One of the refreshing things about Donald Trump is that he calls bullshit. He doesn’t get bogged down in the minutiae of why the world works a certain way – he just sometimes tells it like it is. Which is why I think if he heard Mike Gaetani’s plight we would see a Trump twitter storm.
Mike Gaetani turned 100 years old a few months back. He’s quite a story, an American story. Orphaned as a baby, Mike was passed around through some tough foster homes in the Boston area and never had a chance to finish high school. Yet he got a job, a good manufacturing job working for Johnson Controls, married the woman of his dreams, owned a home, had a child and scrimped, saved and prepared for a retirement he was firmly convinced only his wife would live to enjoy.
And his planning worked – as a 30 plus year employee of Johnson Controls (JCI) he steadily earned and bought shares in the company he made his career with. Over the years, JCI has been a rock solid stock, paying dividends that allowed Mike to stay off Medicaid, out of a nursing home and connected with his family. He did everything right, he got a little lucky – he was set, or at least he thought so.
At 100, Mike has congestive heart failure, “CHF” as he calls it, which if you are lucky enough to get to 100, most people have. But as faulty as Mike’s heart is – he has one – a big one, which is a lot more than we can say for the executives at Johnson Controls and Tyco that just completed one of the more despicable tax inversion details in history.
A tax inversion is when an American company combines with a foreign company, typically moving it’s headquarters offshore, to escape our ridiculously uncompetitive federal corporate tax rate. Many see tax inversions as a gimmick for U.S. companies to boost their profits without actually improving business operations.
It was a hot topic during the Presidential campaign and earlier this year the Treasury Department actually issued rules that killed several pending tax inversion deals. Unfortunately, for Mike and the other 20% minority of JCI shareholders, one large inversion that wasn’t killed was a $16 billion deal involving the acquisition of Tyco, based in Ireland, by Milwaukee based Johnson Controls.
Why is it unfortunate? It seems that under federal law when a tax inversion deal closes, shareholders of the company inverting to the overseas tax location, JCI in this case, are hit with a tax bill as if they sold their stock. As such, the inversion is forcing thousands of JCI shareholders to dig into their pockets and pay taxes (essentially capital gains) on their unrealized gains just to remain shareholders.
Ok, that’s tough enough to swallow for Mike and other JCI retirees who acquired the stock at a low price over the years and are living off the dividends. But this inversion has a particularly pernicious wrinkle, in that the acquisition of Tyco was structured in such a way so that only 20% of all JCI shareholders are footing the entire tax bill for the inversion. That’s right 20% of JCI shareholders are responsible for 100% of JCI’s exit tax from America.
You can guess which 20% of shareholders are footing the bill. It’s not institutional investors, it’s not JCI corporate officers, it’s not the hedge funds – it’s the little guy, retirees like Mike.
So I was hoping this story, obnoxious and true, might incite a Twitter storm from our President Elect. But alas, I realize with so many other things to tweet about it’s admittedly a long shot. Barring that – I’ll just generate some fake news and with any luck my bogus tweet will be treated as real and result in shining some light on this sad scam.
(Special thanks to the Donald Trump tweet generator)