Criminal behavior: Last week we reported that when he was an owner of the Texas Rangers George W. Bush used eminent domain to seize private property in Arlington, Texas, in order to build a baseball stadium. Less than ten years later, when he was governor of Texas, Bush sold his interest in the Rangers and profited over $14 million.
Since then, we have learned that there is much more to this story. First, it appears that Mr. Bush evaded paying sufficient taxes on the sale. Second – and, more signficantly – he appears to have illegally used political influence as governor of Texas to increase the value of his share – actions that mirror the activities of an Illinois governor who was convicted of income tax fraud for influencing public policy that benefited his holdings in a race track .
Finally, the Rangers ultimately refused to pay the court-ordered $7.5 million settlement to the family whose land Bush seized, leaving the taxpayers of Arlington to cover the debt.
The allegations that Bush evaded paying sufficient taxes on the sale of the Rangers and that he broke the law by using his political influence to increase the value of the stadium property come from the excellent Make Them Accountable news site:
A review of George W. Bush’s 1998 tax return reveals that he reported the sale of his share of the Texas Rangers baseball team as a long term capital gain. As a result, he paid a tax on the more than $15 million proceeds at a tax rate of 20%, as opposed to the 39.6% rate on ordinary income. According to a press release dated June 18, 1998 from the Dallas Morning News, Bush paid $606,000 for about 1.8% of the team and became the managing general partner of B/R Rangers Associates, Ltd., a limited partnership that owned the team. Under the terms of the agreement, Mr. Bush was given an additional 10.2% of the proceeds as additional compensation if the team was sold. The incentive compensation became effective if the other partners received their entire investment back plus a 2% return per year…
According to IRS Revenue Procedure 93-27, “The receipt of a partnership capital interest for services provided to or for the benefit of the partnership is taxable as compensation.” As most people know, compensation is taxed as ordinary income, subject to the highest tax rates; in this case 39.6%. Mr. Bush treated the incentive portion of his proceeds as long term capital gain, and accordingly reduced his tax liability by at least $2.4 million.
This is exactly the sort of gambit used by former Illinois governor Otto Kerner, who was convicted of tax fraud as a result:
In 1972, Gov. Kerner was convicted of income tax fraud for influencing public policy that benefited his holdings in a race track corporation. On the advice of his accountants, Gov. Kerner treated the proceeds ($180,000) of his race track stock as long term capital gain subject to the reduced tax. The U.S. Attorney, James Thompson, prosecuted Gov. Kerner for falsely treating these proceeds as a capital gain because Gov. Kerner’s public policies had a substantial effect on the appreciation of the stock…Bush’s cushy deal with the Rangers makes the bogus Whitewater “scandal” sound penny-ante, but we’ll never see a serious investigation into whether Mr. Bush broke the law as long his corrput allies who run the Congress are in charge.
According to an IRS agent who worked on the Kerner case, the government’s theory was based on the idea that a true capital gain is based on the assumption that natural market forces enhance the value of the property sold. Natural market forces can include the legitimate contributions of managing partners. However, the government concluded, and the jury affirmed, the fact that people in official policy positions who enhance the value of their own property in whole or in part are guilty of a corrupt practice, and accordingly the gain is not capital gain. This is consistent with the theory behind giving tax incentives only for legitimate capital appreciation.
It is clear that former Gov. Bush had a clear incentive to affect public policy for his own benefit. In the Kerner case, Gov. Kerner was already a wealthy man, and the proceeds he received were not significant in relation to his net worth. In the case of former Gov. Bush, the at least $12 million incentive he received was the bulk of his liquid assets.
Why was Gov. Kerner prosecuted but not Gov. Bush? Well, for one thing, Gov. Kerner was a Democrat.
And when all is said and done, the post-Bush Rangers apparently have left the city of Arlington high and dry, forcing local residents to cough up the millions Bush and his partners owed the family whose property they seized:
[The Chicago Tribune reported in July 2005 that] “members of the Mathes family [the owners of the property that was condemned to build the stadium] thought their 13 acres were worth $7.5 million, [but] were offered $817,000 to make way for the baseball stadium. After many years in court and substantial lawyers’ fees, they got the $7.5 million.”
That … set of facts – an offer of $817,000 for a $7.5 million property – suggests the nature of what we’re up against. It looks like grand larceny.
The Rangers new owners apparently refused to pay the court-ordered $7.5 million settlement for the land Mr. Bush seized. As a reader from Arlington wrote last week:
The Rangers refused to pay the difference to the Mathes family, which forced the City of Arlington to pay it in order to protect its bond rating. This in turn caused increased taxes and decreased services – all to make that little moron even wealthier than he already was.
Bush’s cushy deal with the Rangers makes the bogus Whitewater “scandal” sound penny-ante. The Clintons lost money on their Whitewater real estate investment and Bush profited by at least $14 million. But we’ll never see a serious investigation into whether Mr. Bush broke the law as long his corrupt allies who run the Congress are in charge.