Walton family uses chain’s profits to shift tax burden onto customers
By Jim Hopkins
Published by USA Today, April 5, 2005
Wal-Mart Inc. drew broad scrutiny last year as its political spending soared in nationwide battles over health care, labor and other hot-button issues threatening the giant retailer’s growth.
Now, in a little-noticed move, the company’s founding family has plunged into a fight to pass income tax changes and other legislation that could preserve its grip on the USA’s biggest business and the family’s $84 billion fortune.
Led by Sam Walton’s only daughter, Alice, the family spent $3.2 million on lobbying, conservative causes and candidates for last year’s federal elections. That’s more than double what it spent in the previous two elections combined, public documents show.
The Waltons have joined a coterie of wealthy families trying to save fortunes through permanent repeal of the estate tax, government watchdogs say. The election of President Bush and more conservatives to Congress gave momentum to the long-fought effort. The Waltons add more.
“To see the wealthiest family in America weighing in is scary,” says Chuck Collins, co-founder of Responsible Wealth, a non-profit group that tracks the super-rich. (See “Some of wealthiest say go ahead, tax us.”)
Aubrey Rothrock III, a Washington lobbyist hired by the family, says the Waltons are mostly interested in bills to increase charitable giving through their family foundation. “The estate tax repeal initiative has never been the focus of our advocacy efforts,” he says.
The Waltons declined to discuss their political activities. But a USA Today review of public documents reveals a small-town Arkansas family emerging as a political juggernaut on tax issues, extending Wal-Mart’s influence over U.S. society even more.
The Walton support for Bush and other fiscal conservatives assumed new urgency last month when Wal-Mart sweetened its dividend – boosting Walton dividend income above $1 billion a year. Bush’s dividend tax cut, enacted two years ago and set to expire in 2009, will save the family as much as $51 million this year.
The growing Walton political prowess is a departure from patriarch “Mr. Sam,” who disliked politics. Moreover, their largesse isn’t limited to the national stage. In 2002-2004, the family gave $879,000 to state campaigns from California to Florida, says the Institute on Money in State Politics. The biggest gift, $250,000, went to the Republican Party of Florida, whose titular head is Bush’s brother, Gov. Jeb Bush.
Yet it is in the bitter fight over federal estate taxes that the family and Wal-Mart have the most at stake. The tax, now collected on estates worth more than $1.5 million, could force the Waltons to sell a chunk of Wal-Mart to pay billions in taxes when family members die. The top tax rate this year is 47%.
Sam Walton’s widow, Helen, inherited his shares after his 1992 death; she now owns about 8% of the company. She is 85 and has not fully recovered from an automobile accident five years ago.
Overall, Helen, daughter, Alice, and sons Jim, John and Rob, own nearly 40% of Wal-Mart. The children got their shares when the company started, allowing the family to defer billions in estate taxes at Walton’s death.
Chairman Rob and John hold two of 13 board seats. Yet, the family’s huge stock position effectively means they control the company started in 1962, says Ric Marshall, chief analyst at the Corporate Library, a corporate governance researcher.
A big stock sale could loosen Walton control over Wal-Mart and its 1.3 million U.S. workers. “They’re going to do everything they can to hold onto shares of Wal-Mart,” Marshall says.
Estate tax tick-tock
The clock is ticking louder in the estate tax battle, with attention focused on Jan. 1, 2011, when the tax reverts to higher levels in place before Bush won approval of a gradual reduction, culminating in its repeal entirely for 2010.
The Waltons and a coalition including the influential National Federation of Independent Business support Bush’s push for the tax’s permanent repeal, government watchdogs say.
“They want to make sure the White House continues to make this one of the bedrock issues,” says Larry Noble, head of the Center for Responsive Politics, a non-partisan group tracking campaign spending.
The Waltons’ political rise began in 1999, when their Walton Enterprises partnership hired one of Washington’s top lobbyist-law firms, Patton Boggs, to represent it before Congress and government agencies. Through last year, it has paid the firm $1 million, public documents show. Walton Enterprises controls the family’s Wal-Mart stock plus interests in newspapers and other businesses. Patton Boggs, which has ties to the Bush administration, has led efforts seeking permanent repeal of the estate tax. The firm also is one of Wal-Mart’s six lobbying firms.
Patton Boggs first advanced the Waltons’ support for capital gains, estate and other tax reform, public documents show. Since 2002, the firm has pushed bills favored by the Walton Family Foundation and other private foundations. The foundation has become a major vehicle financing public education reform through controversial charter schools and private-school vouchers.
The Waltons have said they plan to give Helen Walton’s Wal-Mart stock to the foundation at some point, perhaps after her death. That would likely eliminate any federal estate taxes due on her approximately 8% stake.
But that wouldn’t guarantee the Waltons could avoid a forced sale of Wal-Mart stock. That’s because of a federal law covering investors with big holdings in a single company. In the Waltons’ case, the law limits the amount of stock its private foundation can own to a maximum 2% of all shares in Wal-Mart. The law says excess holdings must be sold within five years.
The Waltons have supported bills in Congress that would raise the threshold to 5% and double the time allowed to dispose of excess shares. Similar bills are expected to be re-introduced in Congress this year after failing to win final passage in the last session, congressional aides say.
“We will review such proposals carefully,” says Rothrock, the Patton Boggs lobbyist for the Waltons.
Alice Walton a political force
The family made its single biggest political bet last August and October when Alice Walton poured a combined $2.6 million into Progress for America. The group gave a big promotional boost to Bush in the election’s final weeks.
It is one of the so-called 527 committees that rocked the presidential race. One of the best-known was Swift Vets and POWs for Truth, which dogged Democratic nominee John Kerry.
Walton’s was Progress for America’s sixth-biggest gift, putting her ahead of top Bush fundraiser Carl Lindner of Cincinnati, says the Center for Responsive Politics. Her gift makes her “a political force to be reckoned with,” says the center’s Noble.
Walton, 55, is a former stockbroker who mostly lives on her Rocking W horse ranch west of Fort Worth. With a $17 billion fortune, she is the world’s wealthiest woman. That puts her in a salon of well-heeled women increasingly courted by Republicans and Democrats, says Barbara Kasoff, co-founder of Women Impacting Public Policy.
Progress for America has become a big booster of Bush’s drive for tax reform and private Social Security accounts. The group did not return calls seeking comment.
Noble says the Bush administration monitors gifts to groups such as Progress for America, so the Walton donation puts the family on the White House speed dial. “When you play at that level, you get your phone calls returned,” he says.
The family’s political giving also extends to the White House and to Congress. The Waltons contributed about $1 million to Bush and to congressional candidates from 1999 to 2004.
Their favored candidates included Republicans John Thune of South Dakota and David Vitter of Louisiana, both elected to the Senate for the first time last year. Both oppose the estate tax, so their election increases chances for its permanent repeal under bills introduced this year in the Senate and House, says the National Federation of Independent Business.
“We think we’re closer than we’ve ever been,” says lobbyist Dena Battle at NFIB, the business trade group that’s tried for years to kill the tax.
Still, even with the election of more fiscal conservatives, permanent repeal isn’t guaranteed. The House passed legislation in 2003. But the Senate has been a tougher sell. Battle says a bill passed 54-44, with two Republicans absent, when it last came up, in 2002; 60 votes are needed.
Lawmakers have grown more worried about mounting budget deficits that could be worsened with more tax cuts, says Stuart Rothenberg, editor of the non-partisan Rothenberg Political Report .
“I think they’ll still push for that,” Rothenberg said of cuts. “But along the way, something is going to get squeezed.”
© 2005 USA Today