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Johnson's Ten Million Dollar Pay Check Part of Elaborate Tax Avoidance Scheme

Ron Johnson recently paid himself 10 million dollars for what he called "deferred compensation" because he says he has "never collected a salary" since he bought the factory (with his wife's family's money) in 1997.

The truth?  Ron Johnson has collected a $650,000 a year salary from Pacur, but that's pocket change compared to the real money he's collected from Pacur:  several multi-million dollar loans he has gotten from Pacur at the bargain-basement interest rate of .69%!

Why loan himself money from Pacur, when he owns Pacur?  It's tax free money.  According to his financial disclosure form, he's loaned himself approximately ten million dollars at the next-to-nothing interest rate of .69%.  Johnson then invested that ten million in the stock market and paid a capital gains tax on those earnings of only 15%, which is of course much lower than the Federal individual income tax top rate of 35% he would have paid if he got the money directly and also a fraction of the Wisconsin tax, which only taxes half of the income from capital gains.

This ten million he borrowed from Pacur is of course of interest now because he spent approximately ten million on his Senate campaign at a time when he had not yet paid back his Pacur loan.  In other words, Pacur corporate money was clearly paying for Johnson's Senate campaign.

Now, Johnson is leaving Pacur and on his way out he gives writes himself a ten million check to pay back the ten million dollar he got from Pacur.

The good news for the state of Wisconsin and the IRS is that Ron Johnson is finally going to be paying his fair share of his taxes-- or at least part of it.  Before Johnson took control of Pacur in 1997, Pacur was paying 3-400K a year in Wisconsin corporate taxes. When he took control of Pacur, however, he made Pacur into an LLC, where the corporate income "passes through" to the owner (Johnson) and the taxes are paid by Johnson as an individual.  However, through a variety of tax avoidance schemes-- including loaning himself millions at nearly an interest-free rate-- he and his wife have paid only 50K-70K a year in state income taxes since 1997. 

Here's the kicker:  From the State of Wisconsin's perspective, before Johnson owned Pacur, they were getting 3-400K a year in tax revenue from Pacur and 50-70K from Johnson and his wife, but after Johnson took control of Pacur the State got ZERO from Pacur and still got about 50-70K each year from Johnson and his wife.  In other words, the net effect of Johnson owning Pacur has been that Pacur has paid no taxes. 

However, now Johnson will have to pay the Wisconsin top rate of 7.75% on the 10 million, and have to cut a check to the Wisconsin Department of Revenue for $775,000.  Which is still a fraction of what Pacur would have paid if Johnson wasn't using his tax avoidance schemes, but... beggers can't be choosers!

Original Author: 
Jud Lounsbury

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