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LAMBRO: Obama fat cats slink from tax hikes
Rich backers avoid taxes they foisted on others
Question of the Day
Did you see the story about Costco borrowing $3.5 billion to pay a special $7 a share dividend to its stockholders before year's end to avoid being hit by President Obama's higher capital gains tax?
This story is especially juicy because it reveals how Mr. Obama's fat-cat supporters, who bankrolled his bid for a second term and embraced his proposed tax increases, have taken steps to shield themselves from the president's "tax the rich" fiscal policies.
The tax avoidance maneuver, which Forbes magazine calls "a six-year advance on the company's current annual dividend of $1.10 per share," will be a windfall for Costco's richest investors if the tax on their dividends is raised, as Mr. Obama has proposed for the past four years.
One of the people who will benefit from this tricky deal will be Costco Wholesale Inc.'s co-founder and former CEO Jim Sinegal, who owns more than 2 million shares of its stock and will collect about $14.4 million from the special dividend. Had he taken that next year, he could be slapped with a tax rate of 43.4 percent if Mr. Obama's proposed tax increases become law. The tax rate on dividends would rise to more than 20 percent and add a surcharge tax on millionaires.
Instead, Costco decided to pay its stockholders on Dec. 18 -- before the end of the year -- so that the special dividends plus a regular quarterly cash dividend of 27.5 cents will be taxed at the current 15 percent rate under the tax reforms enacted by President George W. Bush.
This means Mr. Sinegal, who gave a prime-time speech in behalf of Mr. Obama's re-election at this summer's Democratic National Convention, would avoid paying about $4 million in taxes.
Costco is not alone in its early tax-avoidance payouts. Many American businesses, from Wynn Resorts Ltd. to Tyson Foods Inc, also have declared special dividends to avoid the higher tax rate if the Bush tax rates expire.
One of the most notable Fortune 500 companies to join the pack is The Washington Post Co., which endorsed Mr. Obama for a second term and has warmly embraced his tax increase plans. The media conglomerate announced it will pay its 2013 dividends "before the end of this year to try to spare investors from anticipated tax increases," reports the Associated Press.
Among those who stand to benefit from the Post's beat-the-tax-deadline -- and pocket a bundle of money -- will be stock tycoon Warren Buffett and his Berkshire Hathaway Inc., the newspaper's biggest shareholder.
The Omaha billionaire owns an estimated 1.7 million shares in The Post that could yield him about $17 million. This gives new meaning to Mr. Obama's oft-repeated "Buffett rule" that he used in his past campaign to excoriate those who, like Mr. Buffett, paid income taxes of 15 percent because most of their income comes from stock dividends.
Mr. Buffett, who supported Mr. Obama, also calls for raising the capital gains tax rate, though he's no doubt happy to get The Post's early tax-avoidance Christmas gift.
The rush to escape higher taxes next year isn't confined to just the super-rich, either. In a front-page story Tuesday, The Washington Post says investors overall "aren't waiting for a 'fiscal cliff' deal," but "shifting assets to limit effects of looming tax hikes" and "taking pre-emptive action to get out of harm's way."
"Americans are moving to sell investment homes, offload stocks, expand [tax deductible] charitable donations and establish tax-sheltering gifts before the end of the year," The Post said.
The spreading fear of higher taxes, especially on investors, comes in the midst of an increasingly weak economy. Economic growth may have slowed to as low as 1.5 percent in the fourth quarter, meager job creation is not keeping pace with population growth, the workforce is shrinking dangerously, the trade deficit is growing, Europe is in a recession with double-digit unemployment and the U.S. government is on track for its fifth consecutive trillion-dollar budget deficit in 2013.
The news media's ballyhooed treatment of last month's lower 7.7 percent unemployment rate belied the troubling numbers behind it.
The Obama economy produced a puny 146,000 jobs in November, far below what is needed to bring the jobless rate down to normal levels anytime soon. The decline in the unemployment rate was in large part due to 350,000 long-term unemployed dropping out of the labor force, saying they were no longer actively looking for work. That meant they were not counted as unemployed and, thus, the jobless rate fell. The number of Americans who told the Bureau of Labor Statistics' surveyors they had a job actually shrank by 122,000.
If adult labor force participation were the same today as it was in October 2009 when unemployment was at its peak, "the unemployment rate would be 9.7 percent," said University of Maryland business economist Peter Morici. Add in more than 8 million part-time workers who can't find full-time jobs and the real jobless rate becomes 14.4 percent, he said.
The jobs picture is so bad that the Bureau of Labor Statistics said it reduced its estimates of jobs created in September and October by a combined 49,000.
The front-page headlines read "Unemployment down to 7.7 percent," but the statistics behind that number pointed to a stagnant economy at best and one in decline at worst.
The only reporter taking a really close look at last week's job report was Chris Kirkham of The Huffington Post. It's not a pretty picture.
The jobs report "is masking a deeper truth: Many of the jobs being created aren't the kind of high-paying ones needed to bolster an economic recovery," he writes. "More than half of the jobs created last month were in lower-wage industries, such as retail and hospitality." Better-paying construction and manufacturing jobs saw no growth at all.
Mr. Obama has failed abysmally to boost faster job-creating economic growth, which is sorely in need of a booster shot of capital investment, the very medicine he hopes to tax into oblivion in 2013.
Donald Lambro is a syndicated columnist and former chief political correspondent for The Washington Times.
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
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