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The Edwards loophole
townhall.com ^ | 3/01/04 | Robert Novak

Posted on 03/01/2004 1:27:13 AM PST by kattracks

WASHINGTON -- Sen. John Edwards got through last Thursday night's debate in Los Angeles, as he has his entire presidential campaign, without being asked an embarrassing question. How can he explain setting up a dummy corporation to avoid paying an estimated $290,000 in Medicare taxes in the two years before he ran for the Senate? It would be an embarrassing question for a self-described populist inveighing against privileges for the rich and powerful.

There were plenty of opportunities for Sen. John Kerry to bring this up during the debate's extended discussion of health care. Some of Kerry's key advisers worked on the 1998 North Carolina Senate campaign won by Edwards, when this issue was raised. But with Kerry on the brink of collecting a majority of delegates to guarantee the Democratic presidential nomination, he does not want to risk trouble with negative campaigning against his sole remaining serious opponent.

However, it is inconceivable that President Bush's crack researchers are not aware of the massive tax loophole utilized by Edwards, who is the clear consensus choice to be Kerry's vice-presidential running mate. Democrats, relishing thoughts of the attractive and charismatic Edwards face to face against Dick Cheney in debate, must ponder a better answer to the Medicare tax question than the senator gave six years ago.

At 9 a.m. on June 28, 1995, articles of incorporation were filed with the North Carolina Secretary of State for John R. Edwards, P.A. (professional association), of Raleigh, N.C. The new corporation was authorized to issue 100,000 shares of common stock -- all owned by Edwards, who is its only employee. This is a classic Subchapter "S" corporation devised to shelter income, mainly for professionals such as lawyers (and also syndicated columnists, but not me). It is one of the last loopholes left in the Internal Revenue Code, and it is a big one.

Edwards put his own little corporation to good use in his last two years as a multi-millionaire personal accident lawyer before becoming a full-time politician. He paid himself salaries of $600,000 in 1996 and $540,000 in 1997, on which he paid Medicare taxes. As the sole stockholder, Edwards received dividends of $5 million for each of those years -- all of it free from Medicare taxes. That saved the future senator around $290,000.

Republican Sen. Lauch Faircloth, facing defeat in 1998 by Edwards, charged that his challenger "has avoided paying taxes, shortchanging seniors." Edwards shot back with a response of a young man who had proved himself a virtuoso in pleading before juries: "I have paid every dime of Medicare taxes I owe and am required to pay by law. If Lauch Faircloth wants to make negative personal attacks, he needs to do it to my face in debate."

Faircloth, a self-made and largely inarticulate businessman, was not about to take on silver-tongued Johnny Edwards in debate -- and Edwards knew it. Whether his tax avoidance was perfectly legal, however, remains unknown in the absence of an IRS audit. The government's position is that dummy corporations such as John R. Edwards, P.A., must pay its sole employee a "reasonable" salary. Tax practitioners told me that paying a $1.1 million salary out of $11.1 million net income may not pass the "reasonable" test.

Manipulating the IRS code to maximize his personal wealth comes at the peak of a campaign where Edwards has raised himself from the lowest of also-rans to become a strong runner-up by propounding his concept of "two Americas" -- including one America where the rich play dirty tricks on the other America. In an early presidential debate in Columbia, S.C., last May 3, he promised "a better life for our families" that would be "based on the values of hard work and responsibility, not accounting tricks and corporate greed."

There is no record that Edwards, during his six years in the Senate, ever even considered legislation to close the giant loophole of the personal corporation. He must know that loophole well, because he is a lawyer who took advantage of it. He has not been seriously challenged on this so far, but surely will if he is put on the ticket in Boston this summer.

©2003 Creators Syndicate, Inc.

Contact Robert Novak | Read Novak's biography



TOPICS: Editorial; News/Current Events; Politics/Elections
KEYWORDS: 2004; edwards; novak
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But with Kerry on the brink of collecting a majority of delegates to guarantee the Democratic presidential nomination, he does not want to risk trouble with negative campaigning against his sole remaining serious opponent.

Or mention this embarassing information about someone who may be his VP?

1 posted on 03/01/2004 1:27:13 AM PST by kattracks
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To: kattracks
You nailed it, Kat. :)

Off subject, but I take issue with Novak:
Faircloth, a self-made and largely inarticulate businessman

During the hearings into the boxes found in WH which Hillary couldn't tell us how they got there, ole Lauch Faircloth uttered the immortal words " the butler did it."

I MISS Lauch Faircloth. Desperately.

2 posted on 03/01/2004 1:35:41 AM PST by onyx (Kerry' s a Veteran, but so were Lee Harvey Oswald, Jeffrey Dahmer, and Timothy McVeigh)
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To: kattracks
bump
3 posted on 03/01/2004 1:41:30 AM PST by GiovannaNicoletta
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To: kattracks; onyx
Good grief! It's absurd to think this should be a line of attack by the WH at this early date. Where's the PRESS? I know, I know - I used to be 'the press'.

Has anyone asked Johnny if he has any corporations offshore? And what about property in his wife's name? She was a successful attorney until she quit to have the last two kids.

4 posted on 03/01/2004 1:44:47 AM PST by Fracas
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To: Fracas

Fracas! You're posting! Good to *see* you! :)
5 posted on 03/01/2004 1:46:49 AM PST by onyx (Kerry' s a Veteran, but so were Lee Harvey Oswald, Jeffrey Dahmer, and Timothy McVeigh)
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To: kattracks
This is nothing, it is just a Subchapter S corporation it is what it is supposed to do.

ANYONE qualified can set up a subchapter S. This article is futile. sorry folks but I do not see where the "scandal" is. I will not vote for the slime but geeze, this is pushing it.
6 posted on 03/01/2004 1:54:40 AM PST by longtermmemmory (Vote!)
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To: onyx
LOL. I'm here...just sitting in the weeds.

This is so irritating (maybe you could tell? - LOL!). There are so many questions even a halfway decent press would be asking...but NO!, the WP was rumored to have 8 reporters in Alabama looking for stuff on the AWOL issue.

The Dems should be quaking in their shoes about a Cheney-Edwards debate. Cheney may not be everyone's cup of tea (though I adore him), but he has a brain that can outhink Edwards on his best day. Now if he just had hair....

7 posted on 03/01/2004 1:56:32 AM PST by Fracas
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To: kattracks
oops forgot, the subchaper S was NOT designed for professionals. the PA is for professionals. the Sub S is a seperate issue.

Sub S was set up to avoid the double taxation. IOW under a Sub C, a coropration pays taxes on the profit and then you pay taxes on the income profits when you get them. Taxed twice. With a Sub S. all the profit pass through to the shareholders and they are taxed as income ONCE.
8 posted on 03/01/2004 1:57:27 AM PST by longtermmemmory (Vote!)
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To: Fracas
Girlfriend, I wish you'd come in from the weeds a lot more often. Give it some thought, will ya?

9 posted on 03/01/2004 1:59:48 AM PST by onyx (Kerry' s a Veteran, but so were Lee Harvey Oswald, Jeffrey Dahmer, and Timothy McVeigh)
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To: Fracas
this is not a real issue. honest. see my above posts. A sub S. is supposed to do this. This is not a scandal because he is doing what countless other small corprations do.

How many self emplyed freepers use Sub S corporations? I do.
10 posted on 03/01/2004 2:00:23 AM PST by longtermmemmory (Vote!)
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To: longtermmemmory
I do, too...2 in fact. However, I don't think that's the issue. Edwards is on his 'populist' soapbox, slamming the 'eeeevil corporations' and 'big business' (after all, Daddy worked in a mill).

It's the hypocrisy not the fact...though many Sub S's do get scrutiny from IRS.

11 posted on 03/01/2004 2:04:55 AM PST by Fracas
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To: Fracas
Edwards is on his 'populist' soapbox, slamming the 'eeeevil corporations' and 'big business' (after all, Daddy worked in a mill).

I can't stop laughing! LOL-LOL-LOL.

His "daddy worked in a mill" is getting almost as tiresome as Kerry's "service in Vietnam."

12 posted on 03/01/2004 2:07:56 AM PST by onyx (Kerry' s a Veteran, but so were Lee Harvey Oswald, Jeffrey Dahmer, and Timothy McVeigh)
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To: Fracas
Then the attack should be hypocracy, he condems corporations but has no qualm is using the same system as those he condemns. He is not as populist as he portrays is a valid point, the loophole argument is not a vailid point.

It is not a loophole, it is not illegal. The article needs to clarify that.
13 posted on 03/01/2004 2:08:06 AM PST by longtermmemmory (Vote!)
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To: Fracas
Vice-President Cheney is not somebody I would want to debate. That guy knows his stuff, stays calm, and can rattle off hum-dingers when needed.
14 posted on 03/01/2004 2:09:10 AM PST by GOPyouth (De Oppresso Liber! The Tyrant is captured!)
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To: longtermmemmory
Hey, I'm on YOUR side! I agree the article (and the debate) should have been restructured, but we do the best we can with what we've got...and at least he raised the issue. We can morph our 'concern' any way we see fit (the Dems do that all the time).
15 posted on 03/01/2004 2:11:57 AM PST by Fracas
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To: GOPyouth
Wouldn't that be fun to watch? I'd pay to see it, in fact. The only thing I might enjoy more is to see MRS. Cheney debate Edwards. Heh he heh....
16 posted on 03/01/2004 2:13:16 AM PST by Fracas
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To: Fracas
sorry if I came on too strong.

I agree, this can be morphed to our benefit.
17 posted on 03/01/2004 2:20:00 AM PST by longtermmemmory (Vote!)
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To: longtermmemmory
No problem...I'm a 'uniter, not a divider'...ROFL.

But I'm no fan of the NEW TONE!

18 posted on 03/01/2004 2:23:37 AM PST by Fracas
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To: Fracas
I loved watching the 2000 debate with him and Lieberman. Cheney stayed so calm during that, then won the entire debate by pulling the rug out from under Lieberman when Lieberman tried to be funny. And what's funny, is he stayed so dang calm and relaxed when he did it. lol I'm off to bed.
19 posted on 03/01/2004 2:25:36 AM PST by GOPyouth (De Oppresso Liber! The Tyrant is captured!)
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To: kattracks
As usual Novak has not properly researched his facts. Dividends are NOT deductible by corporations for Federal incomes tax purposes. Consequently Edwards would pay personal income taxes on the dividends at a higher rate than the Medicare tax that Novak is railing about, since Sub-Chapter S Corporations "pass through" income to stockholders. I don;t care for Edwards but he has done nothing wrong in this case.
20 posted on 03/01/2004 3:56:02 AM PST by Shane
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