“One-Time” Millionaires

On 23 September 2022, The Boston Globe ran a front-page “commentary” piece by Shirley Leung about how those she described as ‘one-time millionaires’ would be affected by the so-called ‘millionaires tax’ that is on the upcoming Massachusetts ballot as a voter referendum.

(Editorial Note: the online link has both a different date and a different headline from the article as it appeared in the print edition delivered to my door.  In print, it was in the Sep 23rd edition and was tagged with the headline, “For What It’s Worth: ‘Millionaire’ Isn’t So Simple”; online, it is dated Sep 22nd and bears the headline, “There are rich people, and then there are the ‘one-time millionaires’.”  As near as I can tell, the text of the articles was the same…).

The article was largely a factual recounting of what the effect of the tax would be on people who reap a one-time large payout (by, for example, selling a business or a home) and of protests about it by those affected, including interviews with them and quotes from them.  In short, it was written in the general form of “reportage”, as if it were a news article; and its position on the front page, rather than in the Opinion section, reinforced that impression.  But, it was labeled as “Commentary” and it ended with a strong and clear statement by the author contending that such protests were, in fact, bilge (not a direct quote) — that such people had no legitimate grievance and should, really, just shut up and pay.  Because, hey…  They are rich!

I objected to her tone, particularly as it regarded those whose ‘one-time millionaire’ status came from selling, when they were ready to retire, a small business that they had built and operated over the course of many years.

I sent this as a letter to the editor of The GlobeIt was published on September 29th.  Here is the link to it.

The text is reproduced below, in case the link eventually goes stale (or if you can’t get through their paywall).  What is shown here is the original text, as submitted; it was edited lightly for publication in the interest of making it shorter — even as edited, it was still ~275 words, which is about 35% larger than what their standard stipulates for the maximum letter length (so, a double thank-you to them for being flexible on that).

24 September 2022

In her front-page commentary piece about ‘one-time millionaires’ — largely small business owners who sell their businesses at retirement — Shirley Leung expresses very little sympathy — bordering on contempt — for the notion that such people might run afoul of the proposed new “Millionaire’s Tax”. Says she,

Let’s be real here. It’s hard to have sympathy for people who stand to make a lot of money from selling their businesses…

But, consider that the typical such business owner probably built up that value over something like 20 to 30 years of slow growth, starting from fairly humble beginnings. During that 20 to 30 years, they likely made quite a few sacrifices along the way: they probably worked long hours and sacrificed a variety of family pleasures; they probably took on financial risks, like loans to fund expansion or commitments to new leases on larger buildings or to paying for new employees; they probably deferred personal gratification in a variety of ways, like plowing this year’s profits back into the business or working on short salary during economic down-turns; and they probably endured quite a bit of extra stress sweating the details of keeping employees and vendors paid when things — as they inevitably do — suffered from the down-side of the business cycle.

From their perspective, the large reward they get from selling the business is not a sudden windfall. It is the accumulated profit for all those years of sacrifice and prudent planning.

Had they had the option, they might well have preferred to take their million dollar profit incrementally, rather than waiting (and risking) a lifetime for the big payoff. If, for example, they had been able to pull an extra $50,000 per year from their businesses every year for 20 years, they would have accrued the same million dollars but slowly, over time — and we wouldn’t be having this conversation because they would never have come anywhere near the new “millionaire’s tax”.

Alas, they didn’t have that option. Because, that’s not how a small business works.

Unlike Ms. Leung, I find myself capable of great sympathy, indeed, for their plight…

 

End Note: I mention (it was culled from the published version) a hypothetical “equivalent” annual payout of $50,000 that would get you the same $1M ultimate reward, but spread out over time so that it would not be subject to the “millionaire’s tax”.  That is, however, based on a very simplistic model ($50,000/year x 20 years = $1M).

In a more realistic scenario, imagine that the average rate of inflation over that time was 2.25%, thus increasing the actual dollar amount of each annual payout over time while its value stayed the same.  Further, assume that the annual payout was not merely stuffed under a mattress but was invested, as it was received, in more traditional/less risky investments than a personal business (like a stock/bond portfolio) that averaged an annual 6% rate of return.  In that case, to end up with the same $1M at the end, the value of the annual payout would be, not $50,000, but roughly $35,000 valued in today’s dollars (meaning the cash value of the annual payout in the 20th year, after it had accrued 20 years worth of inflation); in the first year, the payout would have been roughly $22,000 in contemporaneous dollars (and would, of course, increase slowly over time to keep the value the same as inflation devalued the dollar).

© Copyright 2022, Augustus P. Lowell

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