Trump’s wealth, real or unreal?

Donald Trump’s political rise was due partly to the widely held belief that he is a multi-billionaire whose wealth comes from his business skill.

If he could become a billionaire as a tough negotiator in real estate deals, he could be the kind of strong and successful leader the U.S. needs.

Supporting his reputation, he projected the greatest self-confidence about his ability to solve problems and lead the country just as he had led his vast network of companies. He proudly splashed his name on his enterprises, thanks to his reputation as a businessman and television celebrity.

Trump claims to be worth $10 billion dollars, placing him among a handful of the wealthiest people in the world. Forbes magazine, which independently rates the rich, says he’s worth $4.5 billion.

But neither Forbes nor anybody else really knows, because most of his investments are in private deals, not in corporations required to publish financial reports. Still, Trump insists people should be impressed by his wealth and even once sued a writer who said he was a mere “millionaire.”

Why is the amount of Trump’s wealth subject to so much doubt?

Anybody is free to set a value on his or her assets and Trump seems to say he has done that to come up with $10 billion. His holdings are worth that amount – in his opinion. But when a bank is asked to accept the property as security for a loan, it may find it has a lesser value.

Here’s how it could work. Whatever the value of a parcel of land, it might gain in value if you could get the necessary permits to build a skyscraper on it. You value your own property on the assumption that you will get the permits.

In the case of New York hotels, it worked. He might control the land, but need permits and want tax breaks. Thanks to his father’s ability to call in favors for having made political contributions, he received them.

Trump and his many companies own real estate in partnership with others, who control most of the property. But he may attach value to it beyond the scope of his investment on the strength of his name being the building’s “brand” and his company having management responsibility.

“I am the king of debt,” Trump has said. He uses borrowed money to cover his share of investments as much as he can. This at least raises the question if he distinguishes between gross investment and net value.

A piece of property has value, perhaps equal to its cost or to what it might get, if sold. That would be its gross value. Its value at any moment is that gross value less the amount of money borrowed to purchase it and not yet repaid. That would be the asset value of Trump’s share of a building.

If he sets his wealth based on the gross value, without taking into account his debt, his assets would be inflated. Only when he makes debt payments, would his assets grow.

If he does not make debt payments, his companies may seek bankruptcy protection from making further payments and the property passes to the lender. Trump companies have been involved in at least four bankruptcies to shed financial responsibilities.

The exact amount of debt existing behind his investments remains unknown, but the New York Times recently dug up at least $650 million in debt on his U.S. investments. The more he and his companies owe, the less wealthy he is.

Trump has thus far refused to disclose his tax returns. While they would not necessarily expose his net worth, they could provide important clues to his wealth.

Even if they showed he legally paid little tax, which he suggests is the case, he would have revealed his gross income and the allowances he used to reduce it for tax purposes. For example, losses in some activities could be used to offset gains in others, this reducing his tax liability.

Using Forbes’ estimate, his annual income would be $45 million assuming he gained only one percent on his investments. Perhaps he lost more than he profited, thus paying little or no taxes. So his tax returns matter, especially in light of his claims of business success.

Trump’s fame depends on beliefs about his great wealth and the skill and intelligence that made it possible. If he has greatly exaggerated his financial success as businessman, what might that say about his possible political success as president?