Sam Zell, an idiosyncratic real estate magnate, is making quite a name for himself these days as the man who is gutting the newspaper chain that owns the Chicago Tribune and Los Angeles Times. But he is about to become notorious as a tax evader — a legal tax evader, anyway — and a symbol of how rich people game the system.
Zell, in addition to being a successful developer and a so-far disastrous newspaper owner, is also the owner of the Chicago Cubs baseball team, which currently has a “For Sale” sign on it. Fortune Magazine editor-at-large Allan Sloan wrote last week that Zell may seek to structure the sale so that he will pay no tax on the profits.
It’s a plausible story because Zell has done it before. His purchase of the Tribune Company in a leveraged buyout was a convoluted deal in which he used company pension funds and an employee stock ownership plan to minimize the tax hit. Then, to pay off some of the debt he incurred from the leveraged buyout, sold one of the Tribune newspapers, Newsday in Long Island, N.Y., to Cablevision Inc. Though Tribune netted $630 million in the sale, Sloan reports that the proceeds are considered by Zell to be a nontaxable distribution from a leveraged partnership.
This kind of dealing, of course, is nothing new; big businesses spend millions annually to structure deals so that they can avoid paying their fair share of taxes. This exploitation of corporate tax loopholes—some legal, some not so legal—costs taxpayers an estimated $150 billion a year, according to Bob McIntyre, director at Citizens for Tax Justice.
That’s the organization that in 2004 found that at least 82 Fortune 500 companies had avoided paying income tax on their profits at least once during the first three years of the Bush administration. Nothing has changed policy-wise to alter that picture, McIntyre says. He adds that this year, while Democratic presidential candidate Sen. Barack Obama has spoken about corporate tax reform, “McCain talks about cutting the corporate tax rate.”
That raises this question, especially for McCain, who has built his reputation on attacking what he considers wasteful government spending on: What’s your position on the Sam Zell/Chicago Cubs tax dodge? Should he (and many other corporate bigwigs) continue to game the tax code through (at best) convoluted schemes, the tax equivalent of the spending “earmarks” McCain loves to hate? Or should all taxpayers play by a fair set of rules?
Progressives should be able to knock this one right out of Wrigley Field.