“The problem is a 1969 tax law that bars foundations from owning more than a small stake in private businesses.”
So this isn’t exactly news, and it certainly wasn’t news when Newman’s lawyers wrote his will. As much as I want to sympathize and scream “those Republican bastards!”, I kinda think this is a problem of Newman’s (be it the man, the company, or the foundation) own doing.
That may be so, but don't we want a company like newman's own to exist and do good in the world? Maybe they shouldn't exist under the current tax regime, but it's not the company that's in the wrong but rather the system that it operates under.
Please explain, if you would, why you think a charity should be able to own majority positions in for profit operating businesses and shield the profits from that private business behind a charity-based tax approach.
That can enable, among other things, vast abuses by companies that set up charities just to act as a front for private businesses to shield profits from high tax brackets. The charity still has to distribute a certain modest percentage of their assets per year, and that pales in comparison to paying 30% or more in taxes.
So you set up Burger Charity (or call it McDonald's Charity), which owns BurgerStand USA (operating restaurants). BurgerStand generates profit and kicks it back to Burger Charity almost entirely tax free. Burger Charity uses the tax free proceeds to accumulate vast amounts of real estate, which it then leases to BurgerStand (at an artificially cheap rate made possible by the low tax structure, providing a competitive advantage) for restaurant locations. Then they can do the same for equipment in the restaurants as well (Burger Charity owns the equipment and leases it to BurgerStand at an artificially low rate). Perhaps you set up Burger Equipment Corp that you own, and Burger Land Holdings Corp that you own, they all work with BurgerStand USA (the profits of which all kick back to Burger Charity mostly tax free). Cycle and repeat for an astounding tax avoidance scheme that provides a blatantly unfair advantage to an entity willing to abuse the charity approach.
You're entirely missing the point. The point is that our tax laws should be written in a way to enable an entity like Newman's Own to operate without enabling the many abuses you describe.
> The point is that our tax laws should be written in a way to enable an entity like Newman's Own to operate without enabling the many abuses you describe.
People have this naive view that tax law is insanely complex and full of loopholes for fun and/or profit. It isn't. It's largely because well intentioned people tried to do a "right thing" for some specific circumstance and unintended consequences made the outcomes wrong. So you plug two holes when there's an outcry but 2 months later some other politician has a great idea and accidentally makes three new ones.
our tax laws should be written in the simplest form possible with the least amount of exceptions so that people or corporations don't violate rules by what at times appears to be random chance nor be so complicated that spending millions looking for a specific set of rules is a viable pursuit.
personally outside of individual and religious groups I don't see why others should be excused from taxation for being charitable. businesses get name recognition for their activities and it should be part of being a good corporate entity instead of a payoff
Meaningless. Taxes are a complex system with no foundation other than "collect the most feathers with the least squawking". There's no moral basis to who pays how much.
So if a for-profit mercenary firm finds it most profitable to violate international law, sell heroin, and torture civilians, you're saying that's a good corporate entity?
Lunacy of Friedmanism aside, most corporations maximize value to shareholders by being pro-social.
In order to be a charity, doesn't the charity have to demonstrate that a large majority of their donations were used for charitable purposes? I don't see how "buying real estate and leasing it" would fall into that.
Foundations are quite funny, actually. They are required every year to distribute a certain percentage of their assets to charities. The percentage is very small - i think it is about 5%.
5% isn't small! A charity is typically funded by the returns from investing some pot of money. The stock market returns on average about 7% a year, and inflation is typically about 2%. 7-2=5. At 5%, the charity is required to spend on average all inflation adjusted money its endowment provides.
It is generally considered that a foundation that distributes more than 7% will lose all their money in just a few years, while foundations that distribute less than that amount will exist "forever". You can calculate the exact amount, based on various market rates of returns.
That said, if you are in the situation of setting up a foundation (unlikely, you have to be rich) you should probably force it to spend down to zero in ~20 years. That way you can the best assurance that the foundation doesn't change focus to something you would oppose.
That's exactly the reason that the vast majority of foundations are frauds used to shield money from taxes by the ultra wealthy: setup a foundation one controls, transfer money into it and have foundation spend 5% on "charities" while extracting value from the foundation by having it provide the lifestyle for those who set them up.
Need cash? Have a foundation lease a copy machine from you for $2000 a month. Want to have a dinner at French Laundry? Have a foundation pay for your meeting with a potential donor, etc etc etc.
And that's exactly the reason why there's a Byrd amendment - it blocks the income arriving at the foundation via foundation owning private companies tax free.
Could you start a company whose bylaws stipulate that a certain percentage of the profits has to go to charity, with no ability to ever change that rule?
If so, you could set up two companies. One is the charity, the other is the for-profit. The for-profit has to give much of their profits away, but they're still allowed to be as capitalistic as they want to be, and the charity doesn't need to own them.
On the other hand, I don't know if such an arrangement could ever be legally binding.
Paying taxes does not equal not exist. Yes, private organizations can provide positive outcomes, but so do taxes so the option to just keep going and pay remains.
I am not a company. As companies pay taxes on their profit after expenses a 40% or 80% tax rate only reduces but does not eliminate their profits. That said, they will probably be significantly better off to sell the company, but it's simply not required.
I kinda posted that hoping someone with a qualified opinion would come along and say, “no, you fscking idiot, you’ve got it all wrong, and here’s why...”. Because I like the products, and the Newman entities at least appear to do good stuff.
Alas, 28 points of upvoting later, no one’s calling me an idiot.
The practice of piggy-backing your little bill on other bills that are likely to pass has been around a long time. Presidents have asked for a line-item veto since at least Reagan, and it was even in the Confederate States constitution.
But yes, there should be a general rule and practice that bills don't address multiple unrelated topics.
Reagan's tax bill got 97 votes in the senate because he asked Democrats what they would allow before he started. Congress didn't start to come apart until Gingrich.
Were you by chance a teenager during the Gingrich years? It seems a common pattern to think the government goes off the rails as one begins to become more aware of politics.
Dysfunctional congress goes back long before that.
“The 88th Congress, before the [Kennedy] assassination, had sat longer than any peacetime Congress in memory while accomplishing practically nothing. It was feebly led, wedded to its own lethargy and impervious to criticism. It could not even pass routine appropriations bills. It was a scandal of drift and inefficiency.”
Certainly the Civil War era was a lower low point, but we have actual data that says Congress is getting worse and the Gingrich era represented a nadir that we can't break out of.
Congress will never be as productive as people expect but also expectations change. It really has gotten worse. To say it's always been broken belies the enormous progress American society has made in the past 100 years. It definitely can work and has worked extremely well on the balance. Just not now.
I didn't see any reference to Gingrich in the article, just that the Congress wasn't passing lots of legislation.
I expect the Washington Post to be much more accepting of a Congress that does little to advance the President's agenda for the next few years than they were in 2014 (but they may remain critical of the process).
The American republic is structured to enable people holding minority opinions to be heard and to restrain the excesses of majority factions.
Sometimes that works in one's favor, sometimes it doesn't.
No, while the country is certainly more divided than ever, you can't say that he played no part in it. His tactics were successful but they were definitionally opposed to cooperation. Calling your opponents antiamerican or unpatriotic or "demonic" to keep a fringe base frothing at the mouth worked for him and later reps in the house who redistricted themselves into safe districts. Now they are completely at the mercy of the extreme voters in those custom districts.
I'm not sure how saying your opponents are frothing at the mouth or calling them a fringe base of extreme voters who hold their reps at their mercy is any more cooperative.
The intent to marginalize the opposition and justify ignoring their concerns remains the same.
Were you by chance a teenager during the Gingrich years?
I was a voting adult in the 90s, and if we restrict the criteria to my lifetime, the Gingrich years can be tagged as when I noticed more divisiveness and “politics as a team sport”. I lay this at the feet of ol’ Newt and (as one example) his “Contract with America”. From a subjective point of view it’s when “we didn’t get our way, so we’ll be obstructionists” started, and the Republican Party appears to have made it a platform since then.
—
Signed,
Former Reagan Republican
The CSA Constitution is kind of the perfect example of the "stopped clock is right twice a day" aphorism. It was intended to create a separatist society in which brutal race-based slavery would be permanently enshrined and protected. And also happened to include line-item veto and a provision forbidding "Christmas-tree" style multi-subject bills.
>But yes, there should be a general rule and practice that bills don't address multiple unrelated topics
You sure about that? We always hear about the 'bad' attachments to bills, but it's a negotiation tool. Many 'good' bills came to life via the same process, bills which never would have seen the light of day otherwise.
> Example: you want to buy 10 apples, and only the price can change. Your win is the vendor's loss, and vice versa.
That doesn't even make sense, if the vendor values what you are paying above owning 10 apples and you value 10 apples over the price the vendor is willing to sell for you both win.
--edit--
That's actually how market prices are determined at the fundamental level.
While the parent's example shows a misunderstanding of economics, it's more accurate in the realm of politics, where positional compromise on a number of issues is impossible. For instance, one can require or not require voter ID, but one cannot require half an ID card. So, in a functional political system, one may trade the undesirable qualities of voter identification for free state IDs, or extended poll hours, or a PSA ad buy regarding registration, or a new bridge. Horse trading allows compromise on issues where a halfway point doesn't exist.
The is a difference between the trade being zero sum, and the negotiation being zero sum. In the apple example, the trade is not zero sum, but the negotiation is. If I negotiate to spend less money for the same amount of apples, then the seller has lost as much as I gained. The caveat being that even in this simplified apple example there are multiple dimensions to negotiate on. I could buy more apples at a lower cost per apple, which may very well be benefit both parties.
The most famous case of foundations being sued for owning businesses is Howard Hughes Medical Institute and Hughes Aircraft, which was then the largest defense contractor in the US: https://en.wikipedia.org/wiki/Hughes_Aircraft_Company
Regardless of the merit/demerits in this case, this is an aspect of tax law that I've always found distasteful - the special little one-offs. Laws should be general and apply equally to all.
The US Constitution forbids bills of attainder. These special loop holes for individuals seem very much like bills of attainder.
A bill of attainder is an act of a legislature declaring a particular person guilty of a crime and prescribing criminal punishment; they aren't the same thing as this, which is (in effect of not in name) a private bill, which are well established as Constitutional.
This is sort of ironic, because isn't this precisely what the president is accused of doing? Sheltering money from taxes in a foundation? Or is it accusations of laundering rather than tax sheltering? I guess I don't quite get the difference, either.
Regardless, both cases show that it's pretty hard to actually get caught doing it.
The major problems with Trump's foundation was that (a) it involved a lot of "self-dealing", where the foundation would pay for services/room rental etc at Trump properties, (b) some money that was outright spent on items for Trump, such as a portrait of him, (c) that he made specific promises regarding the use of funds, but never actually paid much or anything to the announced recipients, and (d) that he overstated the amount of money he had put up himself.
(a) is not a crime by itself, but it raises red flags, and there usually needs to be a really good paper record showing, for example, that other options weren't available, and that only market prices were paid. (b) is basically misappropriation or embezzlement, but depending on the amounts involved, it can be considered a mistake and healed by paying it back. Not sure about (c) and (d)'s legality.
There is absolutely nothing wrong with structure of, for example, the Bill and Melinda Gates foundation, or Soros' Open Society Foundation. Yes, the foundations are not subject to inheritance taxes. But the money is required to be spent on altruistic endeavours. It cannot be clawed back for personal expenses, not by the founders, nor by their descendants.
Here is my source. WSJ is biased in general but their reporting of tax loopholes here is legitimate. Avoids accumulated capital gains tax on all transferred assets. $18B in gross assets.
Transcript at the bottom. Coincidentally, Reich offers anecdote regarding Soros and taxes at about 30 minutes into interview. However, I'm posting this for its general coverage of the topic. (edited to clarify)
"Mozilla Foundation" is not a private foundation, but a 501(c)(3) public charity. That's the difference. Public charities are exempt from the private foundation rules that prohibit excess business holdings.
The senate has the filibuster provision to give the minority party the ability to slow down or block legislation. To overcome a filibuster, 3/5* of the senate have to vote to end it.
At some point, the senate was afraid of gridlock, so there was a special provision made for things that deal with money (not sure if tax only), where things that have a minimal impact on the budget can overcome a filibuster with a simple majority. The parliamentarian is the one who decides if a bill is "minimal impact", which is set at $1.5T at the moment.
Therefore the parliamentarian has decided that changing the non-profit law would cause this tax bill to be more than $1.5T in net change, meaning it can be filibustered.
> The senate has the filibuster provision to give the minority party the ability to slow down or block legislation.
In theory, that's not the purpose; the Senate has a tradition of unlimited debate, to assure proposals are fully vetted before being decided, though, yes, they clearly have that effect.
> To overcome a filibuster, 2/3 of the senate have to vote to end it.
No, to invoke cloture, 3/5 of the Senate have to vote to end debate [0], which is why you hear about a 60 vote bloc being filibuster-proof.
The parliamentarian is someone who is thoroughly familiar with all of the Senate's rules. They ensure that bills that are passed comply with the rules that the Senate operates under.
It seems like it would be best for the foundation to sell Newman's and use the proceeds to create an endowment. They could use investment gains from the endowment over time to find their charitable mission, and it would also be good because their assets wouldn't be so concentrated in the food business, which is hyper competitive and pretty low margin.
Would it be possible for the Newman's brand to continue profitably without the charitable aspect of its messaging? Would customers remain loyal if, say, Kraft bought it? If not then it's not going to sell for very much..
If the problem is a fixed max % ownership rule, why not just create 3 or 4 separate holding companies so each has ownership below threshold - surely there's a reason this isn't the simple solution?
Humorously cut to the heart of the matter? Go to your room! And don't come out until you're ready to admit that US laws aren't just lipstick on raw power.
Is it looked down upon with what Newman's Own does with the charity? They make good products and it is neat that they donate profits (after tax) to charity. Just curious how well it was utilized etc. Quick research shows that it helped some pretty good causes at least on the surface. Does anyone know any more about it?
I have personal experience with "The Hole in the Wall Gang Camp" and have nothing but positive things to say about it. I don't and can't know how efficiently they use their money (I didn't notice any extravagance), but it is an extraordinary experience for the children attending and they (as far as I could see) uniformly love it.
No, it's just not getting attention in the current atmosphere. Newman's Own has held on to their status (in terms of how their structure is treated) by the skin of their teeth over the years, usually getting one exception granted after another (the can being kicked down the road). Republicans haven't made a big show about disliking Newman's Own or what they do, there's no indication they're doing this to specifically hurt them.
What I'm speculating about specifically is whether there is any political issues around the charities or causes that Newman's Own supports. There could be more to the story than just an arbitrary rule enforcement.
It's a plausible inference given the timing and Newman's politics while alive [1], and maybe it does apply to the other charities (I don't know one way or the other), but at least with respect to The Hole in the Wall Gang Camp (for seriously ill children), in my personal experience, it is conspicuously apolitical. So much so that I suspect that the staff is trained to that effect.
So they knew that the law imposed this penalty and then didn't comply? I have to admit, I support confiscatory taxes. We can't depend on wealthy people's charity to operate society.
So this isn’t exactly news, and it certainly wasn’t news when Newman’s lawyers wrote his will. As much as I want to sympathize and scream “those Republican bastards!”, I kinda think this is a problem of Newman’s (be it the man, the company, or the foundation) own doing.