One of Obama’s biggest backers going against the grain on capital gains tax increases!

Okay let’s face it, taxes on capital gains will almost certainly be higher come Jan 2, 2013. President Obama has ran on this basically ever since he became President, in addition to raising the individual income tax rates on the highest earners in America. With that said, Costco, one of President Obama’s biggest corporate backers is doing something quite strange. Remember Jim Sinegal, the founder and former CEO (stepped down this past January), who spoke at the Democratic National Convention. He was very outspoken and favored the President. None of this political support for the President is stopping Costco from making smart, conservative business decisions.  Costco is making a last minute dividend payment to its shareholders before the capital gains tax rate will go up. What’s worse, they are going in debt to do it. Going in debt roughly $3 billion. Another example of government affecting the free market in a negative way. Government policy effectively forcing a company to pay a special (not a regularly scheduled) dividend in order to avoid what would likely be an effective loss for shareholders. Costco is going in debt to pay dividends because, if they don’t, shareholders could possibly lose up to 30% on dividend payouts due to capital gains tax increases. This is especially true if the capital gains rate rises to 40+%. My question is, why back President Obama and commit this type of hypocrisy. Costco apparently backs higher taxes on dividends by endorsing the President, yet the company takes revenues that their dear leader could TAKE via the tax code come Jan. 2 in the form of capital gains taxes, and is instead paying it out under the current 15% rate, rather than what will likely be 40+% come Jan. 2, 2013. Kevin Williamson from the National Review says:

“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. Institutional investors such as Berkshire Hathaway and the Gates Foundation will bring in many millions. That dividend will be made possible in part by a special debt offering. 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.” (referring to Biden’s trip to a DC Costco opening today.)

Conclusion is that Costco is making a sound, smart, conservative business decision based on their shareholders value. Remember shareholders are those that provide capital for the company. They are the owners. Jim Sinegal is only the 33rd largest shareholder, but he is the largest individual shareholder. Rankings between 1-32 are all other companies, not individuals. Now my question is this, if President Obama’s plan to raise capital gains taxes is such a great idea, why are you evading it? The only conclusion that I can come to is that President Obama’s plan is apparently not a smart and sound business or economic decision.

This entry was posted in Taxes.

2 comments on “One of Obama’s biggest backers going against the grain on capital gains tax increases!

  1. Cherie Hatton says:

    Nicely done.

  2. Here we have human nature always looking after No. 1 it may not be right for others, but I Jim Sinegal, will do it for myself

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