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Fiscal Cliff Winners and Losers

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It’s nice to have options. Before knowing the fiscal cliff outcome and before taking a trip to North Korea, Google Chairman Eric Schmidt sold 153,000 shares of company stock for $108 million, according to a Wall Street Journal review of securities filings. Starbucks Chairman Howard Schultz exercised two million stock options for $107 million. Robert Kauffman, co-founder of hedge fund Fortress Investment Group, sold $180 million in stock back to the firm partly because of concerns about higher tax rates, saying, “It was more that the current certainty, with rates relatively attractive, was a factor. It’s a material amount of money.” No kidding.

Let’s not forget that Google has kept tons of money offshore to reduce the amount it pays in corporate taxes. Not to mention the special tax treatment hedge funds get on their so-called investment gains, which should be taxed as income.

Most businesses in America are small businesses—they’re not huge like Starbucks. Small business owners don’t have the flexibility to exercise options on stock in their company when tax rates are relatively attractive. They don’t have stock options. Most get taxed at their personal income tax rate. For example, a successful mom-and-pop business pays taxes as individuals or joint filers, not as a corporation. Let’s say after 30 years in business they’re finally making some big money. Thanks to the Obama regime, they’ll be taxed at much higher rates as a reward for their success.

The playing field is stacked against the little guy. He doesn’t have the options these bigger players like the Schmidts, Schultzs, and Kauffmans have. The bigger guys get the options and the carve-outs while the little guy gets ripped apart. Meaningful tax reform that broadens the base and lowers rates would make small businesses more competitive and reward innovation and entrepreneurship in America.

 

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.