Wealthy few draw Arkansas into estate-tax debate
Posted on Sunday, July 16, 2006
URL: http://www.nwanews.com/adg/News/160563/
Arkansas has emerged as a lively battleground in the fight over the estate tax.
It’s not that the state has an abundance of citizens who die rich enough to trigger the tax, which applies only to multimillion-dollar estates. Of the 27, 918 Arkansans who died in 2003, the IRS counted 168 with fortunes large enough to tax.
But two of the state’s most prominent families found themselves spotlighted in a recent report identifying 18 “ultra-rich” families as quietly bankrolling a movement to repeal the estate tax — and potentially save themselves billions in tax bills.
Public Citizen, the consumer group founded by Ralph Nader, and United For a Fair Economy, a pro-estate tax group associated with Bill Gates (father of the Microsoft chairman ), identified the Waltons of Bentonville and the Stephenses of Little Rock as among the wealthy few behind a $ 490 million “juggernaut” pushing for repeal.
The report’s conclusions rely on assumptions, however, and a Public Citizen researcher conceded that the $ 490 million figure overstates the known direct funding provided by the 18 families.
Even so, Public Citizen and United for a Fair Economy maintain that the families have stealthily financed a “fearmongering” campaign that has “shamelessly retailed myths” in an effort to repeal the tax — and spare themselves “whopping” tax bills estimated at a cumulative $ 71. 6 billion.
The study did not attempt to track the spending or potential financial gains of the special interests, like them, that have been working to keep the estate tax.
Both sides of the issue have made Arkansas a focus of the debate. They agree that Blanche Lincoln and Mark Pryor, the state’s two Democratic U. S. senators, are key to the outcome.
One pro-estate tax group that was running ads on Little Rock radio stations last week is led by a lobbyist who also represents life-insurance companies, which rake in premiums from wealthy families who buy policies to pay the tax. The group, the Coalition for America’s Priorities, has spent about $ 1 million in Arkansas hoping to sway the votes of Lincoln and Pryor.
Although outright repeal of the tax failed last month on a tight vote in the Senate, with Lincoln voting to proceed on a bill to eliminate the tax and Pryor voting not to proceed, the debate continues over compromise bills that would reduce the tax.
As it stands, the estate tax exempts the first $ 2 million of an estate and taxes net assets above that threshold at a rate of 45 percent. The tax, which raises $ 20 billion to $ 30 billion a year, is in a phase-out that is gradually exempting larger estates.
By 2009, the exemption threshold will rise to $ 3. 5 million. In 2010, the estate tax will disappear — only to reappear the next year in full force, with the tax applying to net assets over $ 1 million and at rates as high as 60 percent.
Some say it is unfair for the government to step in at death and redistribute wealth away from a family that earned it. Critics of the tax also say it breaks up family businesses.
Supporters say that the estate tax is “progressive” because it taxes the wealthiest few, that government needs the money at a time of budget deficits and that it is not un-American to tax inheritances that can perpetuate long-running family “dynasties” that reward genetics more than enterprise.
Warren Buffett, the billionaire investor who recently announced he is giving $ 30 billion of his fortune to the Bill & Melinda Gates Foundation, is one of the most prominent voices against repealing the tax. TAX’S PREMISE ‘SOCIALIST’
None of Buffett’s arguments sway Jackson T. “Steve” Stephens, president and chief executive of Exoxemis, a Little Rock biotech company. “I don’t care what Warren Buffett does with his money, or George Soros or anyone else,” Stephens said.
Stephens said his family paid “every penny” of the estate tax due when his father, businessman and philanthropist Jackson T. Stephens, died last year. So he is not looking for a tax break himself. “I have no personal stake in it,” Stephens said.
Philosophically, however, he said the tax is guided by a “socialist” premise of redistributing wealth. Families should decide where their money goes, not the government, he said.
So far, Stephens has chosen to give $ 1. 1 million to the Club for Growth, a tax-exempt group that opposes the estate tax and, according to the report from Public Citizen and United for a Fair Economy, has financed ads to repeal it.
Stephens has ranked consistently among Club for Growth’s leading donors, according to disclosure filings. In the 2004 election cycle, his $ 800, 000 in contributions made him Club for Growth’s No. 1 benefactor, ahead of better-known business figures such as Robert McNair, owner of the Houston Texans, and Richard Scaife of Tribune-Review Publishing.
Stephens said he had not seen the report that listed his family among the 18 bankrolling the repeal movement, but he said it would be wrong for Public Citizen and United for a Fair Economy to conclude that his donations to the Club for Growth went principally to get rid of the death tax, as he prefers to call it.
The Club for Growth, whose chief interest is mobilizing its 35, 000 members to support pro-growth candidates in primary elections, supports a broad agenda of tax and spending cuts, Stephens said.
While Exoxemis has paid lobbyists $ 330, 000 since 1998, none of the lobbying was directed at the estate tax, according to disclosure reports.
Public Citizen and United for a Fair Economy scoured disclosure reports dating back to 1998, and found that the 18 families have spent as much as $ 27 million paying lobbyists to buttonhole politicians about estate-tax repeal.
The Stephens Group’s inhouse lobbyist has listed the estate tax as an issue on reports totaling $ 780, 000 since 2001. In addition, Stephens hired the Palmetto Group, which filed reports listing $ 449, 667 in lobbying charges where the estate tax was one of the issues. But the reports don’t separate out estatetax charges.
Frank Thomas, the Stephens lobbyist, said the totals “wildly overestimate” the family’s investment in estate-tax repeal. NO OPINION FROM WALTONS
In Bentonville, the heirs of Wal-Mart founder Sam Walton have paid the high-powered Washington lobbying firm Patton Boggs $ 600, 000 since hiring the firm in March 1999.
The Waltons lobby through Walton Enterprises, the family partnership. Its lobbying is separate from the $ 10. 2 million that Wal-Mart Stores Inc. has spent lobbying during the same period.
Jay Allen, spokesman for the family, said the Waltons are “not currently engaged” on the estate tax, and have not publicly stated a position on it. The estate tax is listed, however, on several of the twice-a-year disclosure forms that Patton Boggs filed on behalf of Walton Enterprises.
Aubrey Rothrock III, the Patton Boggs lobbyist who works for the family, said the estate tax was never the focus of his work and he listed it only as an ancillary issue that touched on his chief duty for the family.
Rothrock said his lobbying was to relax stock-ownership rules on private foundations to make it easier for family members to give Wal-Mart shares to the Walton Family Foundation. He could not get it done, and the rules continue to limit the foundation to owning no more than 2 percent of Wal-Mart Stores Inc. The foundation can accept more, but must divest the excess within five years.
Walton Enterprises owns 40 percent of the company — 1, 680, 506, 739 shares of the 4, 167, 369, 745 Wal-Mart shares outstanding, according to the company’s latest proxy statement, filed in April. Walton Enterprises is made up of Helen Walton and her children Alice Walton, Jim Walton, S. Robson Walton, and the estate of her late son John Walton.
America’s richest family, with stock valued at $ 72, 345, 815, 114 at Friday’s price of $ 43. 05 per share, the Waltons have not publicly discussed estate plans concerning matriarch Helen Walton.
It is widely presumed, however, that she will bequeath her fortune to Walton family charities, and thus won’t pay estate taxes.
“That would make sense,” said Robert Moshman, a New Jersey estate planner who writes a monthly newsletter called “The Estate Analyst.” “ People with wealth of that magnitude have so much money they tend to do magnificent, charitable things. ”
Good estate planning allowed Wal-Mart founder Sam Walton to hand down much of his wealth to his children before he died.
Moshman credited Walton’s foresight in creating the family limited partnership with his children in 1953 and putting the Wal-Mart stock into the partnership, thus dividing the ownership among family members before Wal-Mart stock skyrocketed. Though the family business was worth about $ 25 billion at Sam Walton’s death in 1992, there were no estate taxes, according to Moshman. Because of expected charitable tax deductions, it also seems unlikely that any estate taxes will be due when Helen Walton dies, he said.
THE MERELY RICH PAY It is the kind of scenario that leads some observers to believe that, despite their potentially bigger estate-tax liabilities, the ultra-wealthy actually have less reason to hate the estate tax than those who are merely rich but don’t have a lot of cash to pay the tax.
That’s the view of John Ed Anthony, the businessman at the helm of Anthony Timberlands in Bearden, the largest Arkansas-based company in the timber business, which is rich in land but not necessarily in cash.
Anthony counts 17 south Arkansas timber families that he says have had to sell out to public corporations because of the estate tax. None of them were billionaires, he said. He said Anthony Timberlands, founded in 1907, will join the list when he dies.
“I paid the death tax for my mother, my father, my grandfather and my grandmother, all of which we were able to cover — tens of millions of dollars,” Anthony said.
“But at my death, it’s hopeless.”
Anthony, 67, said that the company has amassed so much of its wealth in land and plants that it will have to either be sold off in anticipation of his death or when he dies.
The Anthonys are not among the 18 families named in the Public Citizen-United for a Fair Economy report. The ones outside Arkansas have well-known names such as Mars and Gallo. Another of the 18, the Koch family, which owns Koch Industries and has significant holdings in Arkansas, declined all comment about the estate tax.
Very wealthy families and their money have played a critical role in getting the broader repeal movement going, said Michael Graetz, a Yale University law professor and co-author of Death by a Thousand Cuts, a book that explores how a tax paid by so few has come so close to repeal.
Graetz said a coterie of very rich families has been involved in organizing and staking the broader repeal movement since it took root eight years ago. But they stay in the background, and their gifts are not always subject to public-disclosure laws. “Exactly how all that money was moving around was not something we had a lot of information on,” Graetz said.
“All of that’s below the tip of the iceberg.”