Remarks: Donald Trump Testimony to Congress - November 21, 1991


Remarks: Donald Trump Testimony to Congress - November 21, 1991

one
real estate
tax law
Government
real estate industry
real estate business
tax
people
tax code
passive loss
Negative
Donald Trump
00:00:10 - 00:00:10 (0 sec)
Positive
Donald Trump
00:01:48 - 00:07:07 (319 sec)
Good. So this taxability 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. I mean you have a city called New York City, you have a city called 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. We are not only talking about office buildings, of which there are many, we are talking about housing, moderate-income housing, low-income housing, even highincome 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 into the construction of things that are needed, such as housing of all kinds. I heard this morning that we have had the lowest number of houses built in terms of housing since 1946 or 1947, and that is not much of a tribute to this group of folks that are representing the country, unfortunately. 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 count right now is in a depression. It is not a recession. People arW kidding themselves if they think it is a recession. You look at what is happening in the automobile business, in the retailing business. The retailing business in any part of the country virtually is a total disaster. But the real estate business, we are in an absolute depression. And one of the reasons we are there is what happened in 1986-in addition to what Mr. Seidman said, is what happened in 1986 with the changes. So I really came on the basis that I wanted to-I will answer questions on it, but I wanted to discuss the Tax Act of 1986. Active, assive, you are absolutely right, 100 percent right, and something as 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, 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 is, however, unfortunately, is the fact that the economy is so bad that there is no reason for the commercial. And I think that gets taken care of and gobbled up very quickly, if the economy improved. 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 is the whole world of syndication and investment. And if you are a dentist and you are making $200,000 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 that there is 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 the stock market. All the companies in the stock market are doing lousy, but their stock is high. I think what we have is when the stock market goes down by, let's say, 1,000 points in two days, which perhaps it might, then we are in a full-scale depression, then everybody admits it. Then the politicians admit it. The President is going to admit it. Everybody is 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 3,000 stock market, and people are surprised to see it, because the companies certainly aren't doing very well within the market itself. 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 are 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. 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 anymore to invest. They are saying, why should I take a chance on investing in low or moderate income housing? I might as well just pay the tax. But the fact is that 25 percent for high-income people-for highincome 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 them. But peopl
real estate
stock market
depression
New York City
Negative
Donald Trump
00:09:47 - 00:12:14 (147 sec)
Well, I think we got here by the fact that at the time certain things were dono, I-can speak in terms of the real estate business, certain deals were made, predicated on a 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-I mean you save minutia compared to the money that you have wasted on bailing out the savings and loans. Now, if your insurance companies are in deep trouble, and I think they are going to get much worse because some-much of their portfolio is in real estate, and I think you better save the real estate now. I can tell you, I bought things that were great deals in the middle 1980's and even the later 1980's, but when that tax law kicked in, you know, 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. And it is 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 have 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 is 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 is very bad-sounding word, even though it isn't necessarily a bad thing. 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. 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 are going to have to go back. 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 loans 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. I think the insurance companies are going to be in very deep trouble because of 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.
tax law
tax policy
real estate
word tax shelter
good economic deals
Negative
Frank Guarini
00:13:01 - 00:13:03 (2 sec)
housing
low-income housing
Neutral
Frank Guarini
00:16:23 - 00:16:29 (6 sec)
Donald Trump
00:16:29 - 00:16:30 (1 sec)
Positive
Frank Guarini
00:16:30 - 00:16:32 (2 sec)
Trump
Mr. Trump
Positive
Donald Trump
00:16:32 - 00:16:32 (0 sec)
Positive
Frank Guarini
00:16:32 - 00:16:34 (2 sec)
Hal Rogers
Negative
Hal Rogers
00:16:34 - 00:16:38 (4 sec)
Chairman
Mr. Chairman
Mr. Trump
thanks
Positive
Donald Trump
00:16:38 - 00:16:39 (1 sec)
Positive
Hal Rogers
00:17:37 - 00:17:41 (4 sec)
reinstatement
residential properties
Neutral
Hal Rogers
00:22:14 - 00:22:18 (4 sec)
Frank Guarini
00:22:18 - 00:22:19 (1 sec)
Huckaby
Mr. Huckaby
Negative
Donald Trump
00:23:40 - 00:25:16 (96 sec)
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 1986-and they totally destroyed the incentive that was proper in 1981. There were a lot of Mr.TRUMP. Thank you, sir. 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 have had recessions before during my lifetime, which is now getting a little bit older and older, but in 1975 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 of this, some of that. Nobody knows when this is going to end. You know, you saw some smiles, when do you think it is going to end? Nobody has the faintest idea. There is absolutely no hope, insight, unless something is done by the government to spur the economy, because the economy is not going to spur itself. V. HUCKABY. I think all of the Members here have seemed to imply that they favor the changes in the passive losses. You mentioned a change in depreciation schedules, I guess reverting back to accelerated depreciation. I think that was one of the areas, looking back in the past, that was perhaps of greatest abuses where one could recover their entire investment, perhaps 3 years as a result of tax writeoffs. Which of these areas do you think would be more important?
3 years
new Tax Reform
absolute picnic
overall picture
Negative
Jerry Huckaby
00:27:14 - 00:27:20 (6 sec)
Jerry Huckaby
00:27:49 - 00:27:51 (2 sec)
right
Positive
Donald Trump
00:27:51 - 00:27:55 (4 sec)
Hal Thomas
00:27:55 - 00:27:59 (4 sec)
Chairman
Mr. Chairman
Mr. Trump
pleasure
Positive
Donald Trump
00:27:59 - 00:28:02 (3 sec)
meeting
Nice meeting
Positive
Donald Trump
00:28:53 - 00:28:53 (0 sec)
Positive
Hal Thomas
00:28:53 - 00:30:22 (89 sec)
Government
real estate
stock market
Tax Code
economic behavior
Tax Code structure
Negative
Donald Trump
00:30:22 - 00:30:22 (0 sec)
Hal Thomas
00:30:22 - 00:33:44 (202 sec)
And what you have asked for is 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 cosponsor shi with Mike Andrews of has been honed down to only cost about $2.8 billion over 5 problem with the passive loss rules changes, as you well 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 that you have suggested would reinvest, were investing for purposes of tax shelters. There is nothing wrong with allowing them to invest if they believe they can earn an economic gain. You don't have to tilt the Tax Code in their direction if there is an opportunity to make money in the real estate area. 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. And we railed long and hard-the Chairman is not here-behind closed doors in the committee, whether 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. 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 overexcesses of the early 1980's but will allow those who want to participate and to create an active real estate market to be able to do so. One last comment on depreciation. You need to know that the requirement under the 1986 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. 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. And I just, 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. If people are going to have their money eaten up by the Tax Code, they are going to look for ways to invest and make money; incentives need to be built in, they don't need to be built that high. We could use some of that money to adjust the schedule so we don't create a massive tax loss. Your reaction?
real estate
real estate market
Tax Code
passive loss
Positive
Donald Trump
00:33:44 - 00:33:50 (6 sec)
Donald Trump
00:35:14 - 00:35:16 (2 sec)
Frank Guarini
00:39:24 - 00:39:27 (3 sec)
Mrs
Mrs. Bentley
Positive
Donald Trump
00:39:56 - 00:39:57 (1 sec)
Neutral
Donald Trump
00:40:48 - 00:40:54 (6 sec)
idea
truly spectacular idea
Positive
Helen Bentley
00:40:54 - 00:41:01 (7 sec)
Frank Guarini
00:41:01 - 00:41:06 (5 sec)
Donald Trump
00:41:42 - 00:41:45 (3 sec)
ma'am
Positive
Frank Guarini
00:41:45 - 00:41:47 (2 sec)
Helen
Jim Hayes
Positive
Donald Trump
00:44:13 - 00:45:41 (88 sec)
Donald Trump
00:46:51 - 00:46:59 (8 sec)
Donald Trump
00:47:29 - 00:47:31 (2 sec)
Donald Trump
00:49:24 - 00:49:33 (9 sec)
Donald Trump
00:50:15 - 00:50:17 (2 sec)
Donald Trump
00:50:50 - 00:50:52 (2 sec)
Donald Trump
00:52:00 - 00:52:05 (5 sec)
Hal Thomas
00:53:10 - 00:53:14 (4 sec)
Batch
private sector sort
Neutral
Donald Trump
00:54:23 - 00:54:26 (3 sec)
Frank Guarini
00:54:26 - 00:54:27 (1 sec)
Positive