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.

A second Times expert is "Scott Klinger, tax policy director of the group Business for Shared Prosperity." Mr. Klinger gets the last word in the article with the admonition, "the tax code shouldn't allow the wealthy the kind of loopholes that let them, essentially, force other taxpayers to underwrite donations to their pet causes." The Times doesn't point out that Business for Shared Prosperity is itself a non-profit organized under sections 501(c)(3) and 501(c)(4) of the tax code. Pet causes and loopholes, indeed.

If the Times wants to start campaigning for tax reform that would simplify the tax code, I'd be first in line, maybe second behind Ronald Lauder. But what this story seems to be about is not that, but rather an effort to single out Mr. Lauder alone, out of all the high-net-worth individuals in the entire country, for negative scrutiny. He doesn't deserve it any more than the family that owns the New York Times does.

Ira Stoll is editor of FutureOfCapitalism.com and author of Samuel Adams: A Life.