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. If they fail to pay the taxes, bailiffs may become involved in the collection process, potentially leading to a forced sale of assets to cover the owed amount. 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 Robert Reich
Published by the New York Times, February 28, 2005

Bowing to intense pressure from neighborhood and labor groups, a real estate developer has just given up plans to include a Wal-Mart store in a mall in Queens, thereby blocking Wal-Mart’s plan to open its first store in New York City. In the eyes of Wal-Mart’s detractors, the Arkansas-based chain embodies the worst kind of economic exploitation: it pays its 1.2 million American workers an average of only $9.68 an hour, doesn’t provide most of them with health insurance, keeps out unions, has a checkered history on labor law and turns main streets into ghost towns by sucking business away from small retailers.

But isn’t Wal-Mart really being punished for our sins? After all, it’s not as if Wal-Mart’s founder, Sam Walton, and his successors created the world’s largest retailer by putting a gun to our heads and forcing us to shop there.

Instead, Wal-Mart has lured customers with low prices. “We expect our suppliers to drive the costs out of the supply chain,” a spokeswoman for Wal-Mart said. “It’s good for us and good for them.”

Wal-Mart may have perfected this technique, but you can find it almost everywhere these days. Corporations are in fierce competition to get and keep customers, so they pass the bulk of their cost cuts through to consumers as lower prices. Products are manufactured in China at a fraction of the cost of making them here, and American consumers get great deals. Back-office work, along with computer programming and data crunching, is “offshored” to India, so our dollars go even further.

Meanwhile, many of us pressure companies to give us even better bargains. I look on the Internet to find the lowest price I can and buy airline tickets, books, merchandise from just about anywhere with a click of a mouse. Don’t you?

The fact is, today’s economy offers us a Faustian bargain: it can give consumers deals largely because it hammers workers and communities.

We can blame big corporations, but we’re mostly making this bargain with ourselves. The easier it is for us to get great deals, the stronger the downward pressure on wages and benefits. Last year, the real wages of hourly workers, who make up about 80 percent of the work force, actually dropped for the first time in more than a decade; hourly workers’ health and pension benefits are in free fall. The easier it is for us to find better professional services, the harder professionals have to hustle to attract and keep clients. The more efficiently we can summon products from anywhere on the globe, the more stress we put on our own communities.

But you and I aren’t just consumers. We’re also workers and citizens. How do we strike the right balance? To claim that people shouldn’t have access to Wal-Mart or to cut-rate airfares or services from India or to Internet shopping, because these somehow reduce their quality of life, is paternalistic tripe. No one is a better judge of what people want than they themselves.

The problem is, the choices we make in the market don’t fully reflect our values as workers or as citizens. I didn’t want our community bookstore in Cambridge, Mass., to close (as it did last fall) yet I still bought lots of books from Amazon.com. In addition, we may not see the larger bargain when our own job or community isn’t directly at stake. I don’t like what’s happening to airline workers, but I still try for the cheapest fare I can get.

The only way for the workers or citizens in us to trump the consumers in us is through laws and regulations that make our purchases a social choice as well as a personal one. A requirement that companies with more than 50 employees offer their workers affordable health insurance, for example, might increase slightly the price of their goods and services. My inner consumer won’t like that very much, but the worker in me thinks it a fair price to pay. Same with an increase in the minimum wage or a change in labor laws making it easier for employees to organize and negotiate better terms.

I wouldn’t go so far as to re-regulate the airline industry or hobble free trade with China and India – that would cost me as a consumer far too much – but I’d like the government to offer wage insurance to ease the pain of sudden losses of pay. And I’d support labor standards that make trade agreements a bit more fair.

These provisions might end up costing me some money, but the citizen in me thinks they are worth the price. You might think differently, but as a nation we aren’t even having this sort of discussion. Instead, our debates about economic change take place between two warring camps: those who want the best consumer deals, and those who want to preserve jobs and communities much as they are. Instead of finding ways to soften the blows, compensate the losers or slow the pace of change – so the consumers in us can enjoy lower prices and better products without wreaking too much damage on us in our role as workers and citizens – we go to battle.

I don’t know if Wal-Mart will ever make it into New York City. I do know that New Yorkers, like most other Americans, want the great deals that can be had in a rapidly globalizing high-tech economy. Yet the prices on sales tags don’t reflect the full prices we have to pay as workers and citizens. A sensible public debate would focus on how to make that total price as low as possible.

Robert B. Reich was the U.S. secretary of labor from 1993 to 1997.

© 2005 New York Times