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Bush's Legacy from Carter


President Bush likes to hark back to the tax-cutting legacy of Ronald Reagan. But when it comes to ending double taxation of dividends, he would be more accurate to cite another President: Jimmy Carter. In 1977, his first year in office, the Democrat pushed to end or at least curtail the double taxation. He would have done it in a way that tilted benefits toward lower-income brackets. The plan died a slow death in Congress.

In contrast, tax laws passed under President Reagan actually intensified double taxation of dividends. The Tax Reform Act of 1986, while sharply cutting income tax rates, ended the exclusion of the first $100 of dividends from tax liabilities.

So will Bush now start citing Jimmy Carter in selling his economic plan? Don't bet on it. Kenneth Lipper, the money manager who lost millions running a hedge fund for the rich and famous, may have been looking out for himself, his family, and at least one friend at others' expense.

This allegation is made in a lawsuit filed on Jan. 3 in a federal court in South Carolina by the blind trust of Senator Ernest "Fritz" Hollings (D-S.C.). Lipper announced in February, 2002, that Lipper Convertibles had lost 40%, or $315 million, of its value. The complaint states: "Remarkably, in January, 2002, prior to Lipper's February announcement, Ken Lipper, through Lipper Holdings, had already withdrawn $3.15 million from his own capital account."

Lipper's pal Mortimer Zuckerman, chairman and editor-in-chief of U.S. News & World Report, allegedly withdrew $12 million in January, 2002, according to the lawsuit, which claims: "Lipper was obviously looking out for his friends." And, it charges, that Lipper's four daughters made a withdrawal of about $300,000 each in November, 2001, and one took out an additional $270,000 the following month. At the time, Lipper daughter Daniella Lipper Coules worked for her father as a research analyst.

Speaking for Lipper, company exec Abe Biderman says the suit has no merit. The $3.15 million, he says, was withdrawn in anticipation of earning yearend income and was later repaid. Biderman doesn't deny the daughters took out money but says other Lippers added funds. Zuckerman says all decisions were made by his financial adviser.

As BusinessWeek reported in "The Fallen Financier" (Cover Story, Dec. 9), Lipper & Co. was forced to liquidate its funds. The Securities & Exchange Commission and other regulators are still investigating. A sure-to-be-contentious issue in the Jan. 28 confirmation hearings for Treasury Secretary nominee John Snow: His company, railroad giant CSX, didn't pay any federal income taxes for two of the years when he sat at the controls.

CSX took deductions on depreciation of capital investments relating to its acquisition of Conrail and didn't pay taxes in 1998 and 2001, says spokesman Adam Hollingsworth. Indeed, Uncle Sam refunded CSX more than $50 million in each of those years.

While this is not unusual for capital-intensive companies, some lawmakers feel it's unseemly for a Cabinet official. Watchdog group Citizens for Tax Justice director Robert McIntyre says it makes Snow a "corporate freeloader." CSX counters that it paid taxes 9 out of the 11 years that Snow was the chairman.

The issue may spark fireworks, but it's unlikely to derail the nomination. Insiders say that Snow has been charming members of the Senate Finance Committee behind the scenes. "While we're not taking anything for granted, we've not been made aware of any serious concerns with his confirmation," reports Treasury spokesman Rob Nichols. As chairman of the no. 1 online job-search site, Monster.com, Jeff Taylor oversees a database of more than 22 million r?sum?s.

Despite Taylor's expertise in helping people post their credentials, it turns out that his own are lacking the most important element: accuracy. According to the corporate Web site of Monster's parent company, TMP Worldwide, Taylor "has an executive MBA/OPM" from Harvard Business School.

Problem is, there is no such thing. Harvard doesn't offer an executive MBA. The only MBA it awards takes the usual two years--full-time--to earn. According to Harvard spokesman Jim Aisner, what Taylor does in fact possess is a certificate from Harvard's Owner/President Management program, something that requires only three weeks a year for three years--a much less impressive credential.

Taylor, who drew a 2001 salary and bonus of $950,000, declined comment. Monster spokes-man Kevin Mullins acknowledges the error and says "there was no intent to misrepresent." The company, he says, is taking steps to correct it. Does the war on terror have a silver--or even a golden--lining? A couple of onetime intelligence chiefs think so. Former CIA director James Woolsey and ex-National Security Agency director Kenneth Minihan, both from the Clinton Administration, are doling out multimillion-dollar investments to tech startups that can help shield computer systems from possible terrorist attacks. Minihan, who in 1997 sounded a warning about the vulnerability of Pentagon databases, says current corporate and government firewalls are "the equivalent of flimsy cockpit doors."

The former spooks, working with Washington-based private equity firm Paladin Capital, have raised $65 million since May for their Homeland Security Fund. Fundees include Arxan Technologies in West Lafayette, Ind., which is working on ways to thwart software tampering and piracy, and ClearCube Technology in Austin, Tex., which can house the guts of an office full of PCs on a central secure server. Clients include BP, Morgan Stanley, and the U.S. Air Force.

Other VCs are getting in-to the act, too: Patriot Ventures and Sky Capital Holdings, though they have yet to announce investments. Mall merchants were only too glad to put this dismal holiday shopping season behind them. But for online retailers, it was a happier story. Final revenue tallies show that online sales jumped more than 20%, to $9.8 billion, according to tracking service comScore Networks, up from $8 billion last year. Online sales made up 4.6% of total holiday sales, compared with 3.7% last year.

Slowly but steadily, e-tailers are gobbling up a fatter slice of the retail pie. While most of the siphoned-away sales come from brick-and-mortar merchants, which still account for more than 90% of sales, catalogers are seeing the biggest changes, analysts say. Take Best Buy (BBY) and J. Crew. The consumer-electronics merchant sells an estimated $400 million to $500 million online, but that only adds up to about 2% of its total sales, says Ken Cassar at Jupiter Research. For J. Crew, catalog sales were flat in December, but online sales rose 24%, to $26.1 million, accounting for 55% of direct sales. "There is a huge shift going on," Cassar says. E-tailers, though, don't care whose slice of the pie they get.


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