The citizens of Pittsburgh are getting an unpleasant lesson in the
consequences of punitive taxation, courtesy of their beloved NFL
franchise. Inside the Pittsburgh Steeler boardroom, a fraternal
squabble is under way over future ownership—thanks in part to a
sacking from the realities of estate and capital gains taxes.
One of the league's iconic teams, the Steelers have been owned by the
Rooney family since 1933. The five sons of the original owner, Art
Rooney, control 80%—and they are getting into their 70s. With the
team's value estimated at $700 million or more, the 45% federal death
tax rate could put each brother on the hook to the IRS for tens of
millions of dollars.
That may be more than they can afford. NFL franchises have appreciated
quickly in the past decade, and the more a franchise goes up in value,
the greater the challenge for estate planning. While a given brother's
share of the team may be worth more than $100 million on paper, that
doesn't mean he or his heirs have half again that much in cash to fork
over to the IRS.
Daniel Rooney, the eldest brother who runs the team, is offering to buy
his four brothers out of their shares. He has said he will do
"everything possible to ensure my father's legacy" and keep the team in
family hands, and in Pittsburgh. Good luck to him. Challenging Mr.
Rooney's offer to buy about a third of each of his brothers' stakes now
with more down the road is hedge-fund billionaire Stanley
Druckenmiller, a man with considerably deeper pockets.
Adding urgency to the Pittsburgh transaction is the prospect of a
Democratic President in 2009 who opposes repeal of the death tax and
wants to raise the tax rate for capital gains. Barack Obama has
promised to raise the rate from 15% to at least 25%, and perhaps the
Clinton-era peak of 28%. The artificial timeline adds appeal to a buyer
like Mr. Druckenmiller who has the dough to complete a transaction
before the end of this year.
As for the death tax, it is now on track to expire for one year, in
2010, and then revert to its pre-2003 terms with a rate of 55% and an
exclusion of only $1 million. The current exclusion is $2 million, far
below a level that would help the Rooneys or tens of thousands of small
business owners who have built something of value over a lifetime and
might like to pass it along to their heirs. Mr. Obama proposes a meager
$3.5 million exclusion with a top rate of 45%.
The role of taxes in separating families from their businesses doesn't
seem to bother many in Washington—where politicians are usually
happy to sound off on lesser injustices. The bid for family-run
Anheuser-Busch from European brewer InBev brought a storm of political
indignation, though the Busch family owns a less-than 4% stake and the
AB board has since agreed to a takeover.
Of course, the estate tax is also what has forced the sale of so many
family-owned local newspapers to the "media giants" that liberals who
love the estate tax now deplore. Those rare papers that are still
family owned know the death tax is a threat to their longevity. Seattle
Times owner Frank Blethen has made the issue a personal crusade as his
paper competes with the Hearst-owned Post-Intelligencer (which
unsurprisingly favors the estate tax in editorials).
When taxes force a family to sell a business, the losers are often the
community as much as the next generation, as teams leave and
neighborhood fixtures fade away. Mr. Obama is planning to accept his
nomination for President in the football stadium of the Denver Broncos
in August. The irony will be noted in Pittsburgh, which may lose the
Steelers thanks to a tax regime that forces thousands of American
families to sell their businesses.
