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Text File | 1993-04-08 | 6.0 KB | 129 lines

                                                                                BUSINESS, Page 56

Rushing to Beat the Taxman


The well-heeled crowd is finding ways to avoid the increases
Clinton plans to ask for next year. His aides say the Treasury
will still get the money it needs.

By JOHN GREENWALD - With reporting by Sally B. Donnelly/Los
Angeles and William McWhirter/Chicago


    The feat was worthy of the genie in Aladdin. In the
twinkling of an eye, Disney chairman Michael Eisner and
president Frank Wells last week turned 7 million stock options
into a $263 million profit, one of the richest corporate
paydays ever. Eisner alone raked in $202 million. The executives
cashed in their options, which were set to expire in 1994, to
avoid the tax increases that Bill Clinton has pledged to ask
Congress for next year. While both men were staunch Clin ton
supporters, his proposed tax on wealthy individuals could have
cost them an extra $20 million if they had waited to cash in
their options. In addition, Disney officials said enactment of
Clinton's corporate-tax proposals could also have cost the
company as much as $100 million if the executives had hesitated.

    Welcome to the great Bill Clinton tax stampede of Christmas
1992. Corporate chieftains, Hollywood celebrities and just plain
rich folk are scrambling to claim all the income they can at
today's lower rates. "Disney started a trend, and everyone else
is going to follow suit," says Stewart Flink, a money manager
in Evanston, Illinois. "It's going to be an incredible run to
the end of the year."

    Executives are hardly the only ones with their eyes on the
prize. "My clients are demanding their pay early," says a Los
Angeles lawyer whose roster includes singers and actors. "They
are requesting recording royalties or percentages of movie
takes before Dec. 31. And with no exceptions so far, they are
getting them." And why not? "No one is going to argue with a
box-office star who wants his one million bucks early," says a
former producer. "The goodwill the studio earns by paying him
a few months early surely offsets the cash it would get in
interest. It's a simple equation."

    The name of the game is to stay ahead of Clinton's proposal
to raise the top tax rate from 31% to 36% for individuals with
an adjusted gross income of $150,000 or more a year and for
families earning at least $200,000. Clinton also wants to slap
a 10% surtax on income of $1 million or more. And to help curb
runaway executive pay, the President-elect may try to bar
companies from deducting more than $1 million of an officer's
compensation from corporate taxes, which was Disney's biggest
worry. Clinton plans to use the money to offset a middle-class
tax cut and finance such programs as infrastructure rebuilding
and job training.

    Clinton aides remained unfazed by the outbreak of tax
avoidance, which they said had been expected. "We don't think it
changes either the fundamental soundness of our plans or our
revenue projections," says Gene Sperling, a senior economic
adviser. "It's a onetime, temporary adjustment." If anything,
the rush to claim income today could boost federal revenue next
year when people pay their 1992 taxes. Nor will revenues fall in
later years, Clinton aides argue, if the economy continues to
recover. "People have a right to manage their own economic
affairs as they see fit, and that's what executives have been
doing," says communications director George Stephanopoulos.
"But I don't think there are many Disney executives across the
country who can do $200 million in stock options overnight.
It's an isolated case."

    Perhaps so, but the high-profile maneuvering has heightened
people's determination to beat the taxman and helped provide a
boon to accountants. "We have seen a tremendous increase in
inquiries on tax-avoidance strategies since the November
election," says Vincent Vaccaro, a tax partner for the
accounting firm Coopers & Lybrand. "There has been great
interest in seeking to accelerate income into 1992, especially
for those in the $200,000 bracket and above."

    Executives have been hurrying to use their stock options
because shares have surged in recent weeks and holders want to
lock in their profits. "Corporations are trying to persuade
executives that it's in their best interest to exercise their
options and avoid the tax hit next year," says William Wilson, a
senior tax planner for the accounting firm Crowe Chizek in South
Bend, Indiana. The rush started early at some companies.
Chrysler chairman Lee Iacocca and two fellow officers pocketed
$5.5 million by cashing in stock options in October, when a
Clinton victory seemed almost certain. Iacocca, who plans to
retire at the end of the year, earned nearly $2.9 million on
his options.

    But some experts doubt that plans to limit the tax
deductibility of stock options and other types of compensation
to $1 million will really curb executive pay. For one thing,
corporate officers who have cashed in their options can always
go back to their boards to seek new incentives designed to get
around the higher taxes. Says compensation specialist Graef
Crystal: "What these tax policies will prove, if enacted, is
that the answers to excessive corporate compensation lie
outside Washington. It will not be until the shareholders begin
to demand accountability that executive pay will come into line
with reality."

    In the meantime, many firms are speeding up annual bonus
payments they would normally have made early next year. One
major investment house, Morgan Stanley, is allowing employees to
take roughly half the value of their bonuses now and the rest in
February. In Hollywood, Columbia Pictures and Universal Studios
are prepaying actors, directors and producers their share of
film profits by Dec. 31. After going gaga for Clinton in the
fall campaign, the movie capital is leading the way in grabbing
quick gains today while knowing that it may have to share the
burden tomorrow.