Picture of Donald Trump at at the Trump Taj Mahal, 2007 Credit: irraa is licensed under CC BY-NC 2.0

Millions of Americans believe that Donald Trump is a business failure who cheats on his taxes. But to borrow one of his favorite insults, the president may not be “the stone-cold loser,” many imagine. In some ways, he’s a success even considering his businesses generate vast losses, and he personally liable for the hundreds of millions of dollars in bank loans and junk bonds borrowed by those businesses. Instead, think of Trump as practicing an extreme alchemy of the shameless rich: He uses loans from other people to generate millions in annual tax losses as a tax shelter from millions in annual income.

How he does it is the fascinating and, perhaps, illegal part.

As reported by the New York Times, Trump’s tax returns provide a snapshot of decades of gaming the system.  In 2017, Trump reported personal income of $14,770,496 from his branding deals, money-making investments, income tied to his reality TV show, and the first wave of revenues from favor seekers joining Mar-A-Lago and taking suites at his hotels. (This is while he’s president.) His Limited Liability Companies (LLCs) reported a net loss of $15,313,785 on gross revenues of $536.6 million. That left Trump with no personal income tax liability on nearly $14.8 million in income. He ended up paying his now widely derided $750 tax bill under a watered-down alternative minimum tax (AMT). Perhaps he felt that was too much. The tax changes that Congress passed and he gleefully signed in December 2017 virtually abolished the personal AMT.

But Trump adds some sleazy touches to the standard come-up-with-losses tax strategy of mega-millionaires. To start, he doesn’t put his own money in the businesses generating the losses. He raises the capital instead from banks and investors. In this period, Trump also doesn’t offer them any equity in the businesses. Instead, his financing comes from debt — bank loans to an LLC he created, and junk bonds issued by that LLC. Now, banks won’t lend large amounts of money to an LLC owned by someone with a history of serial bankruptcies, unless that person is willing to put considerable personal assets “at risk,” in addition to the collateral of the property itself. That’s fine with Trump because the IRS Code dictates that he can claim the LLC’s tax losses against his own personal income only if he is personally liable. It all boils down to this: By borrowing all the money and making himself personally liable for those loans, he ends up saving millions of dollars in taxes by losing other people’s money.

Trump’s strategy echoes how he operated in Atlantic City for decades as a casino magnate. He bought and built three casino hotels and kept them afloat using multiple rounds of bank loans (for which he was personally liable) and multiple issues of junk bonds. For the distinctive Trump touch, when he issued $100 million in junk bonds for the Trump Plaza casino in 1993, he diverted half of it to cover his personal debts. Desperate to stave off the casino hotel’s bankruptcy two years later, he created a new company, Trump Hotels and Casino Resorts. This new company sold $140 million in public stock and issued $155 million in junk bonds (at 15.5 percent interest). Once again, he diverted part of the proceeds to pay down huge personal debts.

Based on his record, it’s likely that Trump’s current money-losing LLCs will go into bankruptcy when their loans come due in 2024, which will be during his second term should he be reelected.  The junk bondholders will lose everything. Trump will turn over the banks’ failed properties and pay them a fraction of what he owes them, repeating what he did in Atlantic City. Four years from now, the tax losses he claims will be worth more than what he pays his lenders. In Atlantic City, this was a debacle for his lenders.  Trump the wizard claimed $916 million in tax losses based on $3.4 billion in debts owed to the junk bondholders and banks that put up the money. That generated an estimated $341 million in tax savings for himself (based on prevailing tax rates) on top of the many millions of dollars he took out as management fees or diverted for his personal debts.

Trump’s current scheme appears to be planned carefully in other ways. In this rerun, he has used the junk bonds and bank loans mainly to buy golf clubs and hotels. Golf courses and hotels fit the bill for his scheme because, in addition to all of the expenses or costs that typical businesses generate, they also enjoy many forms of special tax treatment: The value or cost of many of their core physical assets – everything but the foundations, walls, roof, windows and doors of the buildings – can be deducted or “depreciated” over shortened periods. Golf clubs, hotels, and similar businesses also receive a special tax credit to cover the payroll taxes they pay for any portion of the wages of waiters, busboys, bartenders, and maids that can be attributed to tips. Along with some other types of businesses, Trump’s LLCs can also claim a $9,600 tax credit for any new employee who is a veteran or from certain low-wage groups such as food stamp recipients, the long-term unemployed, and ex-felons of the non-Michael Cohen variety.

And even all of those tax breaks aren’t enough for Trump and his congressional allies: They slipped a special provision into the 2017 Trump tax act providing “bonus depreciation” that allows his real estate ventures to deduct 100 percent of the cost of any new physical asset the very same year it is purchased, apart again from a building’s foundation, walls, roof, windows, and doors.

Trump likes to play golf, and his LLCs currently own 15 18-hole golf courses. But since his strategy is to make money by losing other people’s money, it helps that golf courses and their club facilities are notorious money losers. Since at least 2006, many more golf courses have closed than opened up; and in 2018, the equivalent of 198 18-hole golf courses closed while just 12.5 new 18-hole courses opened.  Another golf-industry analysis found that the average annual net income of private 18-hole courses was only $72,500. That includes the handful of highly successful brands such as Augusta and Pebble Beach.  And Trump bought most of his golf clubs only after he had exhausted the $916 million in tax losses from the serial bankruptcies of the casino hotels he purchased and built with other people’s money.

Sure, it is perfectly legal to be an at-risk “owner” of 15 golf courses that lose money. (Tax courts, though, routinely disallow losses from investments undertaken solely to generate those losses.)  But golf clubs and hotels are also highly susceptible to conventional forms of tax fraud.  Their operations involve millions of relatively small transactions that provide cheaters opportunities to underreport revenues and inflate costs. Trump did this when two of his LLC properties paid his daughter Ivanka $747,622 for independent consulting fees while she worked as a full-time salaried employee of the Trump Organization.

Big money-losing businesses usually go belly up, and Trump naturally has an unsavory endgame.  When his Atlantic City empire ended in bankruptcies, Trump was personally at-risk and liable for $830 million of the casino-hotel LLCs’ $3.4 billion debt. He haggled with his creditors for years as the three LLCs came out and went back into legal bankruptcy. In the process, he managed to generate $160 million in personal management and other fees from the moribund properties. In the end, he negotiated a 50-percent cut in his personal liability, which he settled by selling other properties, including the Plaza Hotel, the Trump shuttle, his yacht, and his private jet.  Then he walked away with his $913 million in tax losses that he used to offset his income for another 15 years.

This time, Trump is personally at-risk for $410 million in debts owed by his LLCs. All of it is interest-only debt with the full principal coming due in 2024.  (Again, just what you would want from a nearly 80-year-old president ending his second term: A giant balloon payment to unknown lenders.) Since those LLCs lose millions of dollars every year, Trump inevitably will have to put most or all of his golf clubs into legal bankruptcy.

If he is serving a second term as president in 2024, no one can doubt that he will use his presidential leverage to cut the sweetest of sweetheart deals, probably involving massive loan forgiveness. (Trump is so used to the idea of shortchanging his lenders that he suggested give holders of U.S. debt a haircut when he was running for office in 2016. He was talked out of it when told it could lead to a worldwide financial collapse if 200 years of  “full, faith and credit” of Americas debt came crashing down.) If Trump’s presidency ends in January 2021, the required repayment may be greater.  Creditors usually cannot seize a person’s primary residence for such debts, so Trump will keep Mar-A-Lago and perhaps have to turn over the Trump Tower triplex penthouse.

Whether or not Donald Trump is president when the bills come due in 2024, he may still walk away with up to $150 million in tax savings to use over the next decade. So, whatever the verdict is on Trump’s business acumen, he has a singular knack for making money while losing other people’s money.

Robert J. Shapiro

Follow Robert on Twitter @robshapiro. Robert J. Shapiro, a Washington Monthly contributing writer, is the chairman of Sonecon and a Senior Fellow at the McDonough School of Business at Georgetown University. He previously served as Under Secretary of Commerce for Economic Affairs under Bill Clinton and advised senior members of the Obama administration on economic policy.