Bean Bag Justice?

Bean Bag Justice?
January 17, 2014

David L. Applegate

David Applegate is a Chicago-based trial lawyer and partner at the law firm of Williams Montgomery... (read full bio)

Like the Chicago Tribune, we too were surprised to see Ty “Beanie Baby” Warner, who pleaded guilty last fall to evading taxes on part of his income, receive from U. S. District Court Judge Charles Kocoras a sentence of only two years probation and 500 hours of community service. Unlike the Tribune, we are merely surprised, but not outraged.

In brief, the facts are that Warner, who created the phenomenally successful “Beanie Baby” collectible toy craze in the 1990s, sought to avoid sharing with the federal government some of his resulting phenomenal income by stashing some of his money in overseas accounts with UBS, which once stood for “Union Bank of Switzerland.” (Today the company’s successor is a Swiss global financial services company that provides investment banking, asset management, and wealth management services and has a large U.S. presence, including its own modern office tower on Chicago’s Wacker Drive, across the street from The Heartland Institute's office building.) In this, he was like most income-earning Americans, who would prefer to keep as much as possible of their hard-earned income for themselves and their families.

Tax evasion is of course illegal, but tax avoidance is not. Indeed, the Internal Revenue Code encourages many Americans to reduce the share of income they fork over to the feds by allowing deductions for mortgage interest and charitable contributions, credits for raising and adopting children, and — under Obamacare — even avoiding a tax penalty by buying health insurance if they don’t already have it.

After striking it rich with “Beanie Babies,” Ty Warner, unmarried and childless, did many of these things of his own accord, giving millions to charity and even paying medical expenses for other people as part of his contribution to the community, all in addition to paying over one billion dollars in personal income taxes over the past twenty years.

Never mind that at its current rate of speed, the federal government would blow through a billion dollars in four to six hours. That’s still a helluva contribution to the general welfare, not to mention all the joy that Warner’s “Beanie Babies” — despite their sometimes fawning simplicity and overbearing cuteness (they were not my cup of tea) — brought to millions of children and grandmothers worldwide during Warner’s twenty-year reign as the undisputed king of kitsch.

In contrast, the huge financial tax avoidance industry that the Internal Revenue Code’s length, breadth, and complexity have spawned imposes a huge deadweight loss on the economy. (Former Chairman of Council of Economic Advisers Martin Feldstein, for example, calculated in 1995 that eliminating just the 1993 rate increase for high income earners would have reduced this deadweight loss by $24 billion while actually increasing tax revenue.)

Unfortunately, the government, like the Tribune, doesn’t see things this way. So Warner, a 69-year old bachelor with a troubled childhood and apparent emotional issues, found himself on the wrong end of a criminal prosecution for tax evasion. After unsuccessfully trying to join a tax amnesty program in 2009, Warner entered a guilty plea in September 2013 and sought to give his mea culpas at that time. Judge Charles Kocoras told an obviously remorseful Warner to save it for the sentencing hearing, and Warner did so with spectacular success: instead of a possible five-year prison term, he was sentenced to two years’ probation plus 500 hours of community service. (In the meantime, Warner had agreed to pay a $53.6 million civil penalty and $16 million in back taxes.)

Among President Obama’s more revealing off-the-cuff comments of the past few years is his expressed view that “I do think, at a certain point, you’ve made enough money.” Agree or disagree with the sentence that Judge Charles Kocoras handed down to Ty Warner, it is perhaps one small sign that sooner or later, you may also have paid enough in taxes.

Just don’t forget to file and pay yours come April 15!

David L. Applegate

David Applegate is a Chicago-based trial lawyer and partner at the law firm of Williams Montgomery... (read full bio)