Man Without Qualities

Thursday, July 03, 2003

A Dividend

The Man Without Qualities is without means of reckoning what Bill Gates owns.

But the Yahoo! Insider Trades site says Mr. Gates has 1,209,713,228 shares of Microsoft stock as of February 3, 2003, which is the most recent trade. Today, Microsoft stock sold for $26.411 per share. So Mr. Gates owns $31,949,736,064.71 worth of Microsoft stock. He is - in short - a very wealthy man.

Microsoft has a total of 10,700,000,000 shares outstanding, for a total of $282,597,700,000 ($282.6 Billion) - so Mr. Gates 1,209,713,228 shares represents 11.30% of Microsoft.

Microsoft has about $46 Billion in cash on hand - and is reportedly likely to pay a dividend of Ten Billion Dollars. Over $1 Billion of that dividend will be paid to Mr. Gates - since he owns over ten percent of the stock. Microsoft could pay a dividend of over $40 Billion - and Mr. Gates would receive over $4 Billion of that.

Mr. Gates will likely pay no more taxes on that dividend income than he would have if he realized the same amount by selling Microsoft stock because Mr. George Bush had Congress pass a law that made dividend income no more taxable than long-term capital gains, and wanted to make dividends entirely tax free. Before that tax reform Mr. Gates would have paid a lot more federal income taxes on the dividend - but that means Microsoft would probably not have paid a dividend at all.

It is certainly reasonable to suspect that there is an advantage to Mr. Gates owning his $1 Billion directly without any need to sell off more of his company - although one has to ask why, if such an advantage exists, Microsoft does not plan to pay a $40 Billion dividend right away. The Financial Times dryly states that "The software giant has come under pressure from shareholders to unlock its war chest as its shares have lagged and cash holdings have grown."

In any event, does any sensible person think that there is a big difference between Mr. Gates owning his $1 Billion (or $4 Billion) directly or indirectly through Microsoft? Does it matter to questions of "social justice" or "social equity" or "class warfare" that Mr. Gates can own and access his dividend directly? Would it matter a great deal more if the planned dividend - which will be paid net of corporate income taxes already paid by Microsoft itself - were entirely tax free to Mr. Gates? If so, what is the big difference that conveys on any of this such looming social significance?

Does it matter that a lot of small investors will now receive a dividend that would not otherwise have been paid because it would not have served the interests of Microsoft's controlling shareholder to pay such a dividend prior to the Bush tax reform?

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