In anticipation of higher taxes on dividends, a number of corporations are paying out dividends early – even when they have to borrow to do so.
As the corporate-named “fiscal cliff” nears, hundreds of companies are busy paying out 2013 dividends in 2012, so CEOs and other major shareholders can avoid paying higher taxes when the Bush tax cuts expire. Under the Obama administration, taxes on dividends may increase from the current rate of 15 percent to as high as 43 percent.
Some companies, like Walmart, are moving up the payment of the quarterly dividends by a week, while other companies, like The Washington Post Company, are paying out the entire yearly dividend for 2013 in 2012 in their mad haste to avoid taxation. Some companies are even borrowing money to pay out dividends on earnings that have not even been earned yet. At least the banks are loaning to someone, even if it means the loan is used to dodge taxes.
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What all these companies have in common is that the early dividend payments benefit a small number of insiders – from the Walton family at Walmart to Donald Graham and Warren Buffet at The Washington Post, to name a few.
Take Larry Ellison. CNBC recently reported that:
Larry Ellison is the latest corporate chief to benefit from the spate of special dividends or accelerated dividends announced in the fourth quarter. Oracle announced Monday it would pay more than $800 million in next year’s dividends this month.
Ellison’s share of the payout is $198.9 million, based on his ownership of 23 percent of the company’s stock.
Sheldon Adelson, the subject of criminal investigations by the US Department of Justice, will be receiving $1.2 billion in dividends from the Las Vegas hotel, The Sands. His tax savings will be over $300 million, certainly enough for him to bankroll another election or many other elections.
Carnival CEO Mickey Arison will receive about $89 million in early dividend pay outs.
Tom Frist, brother of Bill Frist, the former senator from Tennessee, will receive $300 million in early dividend payments from HCA. This is the same firm that paid a $1.7 million settlement for fraudulently billing Medicare, the same program these reactionaries say is broke.
Costco is borrowing $3.5 billion to pay out $3 billion in early dividends. It is borrowing the money because it has not actually earned what it plans to pay out in dividends.
The Washington Post Company will pay out about $70 million in early dividends which primarily benefits the Graham family and Warren Buffet. Buffet is the single largest shareholder, but he often gives his voting rights to Donald Graham. Ironically, “the sage from Omaha” has publicly stated that he should pay higher taxes. Moreover, The Post Company is paying out early dividends despite having negative cash flow of $75 million in the first 9 months of 2012.
These companies and many more are working assiduously to get dividends paid out early. John Collopy, who tracks Wisconsin stocks as director of research at Oshkosh-based Carl M. Hennig, an investment securities firm, said of the tax code which allows all of this dividend diversion: “I think it’s a very nice accommodation.”
Walmart will pay out about $1.34 billion in early dividends with roughly half of this amount going directly into the pockets of the Walton family. At the same time Walmart CEO Mike Duke has authorized the early dividends to stockholders, Duke is defending the low wages he pays his employees, reports the Huffington Post. This comes on the heels of the $18.7 million in executive compensation Duke received in 2010. According to the Huffington Post:
The CEO of Walmart Stores Inc. received a pay package in 2010 worth $18.7 million, a 4 percent dip from the year before, according to an Associated Press calculation, as the world’s largest retailer struggled to reverse a decline in a key revenue figure.
That literally hundreds of CEOs are authorizing dividend payments so they and their cadre of insiders can avoid paying taxes on the dividends they allocate to themselves demonstrates the greed prevalent on Wall Street. With no deterrent examples, like any arrests of banksters engaged in fraud, Wall Street and its surrogates and profiteers see no end in sight to their rapacious business plans.
It is especially appalling that many of the companies these CEOs captain derive significant amounts of their revenue from the federal government. HCA derives most of its revenues from the federal government through Medicaid and Medicare, two programs working people are told they simply must give up or receive benefits from later in life.
The Washington Post Company derives about half its revenue from the federal government through Title IV “loans” and “GI benefits,” which are supposed to assist students, but instead end up on Wall Street in the form of dividends and multi-million-dollar payouts to wealthy individuals.
It is likely the list of companies paying early dividends to avoid taxes also include those companies that received generous government bail-outs, and those companies that continue to profit off the illegal wars. It is unacceptable that these CEOs – Donald Graham and Tom First – who benefit from government largesse do not want to pay their fair share to support the government. This is because the government is their piggy bank and without it they could never continue the rackets that purport to be their companies.
It is also no small irony that the same cast of characters preaching debt reduction are helping themselves at the government trough to avoid paying taxes that could seed government coffers and shrink the debt. Instead, they are the usual suspects in running up government debt. While they talk about cutting “entitlements” they are busy serving themselves their own entitlements and assuring that the social safety net is replaced by the Dragnet.
In this season of supposed giving, apparently it never crossed the minds of these CEO Scrooges that they could have used this money to invest in their companies and hire returning war veterans and other unemployed and suffering Americans.
As author Andrew Gavin Marshall stated recently in an article for Truthout on the Trans-Pacific Partnership:
At the same time, state “interference” decreases in sectors that benefit the actual population, such as welfare, social services, pensions, healthcare, education, labor protections and so on. In the actual “free market,” these protections are dismantled, subjecting populations to “market discipline” quite unlike the large corporations and banks that receive direct protection against “market discipline.” The most obvious example of this is the post-2008 bank bailouts.
Yes, the 2008 bailout was a stunning example of corporate coddling, but so is the dividend diversion for it requires the government to aid and abet the depletion of tax revenue. These executives and their benefactors understand that the role of government is to regulate markets for the benefit of the corporations and banks, while forcing the rest of us to compete with each other in a race barreling toward the bottom. This is market monopolization for the elite and market punishment for working people.
The executives of these corporations are little more than modern day robber barons and scam artists who engage in the theft of government monies by using accounting tricks they have managed to lobby for to assure the tax code treats them like royalty. Congress has the power to claw-back these taxes; they could retroactively tax these ill-gotten dividend payments and prosecute the perpetrators of the scheme.
Of course they won’t: They need these companies and their “leaders” to pony up millions, if not billions, in campaign money for their political careers.