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Costco to Pay Out Big Dividend Before Obama Tax Hikes Hit

Posted By Dan Roberts On December 4, 2012 @ 10:30 am In Economics | Comments Disabled

[1]

Vice President Joe Biden with Costco co-founder Jim Sinegal at the Washington, D.C., store. (Photo: AFP/Newscom)

Add Costco co-founder Jim Sinegal to the list of corporate allies of the Obama Administration whose rhetoric and actions contradict one another.

Speaking at the Democratic National Convention back in September, Sinegal stated: [2]

And that’s why I am here tonight supporting President Obama, a President making an economy built to last. See, in order for companies like Costco to invest, grow, hire and flourish, the conditions have to be right. That requires something from all of us.

So when Vice President Joe Biden visited [3] the opening of Costco’s first store in Washington, D.C., on November 29, Costco executives welcomed him with open arms. Who doesn’t want free advertising?

But the recent action of the Costco board of directors—on which Sinegal sits—highlights how Sinegal really feels about President Obama’s tax hikes once the photo-op is finished.

Last Wednesday, the Costco board of directors voted for a special dividend costing $3 billion [4], which will be completely financed through borrowing. The dividend is timed to take advantage of current tax rates, which will almost triple on January 1, 2013, for wealthy investors such as those on the Costco board. As The Wall Street Journal reports [5]:

Dividends are typically paid out of earnings, either current or accumulated.… We think companies can do what they want with their cash, but it’s certainly rare to see a public corporation weaken its balance sheet not for investment in the future but to make a one-time equity payout.

Of course, when it comes down to dollars, Costco does what it must to benefit its shareholders. But the great gulf between Sinegal’s rhetoric and his board’s actions is audacious.

As Matt Yglesias noted [6] Friday in a blog post about Costco:

Jim Sinegal from Costco really went further in most respects to emphasize the idea that higher middle class incomes are more important to his business than the tax rate paid by his executives. It’s a viewpoint you don’t hear that much of in the corporate world but that really does make a lot of sense.

It might have made sense to Yglesias, but it didn’t make sense to Sinegal and his board once real money was involved.

Daniel Roberts is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm [7].


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URL to article: http://blog.heritage.org/2012/12/04/costco-to-pay-out-big-dividend-before-obama-tax-hikes-hit/

URLs in this post:

[1] Image: http://blog.heritage.org/wp-content/uploads/Costco.jpg

[2] stated:: http://www.politico.com/news/stories/0912/80834.html

[3] visited: http://www.washingtonpost.com/politics/joe-biden-shops-at-costco/2012/11/29/c5b629e8-3a49-11e2-a263-f0ebffed2f15_gallery.html

[4] special dividend costing $3 billion: http://www.reuters.com/article/2012/11/28/us-costco-dividend-idUSBRE8AR0Q220121128

[5] reports: http://online.wsj.com/article/SB10001424127887324705104578149012514177372.html

[6] noted: http://www.slate.com/blogs/moneybox/2012/11/30/business_case_for_higher_middle_class_living_standards.html

[7] http://www.heritage.org/about/departments/ylp.cfm: http://www.heritage.org/about/departments/ylp.cfm

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