Written by Nathan White,
Chief Investment Officer of Paragon Wealth Management
This is an absolutely
great piece in the op-ed section of the Wall Street Journal last Friday about
the hypocrisy of those who support higher taxes and claim that tax rates don’t
affect business decisions! I urge all to read!
To view the entire
article please visit: wsj.com
Here is an excerpt from
When President Obama
needed a business executive to come to his campaign defense, Jim
Sinegal was there. The Costco co-founder, director and former
CEO even made a prime-time speech at the Democratic Party convention in
Charlotte. So what a surprise this week to see that Mr. Sinegal and the rest of
the Costco board voted to give themselves a special dividend to avoid Mr.
Obama’s looming tax increase. Is this what the President means by “tax
Specifically, the giant
retailer announced Wednesday that the company will pay a special dividend of $7
a share this month. That’s a $3 billion Christmas gift for shareholders that
will let them be taxed at the current dividend rate of 15%, rather than next
year’s rate of up to 43.4%—an increase to 39.6% as the Bush-era rates expire
plus another 3.8% from the new ObamaCare surcharge.
More striking is that
Costco also announced that it will borrow $3.5 billion to finance the
special payout. Dividends are typically paid out of earnings, either current or
accumulated. But so eager are the Costco executives to get out ahead of the tax
man that they’re taking on debt to do so.
Shareholders were happy
as they bid up shares by more than 5% in two days. But the rating agencies were
less thrilled, as Fitch downgraded Costco’s credit to A+ from AA-. Standard
& Poor’s had been watching the company for a potential upgrade but pulled
the watch on the borrowing news.
We think companies can
do what they want with their cash, but it’s certainly rare to see a public
corporation weaken its balance sheet not for investment in the future but to
make a one-time equity payout. It’s a good illustration of the way that Federal
Reserve Chairman Ben Bernanke’s near-zero interest rates are combining with
federal tax policy to distort business decisions.
One of the biggest
dividend winners will be none other than Mr. Sinegal, who owns about two
million shares, while his wife owns another 84,669. At $7 a share, the former
CEO will take home roughly $14 million. At a 15% tax rate he’ll get to keep
nearly $12 million of that windfall, while at next year’s rate of 43.4% he’d
take home only about $8 million. That’s a lot of extra cannoli.
This isn’t exactly the
tone of, er, shared sacrifice that Mr. Sinegal struck on stage in Charlotte. He
described Mr. Obama as “a President making an economy built to last,”
adding that “for companies like Costco to invest, grow, hire and flourish,
the conditions have to be right. That requires something from all of us.”
But apparently $4 million less from Mr. Sinegal……
To view the rest of the
article please visit: wsj.com