bank writes off your debt, the discharged debt is income. You have to report it as taxable income. Trump never did.”
Instead, Trump repeatedly ducked his obligations to lenders and the IRS, perfecting the same playbook—borrow, spend, deduct, and walk away. Eventually, American lenders caught on to the gambit and stopped giving him money, forcing him to seek other sources of revenue, such as Deutsche Bank and international plutocrats.
And that’s where, just maybe, things took a criminal turn.
Explanation 3: A mystery only prosecutors can unwind
Starting about 10 years ago, the so-called King of Debt tried something new: spending his own money. He spent up to $400 million buying golf courses, hotels, and wineries. He also took on $400 million in personally guaranteed loans, exposing him to personal bankruptcy in the (very common!) event that he can’t pay back the loans in full.
These decisions are unusual for private real-estate companies, which typically take advantage of debt through the tax code and funnel their largest investments through partnerships that protect individual investors from personal bankruptcy. What’s more, it’s not clear how Trump suddenly came up with all of that cash. Eric Trump told The Washington Post that his father “had incredible cash flow and built incredible wealth….He didn’t need to think about borrowing for every transaction. We invested in ourselves.” But The New Yorker’s Adam Davidson wrote in 2018 that “The portfolio of assets that Trump owns does not suggest that he would have so much money that he can casually spend a few hundred million on a whim.”
It gets even weirder. All those golf properties look like horrendous businesses, having declared losses of more than $315 million since 2000, according to Trump’s tax records. In short, Trump is pouring a mysteriously large amount of money into opaque businesses suffering mysteriously high losses.
None of the tax experts I talked with said: “Yep, that’s clearly an illegal scheme.” But several told me that when companies, such as golf courses or restaurants, that seem to be losing lots of money nevertheless continue in operation for many years, prosecutors might become interested in investigating money laundering.
Sarah Chayes: This is how kleptocracies work
What is money laundering, exactly? Say I’ve got $10 million in illegally earned cash. What am I going to do with it? Buy a condo? Uh, no, the IRS will sniff that one out. So I have to find a way to hide this cash; to mix my dirty money with some clean money; to launder it. So I give my $10 million to a clever guy I know. I don’t want to buy anything from my pal directly. I want him to buy something else with my $10 million that produces a steady flow of clean money, such as a golf course that brings in $2 million a year in revenue. Every December, my pal takes $100,000 of that revenue for himself and sends me $900,000; the golf course keeps only half its income. Voila! I’ve turned my $10 million of dirty, un-spendable money into $900,000 of clean, beautiful cash flowing into my account, every year. Also, because the golf course is sending out 50 cents on every earned dollar to a couple of crooks, it’s going to look like a terrible business.