• With: Kim Strassel, Dan Henninger, Mary Anastasia O'Grady, Bret Stephens


    GIGOT: Right.

    STRASSEL: -- particular entitlements, they ought to take that opportunity.

    But I do think you see people turning around to decide what would be a Plan B. One thing that came out this week was the suggest by Tom Cole, a Republican from Oklahoma, saying, maybe we should just agree to these middle class tax extensions and just sign them, give them to the president. That's what he says he wants. Get that off the plate. And then let him take all the political fallout for everything else that, you know, comes, the economic hit -- from --

    GIGOT: Right.

    STRASSEL: -- the top rates, the sequester and everything else.

    GIGOT: So he's still end up having to doing something on the spending cuts that are coming and on the debt limit, Dan. Very briefly.

    HENNINGER: Well, yes, but I think basically we're back to where we were in the 2011 negotiations. The Republicans committing us to tax cuts and to tax increases, and the Democrats promising to do something on spending later in 2013. It's very hard to see that that's going to get resolved by the end of the year.

    GIGOT: All right, what a mess.


    When we come back, the prospect of the tax cliff is already affecting the behavior of some companies and shareholders, including one of President Obama's biggest backers, who is cashing out before rates go up. The details are next.



    JIM SINEGAL, FOUNDER & CEO, COSTCO: Business needs a president who has covered the backs of businesses, a president who understands what the private sector needs to succeed, a president who takes the long view and makes the tough decisions.



    SINEGAL: And that's why I'm here tonight supporting President Obama.


    GIGOT: That was Costco co-founder and former CEO, Jim Sinegal, at the Democratic National Convention in September, saying that President Obama would be better for business than Mitt Romney. But just before that second Obama term begins, he's getting a dividend. Mr. Sinegal and the rest of the Costco board voted this week to give themselves a special dividend, a $3 billion Christmas gift for shareholders that will allow them to be taxed at the current rate of 15 percent rather than next year's rate of over 40 percent. And Costco is just one of many companies making these one-time cash payouts in a move that will save stockholders, like Sinegal, millions in dividend taxes.

    And so, Mary, turns out, maybe rates do influence --


    -- investor behavior. What's the meaning of the great cash out of 2012?

    O'GRADY: Well, don't tax you, don't tax me, tax the guy behind the tree.

    GIGOT: Russell Long, former late senator.


    O'GRADY: Exactly. And what you see here are very wealthy people, who can, you know, engineer ways to avoid taxes. Meanwhile, what he's -- the medicine he's suggesting for people who are starting to do better, people who, say, make $200,000, maybe working their whole life, they're the ones who are going to get hit with the Obama taxes. And really, I mean, you look at that and you think, a normal human being with -- you know, would be ashamed of that lack of intellectual honesty. Or should be, really.

    GIGOT: What's fascinating economically is that Costco is borrowing the money to pay this dividend. Now, usually, when companies pay dividends, it's out of earnings, right?

    O'GRADY: Yes.

    GIGOT: Retained earnings. In this case, they're borrowing, taking on more debt, not to invest in the business in the future growth, but for a one-time equity pay out.


    O'GRADY: But, Paul, what's to worry about? Interest rates are low thanks to Ben Bernanke.

    GIGOT: Well, this is not -- but this shows that the tax rates combined, with very low borrowing costs that Mary mentioned, they're distorting business decisions.

    HENNINGER: Exactly.

    GIGOT: Instead of investing in growth, you're investing in tax avoidance, in essence.


    HENNINGER: Paul, Russell Long was a legendary Senate finance chairman. He said, I've come to the conclusion, if you're going to have capitalism, you're going to need capital.


    GIGOT: Goes to the heart of this, right?

    HENNINGER: Genius. Just pure genius.