Archives for April 2005

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

By Steven Greenhouse
Published by The New York Times, February 24, 2005

Facing intense opposition, a large real estate developer has dropped its plans to include a Wal-Mart store in a Queens shopping complex, thwarting Wal-Mart’s plan to open its first store in New York City, city officials and real estate executives said yesterday.

The decision by the developer, Vornado Realty Trust, is a blow to Wal-Mart, the world’s largest retailer, and comes after company officials said that New York City was an important new frontier in which Wal-Mart was eager to expand.

A Wal-Mart spokeswoman said the company was still exploring other sites in the city, but the possibility that the company would open a 132,000-square-foot store in Queens had immediately stirred a storm of opposition by neighborhood, labor and environmental groups as well as small businesses. Wal-Mart also faced opposition from many City Council members and several members of Congress.

Labor unions fought Wal-Mart with a special intensity because they believe its wage levels and benefits are pulling down standards for workers through the United States.

Melinda Katz, chairwoman of the Council’s Land Use Committee, said a Vornado representative informed her yesterday that Vornado was no longer negotiating with Wal-Mart for it to be part of the mall planned for Rego Park, Queens, in 2008.

“I think they just decided it’s not worth the complications of having Wal-Mart,” Ms. Katz said. “The idea of Wal-Mart was overshadowing what could very well be a good project.”

Roanne Kulakoff, a Vornado spokeswoman, declined to comment, except to say there was never a formal deal between Vornado and Wal-Mart. But one executive briefed on the talks between Vornado and Wal-Mart said Vornado had concluded that keeping Wal-Mart would jeopardize the city’s approval of a large, ambitious project that included other stores and two 25-story apartment towers.

“There were people who felt it was a major risk for the project,” said the executive, who asked not to be identified in order not to anger either side.

The executive said Vornado had originally hoped that city planning officials would approve the Rego Park project before it before it became publicly known that Wal-Mart was involved. But once Wal-Mart’s participation became public, the opposition mushroomed, and the fight was shaping up to be the biggest battle against a single store in the city’s history.

Small-business advocates declared victory after the decision was made public, but predicted that the battle would resume in other neighborhoods. “Vornado saw the writing on the wall and responded the way a developer needs to when he knows he’s holding a losing hand,” said Richard Lipsky, a spokesman for the Neighborhood Retail Alliance, an anti-Wal-Mart coalition in New York. “We stopped Wal-Mart this time, but they are going to continue their efforts to open in New York and we will be sure to meet that with significant opposition wherever else they try to locate.”

Mia Masten, Wal-Mart’s director of corporate affairs for the Eastern region, sought to play down yesterday’s developments. She noted that Vornado and Wal-Mart had never signed a formal deal to include Wal-Mart in the complex, planned to be built near the intersection of Queens Boulevard and the Long Island Expressway. Nonetheless, city planning officials and City Council members said Vornado had told them that it wanted to include Wal-Mart.

“We never had a deal,” Ms. Masten said, adding that Wal-Mart remains interested in opening stores in New York City. “In fact, we continue to explore a number of possible sites throughout the five boroughs,” she said. “Until we have an executed agreement for a specific site, we will not comment on any ongoing negotiations.”

Ms. Masten declined to say whether Vornado had dropped Wal-Mart from the project or whether Wal-Mart had pulled out voluntarily. Wal-Mart’s opponents said that Vornado might have been swayed in part by a unanimous vote of the City Council’s Land Use Committee two weeks ago to block a B.J.’s Wholesale Club in the Bronx. In the face of intense lobbying by environmental, community and labor groups, the committee overruled the local planning board and the borough president.

Several shoppers interviewed yesterday in Rego Park said they were disappointed that a Wal-Mart would not be coming to the neighborhood, noting that many Queens residents now travel to Long Island to take advantage of the store’s low prices.

“It would’ve been good if we had a Wal-Mart nearby because then we wouldn’t have to travel outside the area,” said Rolando Sands, 21, a soft drink deliverer from Jamaica, Queens. “We’d be able to keep the money in the Queens community instead of Long Island.”

Corinth King, 45, a traffic enforcement agent from Rego Park, said she had been looking forward to the store’s variety. “They have a lot of good sales,” she said. “I like it for things for the bathroom and the kitchen. They have a wide variety. I’m going to miss it.”

But shoppers did not form an organized group to support Wal-Mart.

Helen Sears, the City Council member representing Rego Park, had warned Wal-Mart, which has several stores in the suburbs surrounding the city, that to win approval in the city itself, it needed to improve its wages, health benefits and pensions and end its vehement stance against unions.

“I am hopeful that if Wal-Mart attempts to locate another site, whether in Queens or Brooklyn, the Bronx, Manhattan or Staten Island, that its officials work tirelessly to improve workplace benefits and conditions so that New York City will welcome it with open arms,” Ms. Sears said. “Until then, we can only offer our backs.”

Small-business owners had voiced fears that opening a Wal-Mart in Queens would push hardware stores, shoe stores and many clothing shops out of business, as has been the case in many small towns where Wal-Mart is dominant. Company officials said the store would bring low prices to New Yorkers and would create more than 300 jobs.

City Hall officials declined yesterday to discuss the Wal-Mart matter. Mayor Michael R. Bloomberg appeared at first to back the project, saying that it was wrong to simply say that warehouse-type stores should not be allowed in the city. But his aides later said that it was not at all clear that he would ultimately support the project.

Charles V. Bagli and Colin Moynihan contributed reporting for this article.

© 2005 The New York Times