Subject: FW: TrackerBASE Report: Donald Trump testimony with House Task Force on Urgent Fiscal Issues 11/21/1991
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Date: Thu, 12 May 2016 13:18:51 -0700

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Subject: TrackerBASE Report: Donald Trump testimony with House Task Force on Urgent Fiscal Issues 11/21/1991

Tracker Event Debrief Form

TO: PRES-Tracking

FROM: Jackson Voss

Location: Washington, D.C.

Date: 11/21/91

RE: Donald Trump testimony with House Task Force on Urgent Fiscal Issues

_________________________________________________________

Event Details: http://www.c-span.org/video/?22846-1/credit-availability-economic-recovery

The House Task Force on Urgent Fiscal Issues met to discuss the credit shortage in the U.S. and whether it is stifling America’s economic recovery. Witnesses included financier Donald Trump and the former chairman of the FDIC, William Seidman, who testified on the current recession and proposals to spur economic growth and investment. Witnesses also included representatives of the administration and industries affected by the shortage of credit, including construction firms and real estate developers

Attendees/Audience: CSPAN viewers

Press: N/A

Summary of Event: FLAGS -

“It's a shame, Congressman, that this very powerful and important industry doesn't have a better lobby, because I watch things being lobbied that should never be passed and they get passed, and I look at things like this, and as you say, it's on a back burner and you know how important it is. And the real estate industry is a group of thousands of people, some wealthy, some not wealthy, most not very wealthy right now. And I will tell you, they have absolutely the most pathetic lobby in the history of the United States Congress. It is so bad -- and I don't know how many of these people behind me are lobbyists, but they're not doing a very good job, I can tell you that.”

Key Points:

00:00

REP. GUARINI
(In progress) -- real estate developments, but also in sports, in gaming, and entertainment industries. And I'm glad you were able to make it here this morning, and appreciate your waiting and being so patient as you have been. So we welcome you especially to listen and learn from your experiences, as we know you've been very much involved in regard to this credit crunch that we have before our nation today.

REP. GUARINI
So you may proceed in any way that's comfortable with you.

Donald J. Trump
All right. Thank you very much, Mr. Chairman.

REP. GUARINI
Donald, you may proceed.

Donald J. Trump
Thank you very much, sir.

Donald J. Trump
Well, first of all, I think I could say to Mr. Seidman, who I believe has done a really fantastic job while he was in government, that had the 1986 catastrophe of the tax reform act not been passed, I'm not sure that you'd know Mr. Seidman in the capacity of RTC; you'd know him in some perhaps more positive capacity, but not in the Resolution Trust. And I think in bringing that point up to Mr. Seidman before he tended to agree with me, I think. (Turns to Mr. Seidman.) Good. So this tax act was just an absolute catastrophe for the country, for the real estate industry, and I really hope that something can be done -- as Congressman Thomas recently said, that something can be done to change at least parts of it, because it has taken all incentive away from investing in real estate, and real estate really means so many jobs.

Donald J. Trump
I mean, you have a city called New York City, you have a City of Boston, you have other cities and so many other cities, but I can tell you from very personal knowledge, New York City has virtually no construction right now. And we're not only talking about office buildings, of which there are many; we're talking about housing, moderate-income housing, low-income housing, even high-income housing, where you create jobs, you create so many other things. They buy carpet, they buy furniture, they buy refrigerators, they buy other things that fuel the economy. And incentive has to be put back in to the construction of things that are needed, such as housing of all kinds.

Donald J. Trump
I heard this morning that we've had the lowest number of houses built in terms of the housing since 1946 or 1947. And that's not much of a tribute to this group of folks that are representing the country, unfortunately. I feel -- you know, I feel very badly about it, everybody feels very badly about it. The fact is that the one word that nobody up on the panel has mentioned is the word depression, and I truly feel that this country right now is in a depression. It's not a recession. People are kidding themselves if they think it's a recession. You look at what's happening in the automobile business and the -- in the retailing business, and the retailing business in any part of the country virtually is a total disaster. But in the real estate business we're in an absolute depression, and one of the reasons we're there is what happened in 1986 -- in addition to what Mr. Seidman said -- is what happened in 1986 with the changes.

Donald J. Trump
I really came on the basis that I wanted to -- I'll answer questions on it -- but I wanted to discuss the Tax Act of 1986. Active-passive -- you're absolutely right -- a hundred percent right, and something has to be done. It has to be brought back, it has to be reformed, it has to be taken care of. I think for certain types of building, such as housing, I think depreciation schedules should be very severely limited -- cut, so that people have incentive to build housing as opposed to commercial, which really -- again, the commercial is probably taken care of for a long while. The reason it's taken care of for a long while, however, unfortunately, is the fact that the economy is so bad that there's no reason for the commercial. And I think that gets taken care of and gobbled up very quickly had the -- if the economy improved.

Donald J. Trump
One of the big things that we don't have today that we used to have and that was a very good thing for real estate, and that's the whole word of syndication and investment. And if you're a dentist, and you're making 200 or $300,000 a year, and -- you can't invest now in real estate. The reason the stock market is artificially high, in my opinion, is there's no other form of investment. I mean, you can't put it into real estate, and you can't put it into bonds. So people are putting it into a stock market -- all the companies in the stock market are doing lousy, but their stock is high. And I think what we have is -- when the stock market goes down by, let's say, a thousand points in two days, which perhaps it might, then we're in a full-scale depression, then everybody admits it. Then the politicians admit it, the President's going to admit it, everybody's going to admit it. And right now, the only thing that sort of keeps the word depression off their lips is the fact that we really have a 3000 stock market and people are surprised to see it, because the companies certainly aren't doing very well within the market itself.

Donald J. Trump
But the syndication of real estate was a very positive thing. And you can't syndicate, you can't have people putting up equity. That would take a lot of the strain off the banks if people could put up equity in the form of equity money for syndication, where you used to be able to go out and syndicate a piece of real estate, today you can't. A lot of the strain that we're talking about -- liquidity crisis -- a lot of the strain comes off the banks, and I think it could really open up a whole new market.

Donald J. Trump
And the other thing is, frankly, by having cut the high income tax rates to 25 percent, as an example, people don't have the incentive any more to invest. They're saying, "Why should I take a chance on investing in low or moderate-income housing? I might as well just pay the tax."

Donald J. Trump
But the fact is, that 25 percent for high-income people -- for high-income people -- it should be raised substantially with the understanding that if you invest, you can get it down and down substantially below that number. The incentive was taken away when the tax rates came down for high-income people. And I say leave the middle, leave the low lower. But people with money have to have the incentive. The dentist, the doctors -- they have to have the incentive to invest. And there's no incentive.

Donald J. Trump
So New York City desperately needs housing? There's no housing being built. Every city needs housing now. There's no housing being built. And I hope in Ways and Means they're going to be able to do something with respect to housing, because if it's not done, you're just not going to have any construction jobs in this country. And New York City has the lowest number of construction workers I think since the Depression.

Donald J. Trump
I was with a very, very capable firm the other day, the biggest construction firm in New York City -- HRH. And -- it's called HRH Construction. And we were discussing what they had planned. They said they had not one building planned in New York City for the next two to three years.

Donald J. Trump
Now, you think of that. Not one building planned. So you say that means not one electrical worker -- I mean they're just finishing up some buildings, and when those buildings are finished, there's going to be nobody employed in the biggest industry in the country. Because construction is the biggest industry in the country. And there's going to be virtually nobody employed.

Donald J. Trump

So I just come -- I was asked to come by the Chairman, and I make this plea that, if something isn't done to put the incentive back -- I mean, we're no different right now than the Soviet Union. They have no incentive, and we have no incentive. And if something isn't done to quickly put the incentive back, this country is going to be in very deep problems. It already is, but it's going to get far worse.

REP. GUARINI
Now let me ask you. If Congress does nothing, doesn't take any course of action whatsoever, how long do you think it would take our country to climb out of economic crisis that it's in today?

Donald J. Trump
Well, I think if incentives aren't given through taxing and other means, I believe that this country could be in this deep recession-depression for years, for years. I see no sign of any kind of an upturn at all.

Donald J. Trump
There's no incentive to do anything. There's no incentive to invest. Everyone's doing badly, everyone. The wealthiest people are doing badly, the poor people are doing badly. Everyone is doing badly. I mean, you walk around the cities today, very, very few are doing well.

Donald J. Trump
Unless the incentive is given back to this country, and it's been taken away with 1986, unless it's given back, I really think you -- I mean, there's an expression that we're using, survive til we're being generous. It's really, really bad and you folks are going to have to do something to fix it and to get people moving.

REP. GUARINI
How did we get here as we are? Is it the mountain of debt that's been created in the public and private sector? Has it been the generosity, as Mr. Seidman said, of our tax laws in allowing interest rates to be deducted so that it encourages a debt-driven economy?

Donald J. Trump
Well, I think we got here by the fact that at the time certain things were done -- I can speak in terms of the real estate business -- certain deals were made predicated on certain tax policy and then that tax policy was changed. I mean, I truly believe that you wouldn't have had the savings and loan crisis.

Donald J. Trump
I mean, you save minutiae compared to the money that you've wasted on bailing out the savings and loans. Now your insurance companies are in deep trouble and I think they're going to get much worse because so much of their portfolio is in real estate, and I think you'd better save the real estate now.

Donald J. Trump
I mean, I can tell you, I buy things, I bought things that were great deals in the middle 80s and even the later 80s, but when that tax really kicked in, all of a sudden those deals which were good economic deals were no longer good economic deals because they changed the game on me and they changed the game on everybody else.

Donald J. Trump
It's pretty unfair. You make a deal predicated on a certain tax law and then they change the rules. So a lot of the problems that you've experienced are because of the fact that some very foolish people, in order to save a small amount of money, because they heard the word tax shelter and they thought the word tax shelter was a bad thing as opposed to saying it's an investment in real estate. I mean, an investment in low income housing they call a tax shelter and the word tax shelter is like the word junk bond. It's a very bad-sounding word even though it isn't necessarily a bad thing.

Donald J. Trump
So they heard the word tax shelter and politically they didn't like that word and they said, "Let's get rid of tax shelters." But when they got rid of tax shelters, they got rid of people investing in low and moderate income housing and lots of other good things, and I think you're going to have to go back.

Donald J. Trump
They could have corrected 1982, the law, 1982. They could have corrected it, gotten rid of the abuse, and had a great situation today. You wouldn't have had the savings and loan problems. I don't think you would have had many of the banking problems. You wouldn't have had what is going to befall you now, I think.

Donald J. Trump
They were just stronger to start off with, but I think the insurance companies are going to be in very deep trouble because the values of their real estate have been eroded because of what Congress has done. So you have some very deep problems that can be corrected fairly simply by putting the incentives back.

REP. GUARINI
Real estate has always been one of America's favorite industries. The tax code has long favored real estate to a great extent because it employs so many people and is so important for the welfare of our economy.

REP. GUARINI
In 1981 we became very generous with real estate. We cut depreciation schedules in half, we gave tax credits. Would you say that's where we started to go wrong? Is that where we were overbuilding shopping centers and commercial buildings that were not filled?

Donald J. Trump
I think that's where you started to go right, but maybe there was a excess. I think if it was channeled more toward the housing, which has always been -- I mean, there has never been enough housing. You need it desperately and I'm talking all forms of housing. You need it desperately.

REP. GUARINI
Including low income housing.

Donald J. Trump
Including low income housing. Absolutely, and including senior citizen housing and dormitory housing and other forms of housing. There has never been, it's an insatiable thing and you could really get that going. But what you're also getting going is jobs. I'll tell you what, New York unemployment and other cities' unemployment is astronomical. I think it's much higher than the numbers are indicating. I just don't think it's been reflected yet.

Donald J. Trump
If you look at what's going to happen with the construction industry in the next few years, forget it. There's not going to be anybody working. So I really think you need that for a lot of reasons, but also to spur jobs.

REP. GUARINI
Passive losses are one thing that many people draw attention to. Mr. Seidman, you did, members of this committee did. When we passed it we had no hearings to my knowledge on it. It happened almost overnight and it was a surprise so that it was never given the full thought and attention it should have before we made such a bold and important move.

REP. GUARINI
There is a bill now that Mike Andrews has with several hundred, I understand, sponsors, that hasn't moved through the committee yet, the Ways and Means Committee, which says that developers should, if they are in full-time occupation in real estate development, should be excluded from the passive rules law.

REP. GUARINI
I assume you agree with this, and I'm wondering whether or not you think it should even go beyond real estate developers.

Donald J. Trump
Well, I think it has to go beyond developers because we're going to get a lot of the liquidity from people outside that are making money and can invest in real estate. Right now they can't invest in real estate.

Donald J. Trump
As far as the passive laws, I did hear things about it in 1986 passive laws, but nobody ever thought it would be possible for something like this to get passed, and all of a sudden it's passed and everybody, including the United States government, is left holding the bag, and a lot of other governors, by the way.

REP. GUARINI
And now it's very difficult to get rid of because the revenue loss, with the marginal rates of our income tax would have to go up so high. They did that so that they could bring the marginal rates down to --

Donald J. Trump
Well, I don't think they would go up. I think you would end up bringing much more money into the system so that you may look at a specific loss but I think the incentives and everything else would bring so much more money into the system that the numbers of anyone that says that would just be far, far better than anybody really understands or knows.

REP. GUARINI
Hopefully we can cure these excesses.

REP. GUARINI
Just let me lastly turn to capital gains. President Kennedy brought our capital gains down to 20 percent. Now of course it seems to be a bad word in certain corners of Capitol Hill. Would you say that we should go back to the traditional type of capital gains where all kinds of equities and real estate be given the normal deduction that we had pre-1986? Or should we just target our capital gains to capital ventures, to resources that we need to have particular growth in?

Donald J. Trump
I think it could be targeted, but I think that capital gains is important and I think real estate in particular in this country really needs help because it's such a dominant force. It just gets everything else going.

Donald J. Trump
If you can get real estate going, if you can get construction going in the country, I think that's the way you get out of the recession or depression.

REP. GUARINI
And for savings, super-IRAs like Bentsen has over in the Senate side, you're for that?

Donald J. Trump
Absolutely.

REP. GUARINI
Thank you very much, Donald. Hal Rogers?

REP. ROGERS
Thank you, Mr. Chairman, and thanks for being here, Mr. Trump.

REP. ROGERS
What would prevent -- if we restored the passive loss provision of the '86 act, what would prevent excesses under a reinstated passive loss provision that led to over-commercial building previous to '86?

Donald J. Trump
Well, I think one thing that could be done is you could reexamine this over the years so that in two or three or four years you saw a great deal of housing, and I think that would be unlikely because it does seem to be insatiable. But if you saw, and I hope you'll have this problem, frankly, but if you saw so much housing being created by the reinstatement or the cessation, I think you could probably take another look at it and maybe terminate it at that point for the future.

Donald J. Trump
I just feel that you really -- I mean, that was a tremendously negative provision and it really hurt this country. It truly hurt the country.

REP. ROGERS
Would you limit its reinstatement to residential properties?

Donald J. Trump
Well, it just seems that that's what's really needed now. I mean, everyone agrees that you need housing and you probably always will need vast amounts of housing. So it seems that that's what's needed, but you have to understand, when the economy comes up -- you know, these buildings, many of the buildings built right now, built in -- empty and see-throughs and all, when they were built it seemed like a good idea by a lot of people and a lot of honest people.

Donald J. Trump
The banks that loaned the money weren't all bad and what happened to a lot of people is the economy went bad. Now everybody says, "How could they have built this much space," but the fact is, this space, if the economy had stayed like it was in '86 and '85, that space would have been gobbled up and they would be building more and everybody would be happy right now.

Donald J. Trump
I mean, the economy went very, very bad. You look at various cities, they're cutting back on space. I mean, I'm seeing things where they have less space this year than they had two years ago. It's unheard- of statistics. So nobody could have predicted what was going to happen with the economy.

Donald J. Trump
So it would be nice to have it across the board. It would be nice to say that the banking system and various other controls will take care, but you certainly, at a minimum you should have it for the housing industry. My opinion.

REP. ROGERS
Mr. Seidman seemed to say, and he's behind you and can correct me if I'm misstating his testimony, part of it. He in essence said that a recovery in the overall economy is the only way to cure the real estate problem. You seem to say that the reinstatement of the passive loss provision of 1986 TEFRA would lead us out of the recession.

Donald J. Trump
Well, no, I'm not saying that alone. I'm also -- I'm agreeing with Mr. Seidman except I'll take the word "only" out. I think that the government can do quite a bit also, including the shortening of depreciation schedules, the power to syndicate, the right to syndicate, which also has to do with the active-passive.

Donald J. Trump
If we were able to syndicate development, were able to syndicate even buildings that are built and successful and good that you can't get a mortgage on. I mean, I have a friend, he's got a building with an IBM triple net lease. He can't get a mortgage on the building and it's a perfect, beautiful, nice little building with IBM as a tenant and he can't get a mortgage because it's real estate, because the banks are allowed a certain amount of real estate and they want to cut down on the real estate.

Donald J. Trump
So even a good loan like that, they don't want to put it because they don't want to be associated this year with real estate. This is a bad year for real estate. This has been a bad two years for real estate. Hopefully in two years from now everyone's going to want real estate. It runs in cycles.

Donald J. Trump
You really, you really can do things other than just economy. I mean, I like to say that you can spur the economy through taxes so that the economy actually gets good.

REP. ROGERS
Now, we're operating under the budget act, the budget agreement, Senate, which has a pay-as-you-go provision. If you reduce taxes, you've got to make up the revenue somewhere else so that we have a revenue neutral action.

REP. ROGERS
Are you saying that if we reinstate the passive loss provision -- we're going to have some lost revenues because of that -- am I hearing you say that you would increase the income tax rates of the higher income people? To make up the difference?

Donald J. Trump
I would do that because I believe strongly that people don't have enough incentive to invest right now at 25 percent. I just don't believe they have enough incentive to take the risk of investment with recapture and all of the other problems of investing in real estate and other things.

Donald J. Trump
I would absolutely do that with the understanding that if they do make the investments, they can go down to the minimum level. I feel very strongly about that. As far as the $5 billion that we're talking about, that $5 billion in loss of taxes may contribute $100 billion because of the incentives that it gives.

Donald J. Trump
See, I don't look at that as a loss in taxes. I think that so much work could be created by getting rid of that horror show that you may take in $100 million. Now an accountant will tell you, "We're going to lose $5 billion." But in actuality it could spur hundreds of billions of dollars worth of work.

REP. ROGERS
I thank you for your testimony. You've been very helpful.

Donald J. Trump
Thank you, sir.

REP. GUARINI
Mr. Huckaby.

REP. HUCKABY
Thank you, Mr. Chairman. Mr. Trump, you mentioned the Soviet Union and no incentives there. For the last 45 years we've been engaged in cold war with the Russians. Clearly, I think, a year ago it became apparent that we've won that war. We spent tremendous dollars in the 1980s, as did the Russians, in the military build-up. It broke their system, in my opinion, left us with a big debt. But clearly we're the surviving superpower today.

REP. HUCKABY
Here we find ourselves taking a micro look at this economy. Inflation's very low, running around three percent, interest rates lower than they've been in 19 years. No shortage of food, no shortage of oil, the things that have put us in recession in our lifetime.

REP. HUCKABY
You seem to be saying, and I believe I agree with you, that you can trace this recession totally to the 1986 tax act and the devastating effect it had on real estate. But yet, prior to 1986, the tax laws were so generous that it seems to me that an awful lot of building was being driven by the tax code rather than a demand. Would you comment on this?

Donald J. Trump
Well, I agree with that, and I agree that there was abuse and there were openings in that law which could have easily been stopped and that could have been corrected. But what they did is they took an overall picture of the entire tax, with the new tax reform act of '86 and they totally destroyed the incentive that was proper in 1981.

Donald J. Trump
There were a lot of good things in 1981 and there were some bad ones, and the bad things should have been corrected but they could have been corrected without having destroyed all of the incentive. For instance, we've had recessions before during my lifetime which is now getting a little bit older and older and older, but in 1985 we had a recession but that was a picnic compared to this. That was an absolute picnic. That was a question of some liquidity, some this, some that. Nobody knows when this is going to end.

Donald J. Trump
You know, I sort of smile as they're saying, "When do you think it's going to end?" Nobody has the faintest idea. There's absolutely no hope in sight unless something is done by the government to spur the economy because the economy is not going to spur itself.

REP. HUCKABY
I think all of the members here have seemed to imply that they favor the changes in the passive losses. You've mentioned change in depreciation schedules, I guess reverting back to accelerate depreciation. I think that was one of the areas, looking back in the past, that was perhaps the greatest abuses where one could recover their entire investment in perhaps three years as a result of tax write-offs.

REP. HUCKABY
Which of these areas do you think would be more important?

Donald J. Trump
Well, I think the accelerated depreciation and the shortening of schedules is very important in terms of getting something going. And again, we really need something going now.

Donald J. Trump
You could come back in two years or three years if it starts moving and you can terminate that, but you have to get something going. If it's not started soon, we're just going to be in a free fall.

REP. HUCKABY
I agree with you that there's probably an infinite demand for housing out there and that we certainly should change our tax laws to encourage investment there from low income housing all the way up the scale. But you've suggested a new twist here, that it's necessary to raise the top tax bracket from 31 to 33 percent up to 40 or 50 percent in order to encourage people to invest in these areas. Is that really correct? If we had the passive losses and the accelerated depreciation and one could anticipate future increases in the value, do you think it's necessary to increase the tax rate?

Donald J. Trump
I think it would be a big help for the upper income taxpayer to have incentive rather than paying taxes to invest. I think that the accelerated depreciation, depreciation schedules being shortened would be a tremendous help for the obvious reason. They would be able to get, assuming the active-passive and assuming the right to syndicate, you'd be able to get investors to come into real estate transactions.

Donald J. Trump
And I'm not talking about only new building. I'm talking about existing, because you have existing buildings with mortgages on them where the mortgages are coming due and there's no bank in the world, and I'm talking good buildings that are making money. There's no bank in the world that will give you refinancing.

Donald J. Trump
So if you could bring in equity money through syndication, that would be a great thing. That would be a really great thing because you'd open up the liquidity of the system so the banks can loan not only to real estate but to other things because right now there's just no liquidity.

Donald J. Trump
If you brought in equity, non-interest bearing equity, that would be a tremendously positive boost for the economy.

REP. HUCKABY
How high do you think you would have to take the top tax brackets in order to make this happen?

Donald J. Trump
Well, I mean, the higher it is, the more incentive there would be. I guess it was 50 and it was 60 at one point and it was obviously even higher than that, but the higher it is, the more incentive. And I don't mean middle income and I don't mean low income. If anything that could stay the same or be lowered.

Donald J. Trump
I'm talking about the people that are making a great deal of money should have an incentive to invest. And I know it was 50 and I'm talking about a substantial increase with the ability to get it down to the minimum number. Create a lot of jobs.

REP. HUCKABY
Thank you.

REP. GUARINI
Mr. Thomas.

REP. THOMAS
Thank you, Mr. Chairman. It's a pleasure to meet you, Mr. Trump. I've never really heard you in terms of your professional expertise. I've only read about you in terms of other activities, and I have to say that I admire you in terms of your professional expertise.

REP. THOMAS
I have been fighting the 1986 tax bill ever since it was passed. I think there were three really pernicious provisions, along with all of the other onerous ones. We've been talking about one in particular, changing of the rules, and I'll spend some time about passive loss in a minute.

REP. THOMAS
The second one that we haven't dwelt on was the change which almost invited, literally invited the American homeowner to exchange equity for debt because we removed the tax deductibility of consumer debt and then changed the rules to allow them to squander the equity in their homes.

Donald J. Trump
Absolutely.

REP. THOMAS
And then thirdly, a point that Mr. Seidman mentioned that most people don't realize, was the retroactive aspect of that bill, where many people had made decisions about pensions and their retirement tied to real estate in which the government changed the rules after the fact.

REP. THOMAS
You could not believe the decision that the government made prospectively, and I think psychologically that significantly damaged us.

REP. THOMAS
In terms of passive loss, I know there are a lot of people watching who don't really understand what we're talking about. We're talking about the rules under which people make decisions to invest their money. It's no question that there were tax strategies built into the code that allowed people to take advantage of so- called shelters. We've talked about the excesses of the early 80s.

REP. THOMAS
The cry for 1986 was, "Don't let the tax code dictate economic behavior." But I think you're quite rightly pointed out that one of the reasons the stock market is overly priced is that because of the tax code, that's the only game in town, that we are dictating economic behavior today.

REP. THOMAS
The loss of equity in terms of the homeowner is a tax code structure. We are continuing to dictate economic behavior and I think the thing you have to understand, which I know you appreciate, is that the tax code is going to dictate economic behavior. There is no way for it not to if you have a tax code.

Donald J. Trump
That's right.

REP. THOMAS
And what you've asked for is for the tax code to create incentives for behavior. I agree with you. The problem is, I think people are overstating the correction necessary for passive loss changes. The bill that I originally sponsored and that I agreed to join in a co-sponsorship with Mike Andrews of taxes has been honed down to only cost about $2.8 billion over five years. The problem with the passive loss rules changes, as you well know, was not just to get rid of tax shelters. That is, people who were not materially participating in real estate, like the dentists and the doctors you have suggested would reinvest, were investing for purposes of tax shelters.

REP. THOMAS
There's nothing wrong with allowing them to invest if they believe they can have an economic gain. You don't have to tilt the tax code in their direction if there's an opportunity to make money in the real estate area.

REP. THOMAS
The problem with the passive loss rules changes was that people who were literally actively involved in real estate aren't allowed to take losses against their activities.

Donald J. Trump
That's right.

REP. THOMAS
And we railed long and hard -- the chairman is not here -- behind closed doors in the committee when this provision was put in the bill. It was an attempt by people who did not understand the real world to take an academic definition and stick it into the tax code.

REP. THOMAS
We have lived under this academic definition, I think, far too long, and I really appreciate your real world plea that we make the kinds of adjustments that won't lead us to the over-excesses of the early 80s, but will allow those who want to participate and to create an active real estate market to be able to do so.

REP. THOMAS
One last comment on depreciation. You need to know that the requirement under the '86 tax bill was that it be revenue-neutral, that we make these multi-billion dollar adjustments within the tax code but that we come out even dollars.

REP. THOMAS
The depreciation schedule was literally an accordion that was squeezed or stretched to produce the dollar numbers necessary to make the package revenue-neutral. It was not designed to create an honest return on investment in the real world. It was a political gimmick to fill revenue gaps.

REP. THOMAS
I just want to thank you. You have had to live with it. I think the American people have had to live with it far too long. We aren't talking about recreating 60 or 70 percent tax levels to fund a passive loss change. I agree with you that if people are going to have their money eaten up by the tax code that they're going to look for ways to invest it and to make money. Incentives need to be built in, don't need to be built that high. We could use some of that money to adjust the depreciation schedule so that we don't create a massive tax loss. Your reaction?

Donald J. Trump
Correct. I agree with you 100 percent.

REP. THOMAS
(With a laugh) I've got to get you in front of the Committee of Ways and Means, as well as these kinds of committees.

REP. THOMAS
We have literally hundreds -- we have over 300 members who have cosponsored our passive loss legislation. It is not on the front burner in terms of any tax changes. What is being contemplated by the committee are political responses of adjustments within brackets to create a quote/unquote "tax break for the middle class."

REP. THOMAS
And that if you would urge people who are in the private sector, who have had to live for far too long, to contact the Chairman of the Ways and Means Committee, Dan Rostenkowski, contact Mike Andrews, contact myself about our passive loss legislation -- for $3 billion to $5 billion, I can think of no better immediate shot in the arm for our recovery. It is an enormous advantage.

REP. THOMAS
And I agree totally with you that when you try to construct a model that says it will lose $3 billion to $5 billion the tax code, yes, because we will change definitions in the code. But what we also change is behavior. And when that behavior exhibits itself in the real estate market, I also agree with you, there will be hundreds of billions of dollars of exchange, of circular flow of economic activity, of jobs, and that there will be no loss of revenue to the government.

Donald J. Trump
Absolutely right.

REP. THOMAS
So I really appreciate. I wish I had a lot of questions for you, but you already said everything for me that needed to be said. I just wanted to put it in the context of where we are. A relatively simply change to correct a serious error in the '86 tax bill could go a long way structurally, but I think also psychologically to indicate that we are doing something, we do understand the problem, and we are responding.

Donald J. Trump
Thank you, Congressman.

REP. THOMAS
And I thank you for your testimony.

Donald J. Trump
It's a shame, Congressman, that this very powerful and important industry doesn't have a better lobby, because I watch things being lobbied that should never be passed and they get passed, and I look at things like this, and as you say, it's on a back burner and you know how important it is. And the real estate industry is a group of thousands of people, some wealthy, some not wealthy, most not very wealthy right now. And I will tell you, they have absolutely the most pathetic lobby in the history of the United States Congress. It is so bad -- and I don't know how many of these people behind me are lobbyists, but they're not doing a very good job, I can tell you that.

REP. THOMAS
I just tell the gentleman that if he would appear before the committee, or several others like him, they wouldn't need lobbyists.

Donald J. Trump
Thank you very much.

REP. THOMAS
I thank the gentleman.

Donald J. Trump
Thank you.

(CSPAN Transcript cuts off online at this point - remaining notes are my own)

REP. GUARINI

It seems to be, obviously, the name of the game in Washington is to have an effective lobby and then you get the laws passed that you need to get passed for that particular industry. Mr. John Spratt?

36:38

REP. SPRATT

Mr. Trump, thank you for your testimony, and in the interest of time, I’ll put one question to you. Obviously, you’ve operated at a vaster, higher scale than I did when I was involved a little bit in real estate development, but usually when we syndicated a project, what drew the participants, the limited partners to the syndication was not just a pass-through of losses but the fact that they could leverage their returns by writing off losses below the actual cash investment. Do you think that’s a good rule and should continue?

37:10

Donald J. Trump

I think it’s a rule that works in terms of getting people started. And it certainly had an effect, and it can be limited to an extent if need be. But right now we don’t need limits, we need action, because if there’s not action, you’re not going to have an industry - you’re not going to have a real estate industry. And I’m really talking to a large extent, because, you know, we talked about the overbuilding done during the 80s, but I’m really talking things that are existing - not just for new construction, but things that are existing. Because you cannot get financing for any building, no matter how good it is, no matter how good your tenant is, you cannot get financing for it under any circumstances, anybody. If it has real estate associated with it, you cannot get financing. Now that’s a pretty pathetic situation, now maybe that changes, but I think you people are going to be the ones that are going to have to make a change.

37:59

REP. SPRATT

The point was that you were talking about all-equity syndication -

38:08

Trump: I’m sorry - I didn’t mean all equity… - flurry of real estate development terminology-

38:26

Spratt: You still have to find the bank to make up the rest…

38:30

Trump: The bank could make it up, but it varies… You could have a large amount of equity infusion and I think that’s a real positive thing. But right now under the existing laws you can’t do that, you can’t even talk to people about it

38:49

Spratt: There are some people who think that this has been a shake-out where the fittest have survived… They look from ‘81-86, they’ll say there were a lot of characters out there who shouldn’t have been, they were distorting the market by doing deals that were totally tax deals with no basis in economic reality. Would you agree with that assessment?

39:07

Trump: I would, partially - I think there were a lot of good people in the market who got whacked and a lot of bad people that maybe deserve to get whacked.

39:15

Spratt: Thank you very much

Trump: Thank you, sir

39:18

Guarini: Thank you very much, John. Helen Bentley, please?

39:21

Rep. Helen Bently: Thank you, Mr. Chairman. Mr. Trump, I wanted to thank you for being here today, and for your stand on American manufacturing over the years. I was one of those with Mr. Thomas who, early on, as we were considering the ‘86 Tax Act, I described it as, “it stinks,” and I think that’s still the best description I can give to it today. You’ve been talking about real estate here. But that Tax Act also eliminated investment tax credits -

39:53

Trump: Yes

39:54

Bently: It eliminated interest deductions on the purchase of items, and… We have a little bank in my area, which just this past week, has reduced by 1% the interest on anybody who wants to buy an American car. The number of phone calls at that bank has had since that ad was put in was phenomenal - and, why can’t - what do you think would happen to getting manufacturing going, which in turn helps with your real estate, etc. etc., if we would give some inducements to investment tax credits on American manufactured products?

40:45

Trump: I think it’s a truly spectacular idea.

40:50

Bently: Okay… Um… There we are. Are you going to join me, Mr. Thomas?

41:00

Thomas: I already have a bill for tax credits, so I agree with you.

41:06

Bently: Okay, good. I need to get some of my Republicans to agree with me on that too. But uh, I think one of our problems has been talking about free trade far too much instead of fair trade. As a result, we’re all getting - feeling the effects of it. And I think some of the people behind you are some of the people who have been hurt as a result of some of the pressures on free trade, of exporting jobs overseas. Again, Mr. Trump, thank you for being here today, and I’d like to someday pursue some of your thoughts on the manufacturing further.

41:41

Trump: Thank you, ma’am.

41:43

Guarini: Thank you, Helen. Jim Hayes?

41:47

Rep. Jim Hayes: Thank you, Mr. Trump. I want to take this opportunity to perhaps outline things in a way that might seem sophomoric, but realizing this is an opportunity because of someone with your high profile, to have people who do not deal with financial markets understand some of the dilemma we find ourselves in, and some of the ways of getting out of it. Explain, in very simple terms, how a developer such as yourself, with an idea for a project takes the cost of the project - prior to the ‘86 law - takes the project cost and proposes a financing mechanism and goes about getting investors. Just briefly outline anything, whether it’s a commercial or residential real estate venture.

42:33

Trump: That could be a pretty long answer. But just briefly, you conceive of a development in a site, it usually starts with a piece of land. You conceive of this, you get your zoning or you have your zoning. You get your architects, you get your engineers, you get your planners, you design something that you think is going to be nice and economic and all of the things it is supposed to be, you then you go out and get your financially, ideally. You used to go out and get financing, today you don’t even think about it… You then go out and get your financing, you build your job, you hopefully have a success and you’ve created a lot of jobs in between for lots of people, that are buying lots of different things for their families, including homes, etc. etc. It’s really a process - and that is the process - but that process is now circumvented because it’s impossible to get financing for any development in this country, I would say, right now.

43:25

Hayes: And explain to them also, that at the end of trail, when you’ve had both an interim lender - meaning someone who gave you a construction loan, and then a permanent lender - who took that interim lender out and looked at this project over the long term, that projects you did prior to 1986, they were either in the stage of either the interim lender or had been completed. That even though those had been completed, even though they had been conceived under tax laws that then, depreciation values that then, allowed you to make that decision to go the bank - that the loan was economically viable, by a loan officer, who looked at it, it made sense to them - explain to them that even though it was conceived under the previous rules, the subsequent rules were applied to you and the kind of economic impact they had for a completed transaction.

44:11

Trump: They weren’t grandfathered… You bring up a great point, because I have never understood how this was possible. I have never understood how somebody, throughout this country, didn’t sue the U.S. government and have that overturned. I mean, you had people - investors, investing over a ten year period for a set of - under a set of conditions, and this is - as I was saying before, playing the game, we’re all playing by a certain set of rules. The rules were changed for the government, but they weren’t changed for us. I mean, it was an incredible - it was an incredible circumstance that happened. And people went bust by the hundreds of thousands, and I hope you weren’t one of them, in terms of that, but obviously you know a lot of people that were. They changed the rule on taxes - and you have some incredible situations, where people guaranteed personally, a stream of payments to be payed over a ten-year period, based on a stream of tax benefits for perhaps a very good job. Like a low-income housing development - nothing wrong with that, a very positive thing, and after two years, they got wiped out with the taxes and yet they still owed all of us money. And many of these people, most of these people, had to declare bankruptcy. They couldn’t pay it. So they personally guaranteed a stream of payments - how that wasn’t grandfathered for those people, I’ve never understood. How it was overturned by the courts, and I’m sure many people must have brought lawsuits, but I haven’t heard of any successful lawsuit on it, is just beyond me. Because it’s probably the most unfair thing that I’ve seen in terms of business and government. Great point.

45:38

Hayes: And another point - and I’ll be specific - and use an office building that I’m familiar with unfortunately. But to make the point - with the change in configuration of interest deductions, there was a building in my hometown that generated $242,000 a year in rentals. It had been done through a partnership, not a leverage deal - 100% occupied, no outside investors, only two partners. But because of the change in the 86 code, the building was completed prior to 1986, the $246,000 was treated all as personal income to the taxpayer. But the interest deduction to the insurance company that financed it was allowed only at $10,000, whereas the actual economic activity was a slight gain between $10 - 12,000 between rent and debt service. But the tax impact of $240,000 with only a $10,000 deduction gave an income tax bill, suddenly, of $60 - 70,000 on an investment that made $12,000 a year, and that’s what took them down. Not a dishonesty, not a corruption, not a bad planning, not a building that fell down, and not one that wasn’t occupied or speculated on. And I want to stress that

46:53

Trump: (speaking while Hayes speaks) They did a beautiful job. They did everything right and they got wiped out. It’s very unfortunate

46:57

Hayes: That would explain your previous comment about good buildings who have tenants, but now lenders don’t want them, for what I suggest two reasons, and I would ask if you agree: one is because of uncertainty - since people who did good planning and fair planning got killed retroactively, they’re not trusting of a government that might not, in search of revenues with a $300 billion a year budget, do something in addition, even on new buildings coming, because the rules apply retroactively -

47:28

Trump: Absolutely correct

47:30

Hayes: And secondly, because it doesn’t have a collateral value under that circumstance since its uncertain. And then I’m going to make three points, and please forgive me. One is, at no cost to taxpayers, if we do some of the things you’ve outlined, collateral value will be improved but it doesn’t require an injection. If a bank carrying a building, such as the one I just described… if it currently is assessed as a value of $1 million because of current tax law, if tax law were changed, that building alone might be $3 - 4 million. Which, on their collateral carried by the bank, gives them less pressure from regulators because the asset value has been increased, but it doesn’t cost the taxpayer or the revenue payer one cent.

40:14

Trump: You might even make a profit on RTC afterall. The fact is, if you really wanted to do this, and obviously you’d have to do it across the board, you could probably take RTC and start to make some real sales instead of giving away for five cents on the dollar. I mean, you’re selling property for five cents on the dollar, that’s much better property than that, and if you made the proper changes in the tax law... your RTC property, you wouldn’t even have to contribute 10 cents to it, in my opinion.

40:43

Hayes: And secondly, I represent people who are being foreclosed on who’ve never missing a payment, that’s something else that I wish that people out there and at home would know. They’ve every monthly payment through other income and they were affording - able to do so, but because the collateral value was depressed, even though they’ve never missed bank payments, those loans are being called because the regulatory scheme is saying, wait a minute, your property is worth less, therefore we are demanding $3 - 4 million in additional collateral that they don’t have. And they are being placed into either bankruptcy or they are being placed into tremendous economic adversity having never missed one monthly or quarterly payment.

49:22

Trump: It’s a very unfair circumstance here… There are hundreds of thousands of people in that circumstance.

49:30

Hayes: And the second point that I would make is on property tax. If we do nothing in the Congress, if we keep current law, then we’re just not having enough years pass where corporations and individuals are recognizing that if their properties are lowered because of the tax code, that they should go to their assessors and gets tremendous adjustments. Which, once again, lowers the property tax receipts of counties and parishes, in my case, states - and make them suddenly have to come up with alternative tax packages for their own revenue messages. And is that not - in NY for example, are there not people trying to get property tax adjusted dramatically because of the impact on real estate ventures?

50:06

Trump: There are, indeed

50:08

Hayes: And my final question would be on economic activity. I come from southwest Louisiana, which people refer to as an oil and gas community. I used to hear people say constantly that we were recession proof - which I thought was an interesting phrase, I heard it here in northern Virginia. They’re suddenly, I think, finding the the equal recession proofness of the two areas. But secondly, I used to hear constantly, “I’m not in the oil and gas business.” Well, when it collapsed from $40 to $8, and bounced around for a while, everyone that sold shoes found out they were in the oil and gas business, everyone that owned automobiles found out they were in it. And I’m reminded of that today because I think the point you’re making here is that I’m not in the real estate business - and I no longer am, by the way, I don’t own a square inch of anything (Trump: You’re lucky) - but the point is, I’m not in the real estate business can’t be said, because it is such a large segment that fuels the economy, that if you’re the shop owner, if you are a in medical practice, if you are an attorney, you’re in the real estate business. Because if your economy hasn’t collapsed as mine did, it didn’t just take down real estate developers, it took down everyone. Three out of four of the kids who graduate this year with graduate degrees from my home university leave the state for employment. They didn’t have the oil and gas industry either, they weren’t realtors, but they can’t stay and get a job. And my last point will be this, and then the chairman, don’t shoot me, for those who think this goes away cyclically, my community has been in the grips of a deep depression for nine years. It doesn’t have a term limitation on depressions. And we had better have an affirmative action from a Congress, or I guarantee there is no guarantee that NYC won’t have nine years or nineteen years or that we’ll ever turn it around. And I would ask if you agree with that and be quiet and hope that this time I haven’t been too strident.

51:58

Trump: What you said I agree with 100%.

Thomas asks one last question about the RTC - asks Trump what his opinion would be on changing the RTC. Trump agrees with making changes to sell all properties, regardless of quality, but they need to straighten out of the tax code before selling any more properties.

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