Whether you admired George Steinbrenner or loathed him (his kind treatment of troubled souls like Darryl Strawberry and Dwight Gooden won me over in his later years), say this for the man: He had impeccable timing.
When Steinbrenner led a group of partners that bought the New York Yankees in 1973 for $10 million, the team was down on its luck and owned by a corporate parent, CBS, that had no idea what to do about it.
When he died yesterday at age 80, he had built his own network, YES, into the cornerstone of a personal fortune estimated at $1.1 billion. The Yankee franchise is reportedly worth another $1.6 billion, but most of that is supposedly pledged as collateral for loans that financed the team’s new stadium. In any case, we should treat all of these values as little more than guesswork, since no outsider can measure the current value of the privately held Yankee empire, nor are we privy to the details of the Steinbrenner family business arrangements.
We do know this: by dying in 2010, a year in which the United States has no estate tax, Steinbrenner may have saved his family a $600 million liability to the U.S. Treasury. Or maybe not. His death illustrates why I believe the estate tax is so arbitrary and fundamentally unfair that it should stay permanently scrapped. Under current law the tax will be back next year with a vengeance, in the form of a 55 percent rate and only a $1 million per person lifetime exemption.
The Boss is survived by his wife Joan, four children (including two sons, Hank and Hal, who have been active in Yankees management) and several grandchildren.
The family faces a potential tax disaster if Steinbrenner left everything to his wife. There will be no tax due now, but estate tax would be due — potentially at that 55 percent rate — within nine months after Joan Steinbrenner’s death if she dies in 2011 or later. Unless the family has $600 million or so lying around at that time, the YES network might need to be mortgaged or sold to pay the bill. (To be fair, in some circumstances the government will provide low-interest financing for the estate tax when most of the estate consists of an illiquid business.)
The family would also likely face a big and expensive legal battle with the government over the fair market value of the media empire. The government, needless to say, will believe the Steinbrenner holdings are worth oodles of money. The family will point to complex ownership structures, business uncertainties and economic conditions in order to argue for a lower value. In the absence of an actual transaction — a sale of YES or of the Yankees to a third party — nobody can be sure. So the two sides may battle it out in court.
That is what happened to the heirs of newspaper magnate S.I. Newhouse, who died in 1979. Four years later, the IRS sued for $914 million in additional tax, penalties and interest, claiming the family grossly understated the value of the Newhouse companies.
After an epic and expensive legal battle, the family won it all, but it took a lot of resources and seven years of courtroom wrangling. The survivors of smaller-scale entrepreneurs often lack both the cash and the stomach for that kind of all-out war with a government that believes it is entitled both to measure a person’s accumulated lifetime wealth and to take half of it.
Ultimately, the estate tax is not the “death tax” that its political opponents like to claim it is. George Steinbrenner is dead, and he will neither know nor care what tax his estate ultimately generates. The estate tax is a thrift tax, a success tax, a legacy tax. It is a tax imposed solely on those who would enjoy, sustain or build upon the achievements of an earlier generation.
Steinbrenner could have cashed out in 1980, when he already had turned the Yankees into champions again through a combination of his extremely hands-on management and his ability to choose the right free agents upon whom to spend his partnership’s money. He could have cashed out in 2000, when he had parlayed that early success into a new dynasty that won four championships in five years and produced a nucleus of stars that still excels today.
Rather than take his winnings and retire, or dissipate his wealth through indolence, speculation or charity, Steinbrenner opted instead to double down on the Yankee franchise by creating YES and by building a new stadium in the Bronx. Not many successful media franchises have been built in the past decade, but YES is one of them.
And, for the record: Steinbrenner’s Yankees sent eight representatives to last night’s all-star game; their cross-town rivals, the Mets, who play in the same rich media market, sent two.
An estate tax would require Steinbrenner’s family to repurchase from the government everything Steinbrenner built in his lifetime. I think that’s wrong, and it seems a lot of people intuitively agree. Backers of the estate tax, which has never affected more than a tiny fraction of American households, often bemoan the number of people who oppose the tax even though they will never pay it. They believe these “death tax” opponents are being manipulated and suckered. I think the public is a lot smarter than that, and smart enough to cringe at the thought of the government claiming half of any enterprise merely because a man happened to die.
I assume that the Steinbrenner family’s advisors have already considered what to do in case of The Boss’ death this year. They may advise Joan Steinbrenner to disclaim most of her inheritance, in order to let the assets pass tax-free to the next generation. They may also advise the Steinbrenner children to disclaim in favor of the grandchildren, since the generation skipping transfer tax is also on hiatus this year. George Steinbrenner’s death may indeed spare his family that huge tax bill, but it might take some maneuvering.
There probably are some folks, especially in New England, who believe George Steinbrenner is reason enough to bring back the estate tax. My response is that if someone is going to decide to break up the Yankees, it ought not be the tax man.