Citizen Hughes - Michael Drosnin [139]
O’Brien Associates opened for business October 1, just in time to help rewrite national tax legislation for its chief client, Howard Hughes.
The Tax Reform Act of 1969 was the most sweeping overhaul of the country’s revenue system in history, and it posed a real problem for Hughes. It was not that the richest man in America had paid no personal income tax for seventeen consecutive years, until his windfall profit on TWA finally forced him to ante up. It was not that the holding company for his entire empire, Hughes Tool, had paid no corporate income taxes for the three years its sole owner had been hiding out in Las Vegas. No, the big problem was the billionaire’s big charity—the Howard Hughes Medical Institute.
Like the other great philanthropists—Ford, Rockefeller, Carnegie—Hughes had discovered a way to get great public acclaim for hoarding his wealth and evading his taxes. He created a foundation. Hughes, however, almost seemed intent on exposing the entire racket by making his foundation an outrageous parody.
In his sole act of philanthropy, he had turned over all the stock of the Hughes Aircraft Company to the Hughes Medical Institute, thereby making his billion-dollar-a-year weapons factory a tax-exempt charitable organization. He named his personal physician, Verne Mason—the Hollywood doctor who had long been his codeine connection—director of medical research. But Hughes himself remained president of the defense plant and became sole trustee of the new foundation, retaining absolute control over both. He had generously given all his stock to himself. And now that incredible act of benevolence was about to be undone.
It was Wright Patman who started all the trouble. For years the Texas populist had been using his power as chairman of the House Banking Committee to push a congressional investigation of the foundation game. His probe had uncovered hundreds of self-styled charities that were nothing more than fronts used by the wealthy to amass vast fortunes tax-free. And now, in 1969, Patman was zeroing in on the most blatant fraud of all—a top-ten defense contractor, a manufacturer of missiles and spy satellites, masquerading as a charity devoted to medical research “for the benefit of all mankind.”
In fact, Patman discovered, the Howard Hughes Medical Institute had only one real beneficiary: Howard Hughes. In the fifteen years since its founding, the institute had given only $6 million to medical researchers and kicked back almost $24 million to the billionaire. During those same years, Hughes Aircraft piled up accumulated profits of $134 million but never paid a dividend to the charity that owned it and donated just $2 million to good works. Under a complex double-lease arrangement with Hughes Tool, the foundation received another $20 million, but most of that went to pay Hughes himself interest on a loan. Nearly a million dollars every year to the shylock trustee. And every penny Hughes-the-Benevolent gave to his foundation—including all the money he took back—was tacked onto the bills Hughes-the-Defense-Contractor presented to the Pentagon, so that other taxpayers picked up the entire tab for his philanthropy. Indeed, he turned a profit. By 1969 the medical institute, however, was flat broke. It had to borrow a million from a bank. Not to make research grants, but to pay the interest it owed its generous founder.
“This sounds more like high finance to me than charity,” complained Patman. And another member of his committee, in grilling a foundation director, sharply ridiculed the whole setup: “You mean Mr. Hughes, the trustee, has never felt that Mr. Hughes, the chief executive, ought to be hamstrung in paying Mr. Hughes the money Mr. Hughes owes Mr. Hughes?”
Dangerous talk. Into the breach stepped Larry O’Brien.
“I am thoroughly knowledgable of the affinity which has existed for years between Patman and O’Brien,” Maheu reported to the penthouse philanthropist. “In addition, I accidently found out last night