Wealthy heart surgeon Dr. Larry Bucshon, who is running as the US House Republican candidate in Indiana’s Bloody 8th District, is running on a tax plan that will reduce the corporate US federal income tax rate on corporations of all sizes by an incredible 43%, from 35% down to 20%.
Dr. Bucshon so far hasn’t disclosed what the impact would be on his family’s personal financial wealth, if his tax plan were enacted.
I think his tax plan, if enacted, would increase his personal wealth by so incredibly much that I think that he has a serious conflict of interest here. Let me give you the details of my assessment, and you can reach your own conclusions.
Bucshon so far has refused to disclose the amount of annual income he earns. He also has refused so far to disclose his direct and indirect, both public and private common stock holdings he and his wife have, including any common stock holdings in mutual funds, and in retirement plans.
Let me illustrate what the increase in the market value of a typical common stock holding would be under his radical tax plan.
As any stock professional will tell you, common stock prices are driven by after-tax earnings. The price-earnings ratio is the key to common stock valuation. Let me show how price-earnings ratio and stock valuations work.
For simplicity, let’s say a 100% purely domestic company’s common stock is worth $65 per share, and that it has 10 mil common shares outstanding, and thus it has a total market capitalization of $650 mil.
Let’s also assume that this company’s pretax earnings for the current year are $100 mil and, ignoring state income taxes, and also ignoring any tax loopholes, this company’s federal income tax expense is 35% X $100 mil, or $35 million. Thus, this company’s after-tax net income is $65 mil.
That $65 million of earnings, translates to earnings per share of $6.50 (i.e. $65 mil / 10 mil shares).
Thus, the company is selling for a price-earnings ratio of 10, or $65 market price per share divided by $6.50 earnings per share.
So let’s see how these numbers would change with Dr. Bucshon’s tax plan.
The current year’s pretax earnings of $100 mil remains the same. The income tax expense drops from $35 mil to $20 mil (i.e. 20% X $100 mil). Thus, the after-tax net income increases from $65 mil to $80 mil, or by 23%.
Therefore, the earnings per share increases from $6.50 per share to $8.00 per share. And assuming this company is worth 10 times earnings, its fair market value per common share would increase from $65 to $80, or by the same 23%.
Thus, anybody owning purely domestic common stock has their common stock holdings increase in value by 23% under Dr. Bucshon’s tax plan.
But what if you own the common stock of a US Multinational Corp? This gets tricky, but when any foreign earnings are repatriated presently, this company would effectively pay an income tax rate of 35%, thus in the long-run, you would generally get the same economic result as you would if you owned the common stock of a purely domestic corp.
But there is something else really huge here with US Multinational Corps and Dr. Bucshon’s tax plan. Since, he’s in the medical field, and we’re in Indiana, let me explain by simplistically assuming that all of his common stock holdings are in Eli Lilly, an Indianapolis-based Big Pharma Multinational Corp.
At the end of 2009, Lilly had Unremitted Foreign Earnings of $15,460,000,000 (yeah, that’s $15.46 bil). These are Lilly’s cumulative earnings outside of the US, earned in places like Puerto Rico, where labor costs are low, and corporate income taxes even lower. These foreign earnings have not yet been income taxed in the US. These Unremitted Foreign Earnings are parked mostly in Cash and Investments outside the US.
When these Unremitted Foreign Earnings are repatriated back to Lilly’s US parent, these earnings are grossed up to get them on a pretax basis, and for the starting point, the corporate US federal income tax would be computed at 35% X these grossed up foreign earnings. I don’t have enough information to make the exact computation, but let’s just assume the grossed up dividend income, upon foreign earnings repatriation, comes to $20 bil.
Under Dr. Bucshon’s drastic Big Multinational Corp tax slashing plan, assuming that Lilly’s entire $15.46 bil of foreign earnings were repatriated back to the US, as a starting point, the related $20 bil of grossed up dividend income would be taxed at only 20%, rather than at 35%. Thus the windfall economic tax benefit to Lilly here would be 15% X $20 bil, or an amazingly high $3.0 bil.
Thus, under Dr. Bucshon’s tax plan, as you can see from the Lilly illustration above, the common stock holders of US Multinational Corp common stock would not only benefit from the increased after-tax earnings each year from here on out, just like they would if this was a purely domestic corporation, but they also would benefit gigantically from the 15% tax savings on all cumulative previously Unremitted Foreign Earnings.
And the crazy thing here is that, under Dr. Bucshon’s tax plan, it’s not just Eli Lilly that would get this $3.0 bil tax bonanza, but it would be all US Multinational Corp getting tax bonanzas. How much? My rough estimate is $250 bil to $350 bil.
But getting back to Dr. Bucshon’s specific financial situation, the key point is we need to know how much common stock Dr. Bucshon and his wife own, either directly or indirectly. It appears that he won’t give it to us, so let me very roughly estimate it.
Dr. Bucshon is a very gifted heart surgeon, and has been Physician President and Medical Director of Cardiovascular Surgery of Ohio Valley HeartCare (OVHC) since 2003. OVHC has eight locations in three states. OVHC has eleven Cardiovascular Physicians, five Clinical Directors, and six Nurse Practitioners.
Dr. Bucshon’s wife is also a very gifted Anesthesiologist. Whoa, two very accomplished doctors in the family. Congrats to the both of them.
When I extensively study heart surgeons and anesthesiologists on the web, and factor in the fact that Dr. Larry Bucshon is the President of this very prosperous, prestigious cardiovascular health care company with such a broad reach, the two of them combined should be making $1.0 mil to $1.5 mil per year in total compensation, including benefits like profit sharing/pensions. And I think that this estimated annual compensation would be their average annual compensation for the past eight years that he was President of this incredibly successful surgeon physician practice.
I don’t have any information, but my hunch is that the very successful OVHC is a personal service corporation, which is presently taxed at 35%, which under Dr. Bucshon’s tax plan, would also be reduced down to 20%. And then I am guessing that he owns some of the common stock of this OVHC personal service corporation. Given how successful it has been, and its very broad reach, OVHC has to be worth an awful lot of money, and with Dr. Bucshon's tax plan, it would be worth 23% more.
And then you have to factor in the “smart money” effect on the Bucshon family wealth. The “smart money” on Wall Street doesn't bias its economic assessments by Party politics. It just coldly looks at the facts and makes honest interpretations of the economic impact. That's why it's called "smart money".
This “smart money” will generally tell you that wealthy common stock investors, probably like the very smart Bucshon family, benefited dramatically from the Obama Administration driven upward explosion of the stock market since its low in March 2009. That would add much to the fair market value of the Bucshon family common stock holdings.
Anyway, when I put it altogether, I would be very surprised if the net worth of the Bucshon family wasn’t at least $10 mil. And then let’s assume that half of that, or $5 mil, is in common stock, either owned directly or indirectly by Dr. Bucshon and his wife. And then you also have to include the common stock in their mutual funds, and also common stock in their retirement plans.
Under Dr. Bucshon’s tax plan, as shown earlier, this assumed $5 mil of common stock should increase in value by 23%, or by $1,150,000, assuming all of the common stock was held in purely domestic companies, like the very lucrative OVHC. If instead, it was held in common stock of US Multinational Corps, the percentage increase is much higher than 23%, due to the additional windfall tax benefits from the lower 15% tax on the Unremitted Foreign Earnings of Multinational Corps, resulting from Bucshon's tax plan.
If you want to be conservative, and cut the above Bucshon family common stock holdings in half, under the Bucshon tax plan, the Bucshon family’s personal wealth would still increase by at least a very healthy $575,000.
Personally, I think when candidates are this obscenely wealthy, they live in a different world than, and they frequently have lost touch with, the overwhelming majority of citizens in their District. What happens here is if elected, this person ends us just working for citizens in his District that share his ideological views. And I think this is clearly the case with Dr. Bucshon.
On the other hand, Trent Van Haaften, a moderate, clearly understands that he is working for all 8th District citizens. In certain of his votes, he knows he’ll upset the left, and in other votes, he knows he’ll upset the far right. But this is how the broken US government’s gridlock will get fixed…with more legislators in it like moderates Trent Van Haaften and Baron Hill, who are willing to work across the aisle.
