Here is what he was talking about...
Democrats suddenly are in love with Costco. Mr. Sinegal, founder of the company, spoke at the Democratic National Convention, and current CEO Craig Jelinek has been an ally of the president during the fiscal-cliff debate. On Thursday, Mr. Sinegal and Mr. Jelinek were visited by Joe Biden, who came by to commemorate the opening of the chainâs first Washington, D.C., store. That is a remarkable thing: The country is on the edge of a fiscal crisis, war is burbling in the Middle East, the presidentâs hometown is in the grip of a horrific wave of violent crime â and the vice president of these United States is going to Costco ribbon-cuttings.
Beyond getting the Biden treatment, Mr. Sinegal was the subject of a fawning New York Times profile and now has his very own Internet meme, which features his beaming face above the caption: âCostco CEO pays his employees $17/hr on average, plus benefits, earns less than $500K, refuses Wall Street demands to cut employee salaries and benefits.â Almost none of that is true, of course, but it hasnât stopped the Left from holding up Costco as the ideal progressive alternative to Walmart.
Mr. Sinegal, like many corporate executives, took a relatively small salary, true enough, but received the majority of his multimillion-dollar annual income in equity-based compensation, meaning that he, like Mitt Romney and many a hedge-fund guru, paid 15 percent on most of his money. And while at least one Wall Street analyst has been critical of the firmâs generous compensation for its employees, Wall Street has hardly demanded anything of Costco other than continuation of its very profitable operations. This is partly out of appreciation for the fact that Costcoâs customers are relatively wealthy â many are small businesses, and their average income is more than $80,000 a year â and that affluent shoppers have different expectations than do the relatively poor people who shop at Walmart. Thatâs Costcoâs interesting niche: Itâs a discount store for rich people, Starbucks to Walmartâs Dunkin Donuts. That strategy has been paying off: Institutional investors such as Warren Buffettâs Berkshire Hathaway are among Costcoâs top shareholders, and Buffett has never been shy about making his demands known to management.
In fact, Buffettâs company, along with Mr. Sinegal, Mr. Jelinek, and other shareholders such as the Bill and Melinda Gates Foundation, are about to see a big payday from Costco â courtesy of Democrats and the fiscal cliff. As noted before, if the president gets his way, the capital-gains tax rate will go up to 20 percent for investors earning $250,000 or more. If nothing is done, the rate will go up to 20 percent for most investors â and more important, income from dividends will be taxed like ordinary income, meaning a top rate of 39.6 percent. Thatâs a big hit, so Costco is paying a big dividend â right now, before the new rates kick in.
In fact, Costco is set to pay out some $3 billion in a special year-end dividend this year to evade a January tax hike. The biggest single beneficiary will be Mr. Sinegal, the firmâs largest individual shareholder. He stands to gain $14 million. Institutional investors such as Berkshire Hathaway and the Gates Foundation will bring in many millions. That dividend will be made possible in part by a special debt offering. When a firm run by Mitt Romney does this, Democrats call it âvulture capitalists loading up companies with debt in order to write themselves big paychecks.â When companies that make friendly noises about Barack Obama do it, they get a personal visit from the vice president.
