Citizen Hughes - Michael Drosnin [142]
“I am naturally gratified that the changes in the language of the tax bill (as it relates to foundations) will make it unnecessary to revise the by-laws of HHMI,” wrote Hughes, grudgingly.
“This is nice, Bob, and it is a convenience I appreciate.
“However, I hope you realize how totally insignificant this piece of news becomes, if it is accompanied by the report of an increase in the capital gains rate.
“I have pointed out at great length and with great emphasis that the affairs and funds of HHMI lie on the other side of the great wall, as far as I am concerned.
“I further explained that HHMI has plenty of resources, is well provided with money for its future activities,” he continued, casually dismissing the threadbare charity he had milked dry, “and therefore that a dollar in the treasury of HHMI did not have a value to me approaching anywhere near the value of a dollar in the treasury of Hughes Tool Company or a dollar of my personal funds.
“Therefore, you can readily appreciate that the present plans to increase the capital gains tax strike right at the very heart of the only area from which I have any hope of obtaining any profit of any consequence at any time from now on.
“So, Bob, please put this project at the top of the list, where it should have been all along,” he pleaded, once more demanding that the tax law be rewritten—but not selfishly, not for him alone.
“It is also the only source of substantial income for any other moderately wealthy man, whether he is a corporation executive, a broker, investor, financier, or what have you.
“It appears to me that the bill would be devastating to almost everybody in the nation, except those in the very lowest income brackets.
“Please report at once, Bob, I am more worried about this than about anything else that has happened at any time during the entire period of our relationship.”
Hughes need not have worried. The new capital gains rate would hardly affect him at all. Hughes Tool had already slipped through its own special loophole, designed to benefit struggling small businesses—corporations with ten or fewer shareholders. That of course included Hughes Tool, which had only one. From now on, his holding company would pay no capital gains, indeed no corporate tax at all.
Half his empire was now a tax-exempt “charity,” while the other half was a tax-exempt “small business.” Only Hughes himself would have to pay taxes. For the first year under the new law he paid $20,012.64. This was the kind of tax reform the billionaire had in mind. O’Brien Associates had done well on its first official assignment.
Richard Nixon had not done quite so well. The president lost his battle with Congress. On December 30, 1969, after threatening a veto, he bitterly signed into law a tax reform act that eliminated the deduction for his private papers. The repeal was retroactive to July. Nixon had missed the cutoff date. He had blown the chance for his big tax break. Or so it seemed.
But on April 10, 1970, there was another signing ceremony in the Oval Office. On that day, the president signed his 1969 income tax returns. He claimed a charitable deduction of $576,000 for his papers and attached a deed showing that they had been donated to the National Archives in March 1969, four months before the new deadline. That whopping write-off allowed Nixon to escape virtually all of his taxes while he was president. In 1970 he paid $792.81. In 1971 he paid $873.03. In 1972 he paid $4,298. There was only one problem. It was all a fraud, one his own lawyers would later call “the Presidential Papers Caper.” Nixon had backdated the deed on his papers, cheated on his taxes, and evaded $467,000 he owed the IRS while he sat in the White House.
By the time the president backdated his deed, Larry O’Brien had once more become chairman of the Democratic National Committee. For the next year he