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 fairness”?
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.’
Later in the editorial, they point out that based on the number of Costco shares owned by Jim Sinegal and his wife, this special dividend will save them $4 million in taxes.
This violates a rule from my previous post: If you want more government, then you pay more also.
I wonder what Sinegal’s shareholders would have thought if he had taken a stand in line with his espoused principles. Sorry shareholders, the Board wanted to give you a special dividend so you could keep more of your money, but I’m a big supporter of big government so we won’t do that.
Update: Thanks to Speedmaster at The Pretense of Knowledge blog for the prominent link to my post. I’m honored. I also want to mention the cronyism that he included in the WSJ article that I left out:
“As it happens, one of those new stores opened Thursday in Washington, D.C., and no less a political star than Joe Biden stopped by to join Mr. Sinegal and pose for photos as he did some Christmas shopping. It’s nice to have friends in high places.”
DC is notorious for its opposition to big box retailers. This makes me question Sinegal’s motives for publicly supporting higher taxes. Higher tax support for a new store?