While the Getting Is Good – Insiders Cashing Out Stock Holdings as Tax Hikes Threaten

While the Getting Is Good – Insiders Cashing Out Stock Holdings as Tax Hikes Threaten

On the first of this merry month of December, reports said that some of America’s flashiest – and savviest – CEOs, market insiders, and vanilla billionaires had been selling record-breaking parcels of stock this year.

What an eye-opening thing to read. Do they know a secret?

In the first eleven months of 2021, corporate insiders sold $69 billion in stock – that’s a lotta zeros there, as we old folk say. That’s 30% more than in 2020, and nearly 80% over the ten-year average, I’m told.

I have a professor friend who chides me for this type of reporting – it’s ‘just cut ‘n paste journalism’, he calls it, the Ph.D.-ed bum. So I knock him back: his academic papers, which I edit pro bono, are mere book reports. Gosh, we get steamed, but it’s nothing to our combat over who gets the last egg roll or rib.

Yet this brash stock selling, it’s not so odd. Share prices sit at all-time highs – we live in a record-smashing era. Federal tax hikes are coming next year. House of Representative Democrats back a 5% surtax on incomes north of $10 million and 8% if over $25 million. I don’t offer the gilded victims much sympathy, but I admit, they’re getting a whole lotta zeros dumped on their tax bills. Anyone with a heart to feel, would reel.

That isn’t all: states are getting into the tax hiking game, too. At the first of the year, Washington will light up a 7% tax on capital gains that breach $250,000. That spanking could smart; more on this presently.

Many of these stock mega-sales, by suspects like Microsoft’s CEO Satya Nadella (who just offloaded $285 million in shares, specifically to avoid Washington state taxes), the Waltons ($6.2 billion in Walmart stock alone) and old man Zuckerberg ($4.5 billion), have been conducted under SEC Rule 10b5-1. This allows industry insiders with ‘material nonpublic information’ to sell shares under a preset plan over the year, thereby managing insider trading concerns.

This story doesn’t rate notice simply because industry barons are flipping rich holiday parcels of shares – no, the stock market’s sky is not falling. It’s those elevated amounts that make headlines, and as noted, that’s mostly about taxes. The sellers will end up with sheer mountains of cash. What should they do with those slick slopes of green?

Let’s travel to Washington state now to see the trouble firsthand. My gal pal Poppy lives in Seattle. We met in Moscow, worked on scrappy projects that paid peanuts, and when she left for home in 2005, Poppy swore she’d go do our world some good. “Don’t get too righteous,” I said. “Business is business. Someone needs to make toasters,” I added, vaguely and unhelpful. Good thing Poppy never listens to anyone.

She joined a start-up green energy firm, was made partner on brilliance alone, was gifted valueless stock that’s now worth a packet.

How will the new state tax law affect her? “It’ll sting my curvy posterior,” she said, when we talked just last Sunday. Forgive her self-regarding Callipygian imagery – on the Catholic sabbath to booty! – but that’s how she talks, now and forever, amen. Poppy’s PC, but not when we’re talking the bottom line.

Poppy’s already sold most of her shareholding. She intends to diversify, cover the down payment on a bigger house (with extra rooms, so she can BnB it), get a new SUV (a hybrid, don’t panic). I suggested physical gold and fine jewelry. Poppy has a taste for jade bracelets – I knew a guy in Thailand, helped her out. Working long in South Asia, I found these traditional assets were still popular hedges against all events dire. Old school investments still work.

If you’re selling stock now, dear readers, please recall these old-fashioned ploys to store wealth. When the bulk of my family was driven from Smyrna in 1922, they came to America with nothing, save one velvet-lined case – full of gems.

“Oh, they sparkled, Thomas!” – exulted my Papou, remembering that box. His kin had lost homes, orchards and businesses – everything, it seemed – yet they had enough in their hands to feed the extended family and ethnic neighbors, launch new ventures, build a grand church still open for worship in Watertown, Mass. I wonder how one says ‘be prepared’ in Greek?

My old man’s cousin Leo, an Egyptian Greek, served in the RAF in WW2, came to the states postwar with a suitcase full of gold watches; he prospered. My friend Waheed in New York, master of coffee and bagel cart, escaped Kandahar years ago. Each morning, his cousin Gul, who emigrated more recently, tows the cart to his prime spot near Central Park.

Last month, Gul’s Prius cracked a battery. What to do? “No trouble, he sold another gold necklace,” yawned Waheed, and his small business keeps humming. They’ve no need for credit cards in Kandahar.

No literal invaders are coming to eject us, but next year, the capital gains tax will rise to 28.9%, if Democrats get their way – bet they will. Wealthier citizens should divest now, pay today’s lower taxes, enter a holding pattern, and spend the cash wisely. Beyond precious bracelets, an early inheritance for the kids might make sense, along with tax-easing charitable gifts. Today’s estate tax exclusion of $11.7 million will likely be cut to $5 million next year. Why wait for death, if you’ll excuse this cold holiday cheer-breaker, to reward your estate’s beneficiaries?

There’s a time to save and invest; a time to divest, spend and diversify. If the billionaires and industry captains of America know anything – I leave the judgement to you – that time is now.

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