Read it and weep, my friends...
The so-called fiscal cliff is one installment in a series
of manufactured crises, the purpose of which is to provide the political
establishment with small problems it can solve (or pretend to solve) while
steadfastly refusing to address the much thornier problem of the long-term
non-sustainability of U.S. public finances.
Watching the melodrama unfold, I sometimes think I should
be reviewing it in my theater column over at The New Criterion rather than
analyzing it for National Review.
The fundamental unseriousness of the fiscal cliff debate
can be appreciated by examining the Corker plan - which probably is very close
to the best that deficit hawks could hope for in terms of a bipartisan
compromise.
(Which is to say, precious little.)
At best, the Corker plan would reduce the growth of U.S.
federal debt by about $4.5 trillion over the next decade, but it would not
eliminate the deficit or reduce the debt, and it would allow for trillions of
dollars to be added to the wrong side of the national ledger.
AGAIN, FOLKS... THIS IS SUPPOSEDLY "THE BEST"
THAT CAN BE REASONABLY HOPED FOR... THE BEST THE GOP ESTABLISHMENT MIGHT...
MIGHT... BE WILLING TO SUPPORT AS "THEIR" PLAN.
The Democrats give every indication of being interested
in using fiscal cliff hysteria to achieve nothing but a modest, almost symbolic
increase in federal income tax rates for taxpayers earning $250,000 or more,
which would do very little to reduce the deficit but would confer a measure of
emotional satisfaction on the Left.
A fair number of small-business owners, managers, and
professionals would see their taxes go up, but the actual rich - the Wall
Street types, CEOs, Silicon Valley princelings, etc. - would continue to have
the bulk of their income taxed at the lower capital gains rate.
(*SIGH*)
That rate will go up (from 15% to 20%) absent a
fiscal-cliff deal, but the hedge-funders and such still will be paying a rate
about half the top income-tax rate.
(*CLAP...CLAP...CLAP*)
(*JUST SHAKING MY HEAD*)
President Obama wants that tax increase to happen, but
only for taxpayers earning $250,000 or more.
FOLKS... AS MANY OF YOU KNOW OR MAY REMEMBER... MY WIFE
WORKS AT A SMALL CPA/INVESTMENT PARTNERSHIP. THE NATURE OF TRUSTS - ESPECIALLY
GENERATIONAL TRUSTS - ENSURES THAT THERE ARE PLENTY OF PEOPLE OUT THERE
RECEIVING ANYWHERE FROM "ONLY" TENS OF THOUSANDS OF DOLLARS A YEAR IN
CAPITAL GAINS GENERATED TRUST INCOME TO THAT QUARTER-MILLION-DOLLARS A YEAR WHO
WILL BE "PROTECTED" UNDER THE UMBRELLA OF OBAMA'S CLASS WARFARE
ECONOMIC POLICIES.
(*SIGH*)
If the president gets his way on investment income, that
will produce at best about $240 billion over a ten-year period: chump change
when compared with deficits running $1 trillion or more every year.
FOLKS... YOU KNOW HOW I FEEL ABOUT THESE DECADE-LONG PROJECTIONS... BUT SOMETIMES THEY DO ILLUSTRATE THE POINT AS NOTHING ELSE COULD.
It would take a decade to offset the debt run up in just
one of President Obama’s many recovery summers. And that assumes that the
economy does not slip back into recession and that investors do not change
their behavior very much in response to the new tax regime.
The latter of course is unlikely and if the president
doubts that, he should have a conversation with Democrats’ new favorite tycoon,
Jim Sinegal of Costco.
Democrats suddenly are in love with Costco.
Mr. Sinegal, founder of the company, spoke at the
Democratic National Convention, and current CEO Craig Jelinek has been an ally
of the president during the fiscal cliff debate.
On Thursday, Mr. Sinegal and Mr. Jelinek were visited by
Joe Biden, who came by to commemorate the opening of the chain’s first
Washington, D.C., store. That is a remarkable thing: The country is on the edge
of a fiscal crisis, war is burbling in the Middle East, the president’s
hometown is in the grip of a horrific wave of violent crime... and the Vice President
of these United States is going to Costco ribbon cuttings.
Beyond getting the Biden treatment, Mr. Sinegal was the
subject of a fawning New York Times profile and now has his very own Internet
meme, which features his beaming face above the caption: “Costco CEO pays his
employees $17/hr on average, plus benefits, earns less than $500K, refuses Wall
Street demands to cut employee salaries and benefits.”
WELL... THAT ACTUALLY DOES SOUND PRETTY GOOD...
Almost none of that is true, of course...
OH...
(*CRESTFALLEN EXPRESSION*)
...but it hasn’t stopped the Left from holding up Costco
as the ideal progressive alternative to Walmart.
Mr. Sinegal, like many corporate executives, took a
relatively small salary, true enough, but received the majority of his
multimillion-dollar annual income in equity-based compensation, meaning that
he, like Mitt Romney and many a hedge-fund guru, paid 15% on most of his money.
(*SMIRK*)
And while at least one Wall Street analyst has been
critical of the firm’s generous compensation for its employees, Wall Street has
hardly demanded anything of Costco other than continuation of its very
profitable operations. This is partly out of appreciation for the fact that
Costco’s customers are relatively wealthy - many are small businesses, and
their average income is more than $80,000 a year - and that affluent shoppers
have different expectations than do the relatively poor people who shop at
Walmart. That’s Costco’s interesting niche: It’s a discount store for rich
people, Starbucks to Walmart’s Dunkin Donuts. That strategy has been paying
off: Institutional investors such as Warren Buffett’s Berkshire Hathaway are
among Costco’s top shareholders, and Buffett has never been shy about making
his demands known to management.
I'M GLAD COSTCO IS MAKING MONEY... I'M GLAD THEY PAY
THEIR EMPLOYEES WELL...
I'D BE "GLADDER" IF COSTCO (AND WALMART!) WOULD
PROACTIVELY STOCK, MARKET, AND SELL MORE AMERICAN-MADE PRODUCTS...
I'D BE "GLADDER" IF RELATIVELY REASONABLE COSTCO
EXECUTIVE SALARIES REPRESENTED ACTUAL TOTAL COSTCO EXECUTIVE COMPENSATION...
In fact, Buffett’s company, along with Mr. Sinegal, Mr.
Jelinek, and other shareholders such as the Bill and Melinda Gates Foundation,
are about to see a big payday from Costco - courtesy of Democrats and the
fiscal cliff. As noted before, if the president gets his way, the capital-gains
tax rate will go up to 20% for investors earning $250,000 or more. If nothing
is done, the rate will go up to 20% for most investors; and more important,
income from dividends will be taxed like ordinary income, meaning a top rate of
39.6%. That’s a big hit, so Costco is paying a big dividend - right now! Before
the new rates kick in!
BUT, FOLKS... THERE'S MORE TO IT THAN THIS... JUST KEEP
READING!
In fact, Costco is set to pay out some $3 billion in a
special year-end dividend this year to evade a January tax hike. The biggest
single beneficiary will be Mr. Sinegal, the firm’s largest individual
shareholder. He stands to gain $14 million.
(*CLAP...CLAP...CLAP*)
Institutional investors such as Berkshire Hathaway and
the Gates Foundation will bring in many millions.
(*CLAP...CLAP...CLAP*)
That dividend will be made possible in part by a special
debt offering.
BINGO...!!! (AIN'T AMERICA GREAT, FOLKS...?!?!)
When a firm run by Mitt Romney does this, Democrats call
it “vulture capitalists loading up companies with debt in order to write
themselves big paychecks.” When companies that make friendly noises about
Barack Obama do it, they get a personal visit from the Vice President.
GOD... HELP... THIS... ONCE... GREAT... NATION...
There is nothing unethical or illegal about what Costco
is doing. In fact, there is a very good argument that this probably is the
right thing to do: There is no need to inflict unnecessary costs on
shareholders, the company is superbly managed, and its strong financials mean
that it can borrow money at very low cost.
It is taking a bet that the Obama administration and its
friends in the Fed will be keeping borrowing costs low, but that is a fairly
safe bet.
Other companies offering unusual year-end dividends to
beat the taxman include Las Vegas Sands, Movado, and Sturm Ruger. It is widely
assumed that George Lucas had the fiscal cliff in mind when he sold Lucasfilm
to Disney; by closing the deal this year he’ll save some $400 million in taxes.
When conservatives talk about “uncertainty,” this is
precisely what we mean.
We have Costco and Warren Buffett and George Lucas
jumping through all sorts of hoops because nobody knows what exactly is going
to happen with taxes in the next month or two. They are dedicating their energy
to anticipating and reacting to politics, rather than to improving their retail
operations, seeking out new opportunities, or destroying beloved cinematic
trilogies, respectively.
(*AMUSED SMILE*)
In a stable, predictable environment, Costco might have
found a more productive use for that $3 billion.
THREE BILLION DOLLARS THAT IT'S BORROWING! THREE BILLION
DOLLARS IT'S TAKING ON IN NON-INVESTMENT DEBT! THERE'S NO HOPE OF MAKING MONEY
ON THE BORROWED MONEY BECAUSE IT'S NOT BEING INVESTED IN ACTIVITIES THAT MIGHT
GIVE COSTCO A RETURN ON INVESTMENT!
[P]olitics, not production, is in the driver’s seat here.
Washington gets to have its little opera, and businesses
have to react or try to influence the process.
And what about Costco’s small-fry competitors, the ones
without the scale to tap the credit markets on easy terms in order to cash out
ahead of the tax hike?
(*PURSED LIPS*)
The political churn just gives them that much more of a
disadvantage in the marketplace, without even the cold comfort of a visit from
Joe Biden.
Meanwhile, the debt piles up. Washington kicks the can
down the road - oblivious to the fact that the road has an end.
WE... ARE... SO... SCREWED...
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