January 07, 2002
From the desk of Jane Galt:Busybodies Anonymous Ralph Nader is
Busybodies Anonymous
Ralph Nader is suing Microsoft for not paying dividends (WSJ.COM subscription required). Because capital gains are tax favored over dividends, rapidly growing companies like Microsoft often choose to let the cash accumulate inside the company's coffers instead of distributing it to shareholders, which would force them to a) pay taxes immediately (bad because as any economist will tell you, except in the case of deflation a dollar today is worth more than a dollar tomorrow) b) pay taxes at a higher rate. Ralph Nader doesn't like this:"It's a tax-avoidance scheme for the big shareholders," Mr. Nader said in an interview. He added: "This thing is out of control. Has any company in history ever accumulated so much cash?"
He has seized on an obscure law designed to punish companies who accumulate "excess earnings" in lieu of paying dividends, and is suing, although as far as I can tell he hasn't any standing to do so.
Where to start? With the personal hatred of Ralph Nader I nurtured after a 4-month stint working for PIRG, one of Nader's organizations, perhaps. The organization I worked for was one of the many -- Greenpeace, Sierra Club, Public Citizen, Clean Water Action, Citizen Action, etc. -- that send hordes of ignorant and untrained college students onto the streets each summer to "canvass" (solicit money) for the organization. A partial list of the dubious practices these groups embrace includes:
-- Lying to the people who give money about where the money will go (over half will go to pay the canvasser; the rest to pay the field managers, directors, and associated people who put the canvassers in the field, plus a big office in Washington with a lot of lobbyists. Any research they tell you they do is of the variety done by eighth graders for science reports -- culling of secondary sources, plus some simple and usually pointless arithmetic. They do NOT perform double-blind studies, regression analysis, or any other scientifically standard research.)
-- Calling the canvassers "volunteers" despite the fact that they are paid more than half of any money they get from you
-- Bizarre financial schemes designed to trick their employees into forfeiting part of their pay
-- Relentless discussions on how best to fleece potential members that would make a direct marketer blush
-- Total disinterest in teaching those college students ANYTHING about the project for which they are demanding money.
(Side note: GIVE THOSE CANVASSERS WATER. I passed out one hot day when my turf was deserted and the few people I talked to refused me not only money, but water. So offer them a paper cup, or a drink out of the hose. But don't give them any money -- any money you give them goes straight into their pockets, or the pockets of their bosses. This is -- as far as I have been able to ascertain -- true of every group that sends people door-to-door, and certainly of the big names like Greenpeace and Sierra club.)
These organizations pass themselves off as grassroots volunteer organizations doing valuable research, when in fact they are massive fundraising machines, with the sole purpose of the funds being to perpetuate the organization so that it can come back and ask for more money. All of these practices Nader is assuredly aware of, since they are standard at every group he has founded. Nader's suing Microsoft for avoiding taxes?
Let's go to the tape. "Tax avoidance" is legal -- it's tax evasion that's against the law. Avoidance is what you did last year when you closed on your house sale two weeks early so you could take the deduction in FY1999, or delayed a bonus payment to take advantage of the new lower tax brackets. And I'm sure that Nader knew this, and chose his words carefully -- it conveys to the uneducated that Microsoft is doing something illegal, but it is not libelous, because every corporation (and almost everyone else) avoids taxes. Yet if Ralph really though that they were doing something illegal, why didn't he call it evasion?
Because it's not illegal, and Nader knows it. "Paul Sax, a partner with the law firm Orrick, Herrington & Sutcliffe in San Francisco, said the tax is levied very rarely, usually against closely held companies that obviously have tried to avoid shareholder payouts by over-reimbursing employees for expenses or making lavish purchases, such as buying yachts. He said it was 'almost inconceivable" that Microsoft could face the tax.' " In other words, the law is designed to go after companies with a few owners who help those owners to avoid taxes by purchasing them lavish lifestyles with company funds instead of paying them income, on which they would have to pay taxes. The law is not designed to go after firms that are simply accumulating cash.
Yes, it benefits the shareholders. But companies are supposed to do things that benefit the shareholders -- and if they didn't, the shareholders would sue. Moreover, all that nonsense about "big shareholders" is just nonsense. Most of Microsoft's shareholders, big and small, are probably at LEAST in the 20% bracket -- the income point at which long term capital gains are a better deal, tax-wise, than dividend income. Finally, who cares whether or not other companies have accumulated this much cash? Most companies in history haven't created this much value, either. There isn't some historical baseline of cash accumulation on which the tax law is based.
If Nader consulted a tax lawyer before he initiated the suit, he knew this. If he didn't, he's an idiot -- or playing idiot so that he can look bewildered and hurt when he gets his ass handed to him in court. Because this isn't about winning -- it's about getting more famous tilting at windmills. The ignorant will applaud as Ralph Nader Quixote will paint himself as a good guy hamstrung by the system -- rather than the unethical, power-hungry opportunist that he is. (I give you that he lives a fairly modest lifestyle -- but I think that what Nader craves is not money, but power, fame, and adulation, all of which he gets in spades. Personally, I prefer nice clean money to that trio.) Meanwhile, shareholders suffer as the lawsuit causes a decline in the value of their stock, Microsoft pays some outrageous sum to defend this, and we tie up a civil court with a frivolous lawsuit. I think this would be an excellent place for Professor Reynolds' loser pays system -- especially if we could rig it to take away Nader's fame, power, and adulation instead of his money.
Posted by Jane Galt at January 7, 2002 10:12 AM | TrackBack | Technorati inbound links