The New York Times' Hypocrisy on Tax Loopholes

The paper goes after Ronald S. Lauder for the sins of the Sulzbergers

For sheer nasty hypocrisy masquerading as journalism, it’s hard to come up with as foul an example as the 3,000-word attack on Ronald S. Lauder that ran Sunday on the front-page of the New York Times.

Well, maybe The New Yorker’s August 2010 hit piece on Charles and David Koch is a competitor. But it’s a close call.

Mr. Lauder was American ambassador to Austria in the Reagan administration, in which he also served as a deputy assistant secretary of defense. He’s been politically active as chairman of New Yorkers for Term Limits, which twice passed term limits ballot initiatives in New York City, and as a candidate for mayor of New York in 1989. He’s a businessman, serving as chairman of Central European Media Enterprises.

His two main interests as a philanthropist are art and Jewish life. He is president of the Neue Galerie in New York, a museum of German and Austrian art that he founded, and he is a trustee of the Museum of Modern Art. He is chairman of the Jewish National Fund and of the World Jewish Congress. (In the late 1990s, I was a guest of the Ronald S. Lauder Foundation on a trip to Berlin, Vienna, and Warsaw to visit Jewish schools founded by and funded by the foundation.)

And, as of Sunday, according to the Times, Mr. Lauder is the poster boy for “how the wealthy take advantage of the system” through what the Times calls, disapprovingly, “tax avoidance techniques.”

The game the Times and its reporter, David Kocieniewski, are up to is clear at the start of the article, with this false dichotomy: “A handful of billionaires like Warren E. Buffett and Bill Gates have joined Democrats in calling for an elimination of the breaks, saying that the current system adds to the budget deficit, contributes to the widening income gap between the richest and the rest of society, and shifts the tax burden onto small businesses and the middle class. Republicans have resisted, saying the tax increases on the wealthy would harm the economy and cost jobs.

This is just flat out-false, in at least three ways. First, Warren Buffett and Bill Gates have not called for eliminating the charitable tax break. In fact, they are using the tax break to avoid paying taxes on tens of billions of dollars more than Ronald Lauder has through his charitable activities, which, while vast, are themselves dwarfed by the assets of the Bill and Melinda Gates Foundation, funded by Mr. Gates and Mr. Buffett. Second, if anyone has been calling for the elimination or reduction of special tax breaks in favor of a flatter, simpler system, it’s not been Democrats, but Republicans like Rick Perry, Steve Forbes, and Herman Cain. And third, eliminating the special breaks doesn’t necessary require “tax increases on the wealthy” — one could have revenue-neutral tax reform that lowers rates for everyone while broadening the base.

What’s really galling, though, is that in nearly every instance, the “tax avoidance techniques” and other supposed sins for which the Times mauls Mr. Lauder are also engaged in by the family that owns the New York Times.

The Times complains of Mr. Lauder that, “His vast holdings … are organized in a labyrinth of trusts, limited liability corporations and holding companies, some of which his lawyers acknowledge are intended for tax purposes.”

A recent proxy statement from the New York Times Company explained that in its own case: “In February 1990, on the death of Adolph S. Ochs's daughter, Iphigene Ochs Sulzberger ("Mrs. Sulzberger"), control passed to her four children through the automatic termination of a trust established by Mr. Ochs. That trust held 83.7% of the Class B stock of the Company, which is not publicly traded and the holders of which have the right to elect approximately 70% of the Board of Directors. Mrs. Sulzberger's four children are: Marian S. Heiskell, Ruth S. Holmberg, Judith P. Sulzberger and Arthur Ochs Sulzberger (the "grantors"). In 1997, the grantors executed an indenture (the "Trust Indenture") creating a trust (the "1997 Trust") for the benefit of each of the grantors and his or her family. The grantors transferred to the 1997 Trust all shares of Class B stock previously held by the trust established by Adolph S. Ochs, together with a number of shares of Class A stock. The 1997 Trust currently holds 738,810 shares of Class B stock and 1,400,000 shares of Class A stock….The 1997 Trust will continue in existence until the expiration of 21 years after the death of the last remaining survivor of all descendants of Mrs. Sulzberger living on December 14, 2000.” The Times family has trusts, too, just like Ronald Lauder! It also has a limited liability company — Marujupu LLC, named for Marian, Ruth, Judith, and “Punch” Sulzberger.

The Times goes so far as to calculate that “after Estée Lauder died in 2004, she passed down nearly $4 billion to her heirs, according to tax experts who studied the case and estimated that the estate was taxed at an effective rate of 16 percent—about a third of the top estate tax rate at the time.” There’s no calculation offered by the Times of what the tax rate on Iphigene Ochs Sulzberger’s estate was.

The Times complains that Lauder’s television company “maintains an official headquarters in the tax haven of Bermuda, where it does not operate any stations.” The Times doesn’t mention that Mount Sinai Hospital in New York, of which longtime Times publisher Arthur Ochs Sulzberger was a longtime trustee, gets its insurance through captive insurance companies part-owned by the hospital that were incorporated in Bermuda and the Barbados (where Mount Sinai does not operate any hospitals) in 1982 and 1986.

The Times complains about Mr. Lauder’s charitable giving. But it makes no mention of the Sulzberger Foundation, Inc., a tax-exempt private foundation headquartered at the same address as the New York Times Company. The foundation’s latest tax return shows it with assets of $35 million and reports that it paid Marujupu LLC a $440,387 “management fee.”

The Times complains: “there is no limit on the amount of property taxes that can be deducted from federal income. So Mr. Lauder is entitled to deduct the $400,000 he pays annually on his Palm Beach mansion as well as what he pays on his home on Park Avenue and his holdings in the Hamptons.” Only the Times can turn a $400,000 annual property tax bill in Palm Beach into a “tax avoidance technique.”

The Times pins its complaints about Mr. Lauder partly on people it describes approvingly as “tax policy experts.” “Expert” is journalist code for someone about to be quoted who agrees with the reporter and the editor. One of them is “Victor Fleischer, a law professor at the University of Colorado.” The University of Colorado is a state institution that doesn’t pay income tax at all at the corporate level, so however much Mr. Lauder and his entities are avoiding taxes, they’re almost certainly paying more than the University of Colorado.

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  • ||

    Warren Buffett's a bit of a hypocrite too, as he's suing the IRS because it has deemed his Netjets fractional ownership business to be a loophole avoiding passenger taxes. Key facts about his timeshare jets include:

    Owners then have guaranteed access (50-400 hours annually, depending on share size) to that aircraft with as little as four hours’ notice. If the owner's aircraft is unavailable for some reason, another aircraft of the same type, or a larger aircraft, will be provided.

    The IRS has decided that this means that Buffett's timeshare owners are really like commercial passengers, and wants them to pay the ticket tax. His company is balking.

  • Mike M.||

    Yep. Buffett is as full of shit as every other liberal who loves to pretend that he wants to pay more in taxes. He wants everyone else to have to pay more, which is a huge difference.

  • Amakudari||

    The worst is his position on the estate tax. The estate tax is one where the costs of collection and avoidance are so high that it's a net drain on the economy, however "just" you think it is. Some people just like it for the punitive aspect.

    But the reason it's a net drain is because time and money that could have been spent productively are instead spent working with financial institutions on esoteric details, in particular with insurers. Like Berkshire's.

  • Barely Suppressed Rage||

    There is no sin, no dishonor, no unethical or immoral behavior, in avoiding taxes. Many fail to distinguish tax avoidance from tax evasion.

    And the word "loophole" is just so terribly overused.

  • Libertarian bullshit detector||

    Question:

    Is there is sin, dishonor, unethical, and/or immoral behavior in evading taxes?

  • ||

    Frankly, I elevate tax cheats to Hero Status.

  • Vake||

    Wesley Snipes is a hero in my book.

  • tarran||

    No, there is no dishonor in evading the grasping hand of a protection racket.

  • Major Johnson||

    Only when you insist that only you be allowed to evade taxes and everyone else be denied the evasion technique you use.

    Example, I should get a home mortgage deduction, but that guy shouldn't because he's rich/black/jewish

    Liberals would agree about black/jewish, but for some reason they think once you have $X you should be treated differently by the government. The concept that government makes people equal by treating everyone differently is a bit of an oddity of the liberal mindset, kind of like giving power to the people by consolidating all power in 535 people in DC, their end goal is admirable, their route to it makes no sense.

  • Barely Suppressed Rage||

    A home mortgage deduction is not tax evasion, period. Nor is it a loophole. It simply is a feature inherent in the tax code. It is a deduction Congress decided to allow.

  • ||

    Indeed. Many of the "loopholes" were intentionally created by Congress to reward certain constituencies or even voters in general. The mortgage interest deduction is one of those.

    The sheer complexity of the tax code makes it inevitable that tax professionals will be able to find ways to reduce the tax burden on an individual or business. Some of that is unintended, but plenty of it isn't.

  • Major Johnson||

    The home mortgage item was merely an example, it wasn't the point in and of itself. The point was that some insist they get something while insisting others aren't allowed it based solely on the size of their wallet, yet these same people would never say those deductions shouldn't be allowed to people of a certain race, creed, religion, height or dick size. These people want measures imposed on others which they would consider draconian if applied to themselves based solely on wealth.

  • Liberal Bullshit Detector||

    Question:

    Is there is sin, dishonor, unethical, and/or immoral behavior not paying 100% of your earnings and wealth in taxes?

  • Aimeng||

    Fashion Silver Jewelry Online

    http://www.aimengsilver.com/

  • ||

    Since you need it spelled out for you;
    N-O.

  • ||

    Yup. People tend to use "loophole" to describe what is really more like "part of the tax code I don't like." There are plenty of stupid things in the tax code. Using them to your advantage to the extent possible given your circumstances is hardly a "loophole."

  • Loophole defined||

    A loophole is an ambiguity in a system, such as a law or security, which can be used to circumvent or otherwise avoid the intent, implied or explicitly stated, of the system.

  • Liberal Bullshit Detector||

    "A loophole is an ambiguity in a system,..."
    AKA part of the tax code. Got it.

  • Ted S.||

    The word is avoision.

  • tarran||

    Should people who call the police when victimized by criminals be precluded from criticizing other people who call the police inappropriately?

    This article strikes me as a variant of the ROADS! argument.

    Rather than arguing that other people do it too, why not argue that it's Mr Lauder's right to pay as little in protection money as he can get away with and tell Mr David Kocieniewski that if it bothers him so much, he's welcome to slash his envious wrists.

  • ||

    This article is a big long Tu Quoque fallacy. I guess an article about why avoiding taxes is morally acceptable would not be as exciting though.

  • ||

    Or for a refreshing change of pace he could quit working for someone who does the very thing he is advocating against. Nevermind that anyone who works the tax code to their advantage is just being smart.

  • Major Johnson||

    Well he's arguing against someone else being able to get a paycheck, his paycheck he wants.

  • ||

    NOW THATS A QUESTION WORTH ASKING YOURSELF.....WHAT FAMILY CONTROLS THE NEW YORK TIMES???? PROB THE SAME FAMILY THAT CONTROLS THE IMF TRILATERAL COMMISSION

  • Ska||

    CAPS LOCK, MOTHERFUCKER; DO YOU PRESS IT?

  • Almanian||

    THAT'S A QUESTION WORTH ASKING YERSELF ALRIGHT

  • brad||

    WHAT?

  • wareagle||

    For sheer nasty hypocrisy masquerading as journalism,
    ---------------------------
    and couldn't the same opening line be used when detailing virtually any piece from teh NYT...

  • ||

    Thank you for taking down the Times' egregious "reporting." I try to avoid reading that quondam newspaper -- now not good enough to line a litter box -- but I did read the Lauder piece because of my admiration for him, the work he's done and the causes he supports.

    I was outraged, of course, and congratulate you for responding as brilliantly as you did, Mr. Stoll.

    The vast world of slanted journalism would have a much easier time without you, which is why your admirers fervently applaud you when you go after the dishonesty and evil that permeates The New York Times daily and on Sundays, and 24/7 online.

    Kudos, plaudits. and many thanks.

  • Anacreon||

    Thanks for using the underutilized "quondam". We wordsmiths nod in approval.

  • adam||

    What I hate most about these "loophole" stories is that they act as if Congress can just pass a law that gets rid of the "loopholes." But most of the "loopholes," including all of the ones they describe in the article, are there due to the incredibly complicated job of defining taxable income (what is it, when is received, when is taxable, etc.). They can rewrite the rules to redefine taxable income to eliminate existing "loopholes," but that will inevitably create new ones. And as long as you are trying to get tens of millions of dollars out of someone, they are going to spend $800 an hour for the best tax lawyers and accountants to find those loopholes.

  • first||

    Caprice made a sensational start to her nude modelling career when she dived straight into the hard core scene. The movies she made were the talk of the adult entertainment industry. Insiders and customers raved over them.

    Now she sees her career taking a different direction. “Those were crazy times” she tells us. “A lot of those films I did then weren’t right for me. Now I have moved on”. She sees a new role for herself pushing the boundaries of erotic nude modelling. Her natural charm and her winning personality make her ideal for that.

    It was amazing looks and a luscious body that made her famous, even notorious. Now Hegre-Art are revealing that there’s even more. There is the hidden Caprice.

  • Almanian||

    Yeah. Whatever happened the the Caprice Classic? I think the loss of that nameplate really began the final slip of GM toward bankruptcy.

  • ||

    The SUV craze of the 90s killed it. No one wanted a hulking sedan when they could have a hulking SUV.

  • ||

    If I remember correctly, it was a little more complicated. Basically, SUVs where classified as trucks so were subject to lower mileage standards than hulking sedans. Customers didn't choose big SUVs over big cars. They just chose big SUVs over small high mileage cars.

  • Xmas||

    The line between cars and trucks got all fuzzy too. PT Cruisers were "trucks" because then had X many square inches of flat floor space (don't have the number off the top of my head) and certain other "truck" design components.

  • Radioactive||

    dont you just love fuzzy lines?

  • Barely Suppressed Rage||

    My first car - a beat-to-shit 1977 Caprice Classic. 305 V8, rear-wheel drive - under the right conditions, you could lay a strip of thick, black rubber for a hundred yards. The speedometer topped out at 85 mph, but I buried the needle way past that several times. I would guesstimate 100, 105 mph - at which point, the front end got a bit floaty. Not surprising, given its 1960's suspension technology and brick-like aerodynamics.

  • Mr. Mark||

    Newspapers?

    Who reads newspapers?

    Was this on that PBS show with the antiques?

  • Dan||

    A handful of billionaires like Warren E. Buffett and Bill Gates have joined Democrats in calling for an elimination of the breaks

    The most annoying thing about that phrase is something that wasn't even mentioned in the article: Gates and Buffet ARE Democrats!

  • Sevo||

    "The most annoying thing about that phrase is something that wasn't even mentioned in the article: Gates and Buffet ARE Democrats!"

    Agreed about the phrase, but not the bullshit.
    The most annoying part is that neither one (nor most of the others I've read about) would pay a dime more.
    Most of them have middle-class "income" as defined by the tax code; they are living on their accumulated wealth and 'perks' (such as Buffett's flying around on Net Jets for 'free' since it takes none of his 'income' to buy a ticket).
    To be clear, I DO NOT begrudge them their wealth or the use of it. I damn well DO resent their hypocrisy.

  • MJ||

    For an editorial board which officially believes that corporations have no 1st amendment rights, except for corporations like their employer which publish newspapers. This latest hypocrisy seems to be business as usual.

  • Vake||

    The New York Times has devolved into a full-time Democratic political operation, masquerading as a mainstream, centrist newspaper.

  • Gem Jewelry||

    It was amazing looks and a luscious body that made her famous, even notorious. Now Hegre-Art are revealing that there’s even more. There is the hidden Caprice.

  • ||

    So how come whenever I see an article about the sins of the 1% it is always about some billionaire. Doesn't the 1% start at like $350K. These guys must be about 0.00001% Are there even a 1000 billionaires in the USA? I don't really know.

  • Xmas||

    Steve,

    Oh...I just saw a nice blog post on that, I can't remember where I saw it though. It had a bit on people using the term: "millionaires and billionaires" like how can you link two groups of people, one that makes 1000 times more than the other, together. And also, most of the low-end "millionaire" asset holders or income earners are small business owners that have one large asset (like a moderate sized farm) or a business with lots of cash flow, but low margins.

  • wef||

    When can one assert that the power-worshipping lewinskies at the Times are acting in bad faith? If so, then shun them. Responding to servile toadies is worse than a waste of time.

    And in any case, why pay any attention to what the rag says. (Except maybe if this Reason article is part of a sophisticated game of the chattering classes, which I am too much of a rube to understand.)

  • Learned Hand||

    Over and over again courts have said that there is nothing sinister in so arranging one's affairs so as to make taxes as low as possible. Everybody does so, rich or poor, and do right, for nobody owes any public duty to pay more taxes than the law demands. Taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

  • ||

    Some years back, when I foolishly subscribed to the NYT, I read an editorial on their op-ed page railing against "corporate tax breaks".

    When I turned to the Business section, there was a sidebar article reporting that the NYT had obtained a $29 million tax break from the city to encourage them to build their new headquarters.

    IIRC, same newspaper, same day.

    Man, these guys are hypocrites!!

  • oil lubricator||

    This is great! It really shows me where to expand my blog. I think that sometime in the future I might try to write a book to go along with my blog, but we will see.Good post with useful tips and ideas.

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