Title: Now Is The Time For A Major Industry Push Towards Liability Law Reform
Author: Andrew Molchan
Date: Fri June 10th, 2005
Dear Friends,
(Fort Lauderdale. December 17th) In last month’s issue of American Firearms Industry (AFI), I quoted Industry Insights from the November 1999 issue, page 44. I said, "America is into one of those historical major social and cultural turning points that comes along once every fifty or ninety years. America is either going to go down the ‘salvation by big government’ road, or, we will return to the traditional road of understanding that people have to take responsibility for their own actions, and what any government can do is limited. We are in the middle of this process and we have confusion, anxiety and even chaos. Everyone is ‘jumpy,’ but certainly in ten years, or sooner, it will be clear what road America has chosen. Once chosen, we’ll be on that road for the rest of the lives of most people reading this page."
In the August 1998 issue of AFI, on page 44, I stated almost the same idea as outlined above.
The Presidential election of November 2004 was the fork in the road. America had a very clear choice. One road was classic left-wing Democrat, John Kerry, who promised socialist salvation by big government. The other road was President Bush, who mainly stayed with traditional America values.
What happened in November is the Salvation By Government people finally realized that they are a minority. Until November 2004, they sincerely believed that they were the majority. They also believed that young people would vote socialist (i.e. for the Democratic Party). That was another shocking wake-up call for the “Blue State” people. However, America’s socialists are true-believer fanatics. They are like the monsters in every horror movie. Just when you think they are dead, they come back to life.
Right now the Democrats are still in shock. Senator Tom Daschle who defeated the Liability Protection Bill has been voted out of office. There are a lot of lawyers who are disorganized. This is the time for a full court press to pass a liability reform Bill that covers more than our own industry.
America is going in the correct direction for now, but the fight is far from over. I’m sure Hillary Clinton will run in 2008. My prediction is that in the 2008 Democratic primaries Mrs. Clinton will be deliberately and especially vague about the specifics of her policies. However, as soon she has the Democratic Party nomination, she will make a sharp turn to the right. I wouldn’t be surprised if she chose as her VP an ordained Protestant minister from a big middle-America State, like Ohio. Mrs. Clinton will adopt the most popular ideas of the Republicans, and run as an ultra conservative Democrat. That will be a planned tactical trick. Once elected, she will make a sharp turn to the left and pack the White House and administration with those who want to establish the counterfeit church of State over God.
Mrs. Clinton is interesting for those who study the Bible. Revelation 17; 18:7 says a woman who is an imposter would call herself queen and head the global counterfeit church in the last days. Communism/socialism is the counterfeit church that always wanted to replace God with the State. Revelation 17:9, 18 says that the woman would embody a great city. That could be New York City, and/or Washington D.C.? Isaiah 47 says, the Lady of Kingdoms would deceive God’s people. Zechariah 5 states that in the last days, this wicked woman would go out over the face of the whole earth. She would be associated with a global curse. Her final destination would be Babylon in the land of Shinar (i.e. Baghdad in Iraq). Personally, I’m absolutely sure that the future isn’t going to be what most people think.
The presidential campaign exposed some issues that like the horror movie monster, will return. John Kerry talking about increasing taxes, "But only on rich people making two hundred thousand dollars a year or more." Sure! That was and is a con game.
I listen carefully to what people say, and I listen more carefully to what they don’t say. In the debates both Vice President Cheney, and President Bush pointed out that Kerry was talking about Sub-Chapter S Corporations. John Kerry never denied that point. That’s an example of listening to what people don’t say.
Those who have read my column for years, know that periodically I touch on what you have to do to make yourself and your company lawsuit resistant. Long time readers of my column know that for several years I have recommended against being a Sub-Chapter S Corporation. This was more good AFI advice, and as always years ahead of its time.
During the campaign Kerry tipped the Democratic Party’s cards and confirmed the attack that would have come against Sub-S Corporations if he had been elected. Sub-S Corporations won a 4 years suspended sentence, but Hillary will run in 2008 and could win. Then we’ll be back to taxing Sub-S Corporations as "the rich."
Some people will in all honesty ask, "Why not tax the super rich." I’ll tell you something that will fly in the face of the disinformation that most people have been feed by the left wing media. Something anyone can check out by using official government income data. The truly rich, people with over 10 million dollars, don’t have that much in total money. I’m serious, that’s a provable fact. Kerry, and Hillary Clinton know that increasing taxes by 40% on the super rich would bring in enough extra money to run the Federal Government for perhaps a week or two, at most. The only place where significant extra tax money can come from is the middle class, and that means YOU! Using 5th grade math skills, this is a provable fact from government individual income data.
As mentioned in past AFI issues, a Sub-S Corporation is one where you and the corporation tax flows into your personal tax return. A Regular Corporation is treated like a separate individual and is taxed like a separate individual. Most accounts and lawyers recommend a Sub-S Corporation. However, in my opinion Sub-S Corporations are good for the government, but not good for you.
I’ll explain, pretend you are Tom Jones of Tom’s Gun Store. You are a Sub-S Corporation. You gross about $800,000 a year in sales. You make about $80,000 before taxes. You declare $50,000, and between Federal tax, state tax, local real estate taxes, permits, etc. you pay $15,000 in tax each year. So you have about $65,000 real take home. You work about 70 hours a week and that’s about 3650 hours a year. So you are making about $18 an hour, or less than somebody on a Detroit auto assemble line. However, the Detroit assemble line worker also receives hospitalization insurance, paid vacations and a paid retirement program that could be worth hundreds of thousands of dollars if they live long enough.
Suppose John Kerry had been elected and is now President? President Kerry would say, "We need more fairness in America and we have to tax the rich their fair share. After all, the rich are rich because they steal money from the poor, and that’s why the poor are poor. So my administration will dedicate itself to justice and give the money back to those who deserve it. Look for example at that this rich person, Tom Jones of Tom’s Gun Store. He makes eight hundred thousand dollars a year, but he’s only paying fifteen thousand dollars a year! He’s only paying about two percent in tax! He needs to pay his fair share, right? But I’m generous, the Democratic Party is generous, so we are only going to raise Tom Jones’ tax by five percent. Now, is that so much extra to ask? Only a Republican pig would object to five percent extra when they are already making almost a million dollars a year and paying almost nothing, right?"
So, Tom Jones is making $800,000 a year, right? Because he’s a Sub-S that means his business and he are treated as one Continued from Page 53
person, right? So, President Kerry (or President Hillary) raises taxes "on the rich" by 5%. Here is the trick waiting to happen, that’s 5% tax on $800,000 a year. So the 5% is an additional $40,000 in tax. Mr. Jones was making $65,000 take home so now that goes down to $25,000 take home! Mr. Kerry’s (or Hillary’s) 5% "fair" tax increase is a financial disaster to Tom Jones and his family.
Some people are saying, "No, no, that’s 5% on people’s profits, not on their gross." WRONG! You weren’t listening during the debates were you? And/or you didn’t want to hear what was really being said, and/or you heard what you wanted to hear.
Most small businesses in America have made the mistake of becoming Sub-S Corporations. There are about 6,000.000 Sub-S small businesses! This is where Kerry’s (Hillary’s) "tax the rich" money was (is) going to come from. Vice President Cheney said during the campaign, specifically about this issue: "Small business in America is a growth area. It’s insane to increase the taxes on the only business area that’s hiring people."
I’m not a lawyer, and I’m not giving legal advice. I’m telling you what, in my opinion, you might want to consider.
In my opinion it’s safer to be a Regular Corporation. That way you and your gun store, distributorship, firearms manufacturing company, etc. are separated. Your assets should also, in my opinion, be divided up into two or three regular corporations. The building and machines, for example, should be a different corporation from the name on your products. Aside from the owners of the company, bookkeeper, and CPA, tax returns and that kind of thing, nobody else needs to know about the other corporations.
A few people are saying. "Andy, my lawyer said another lawyer suing me could pierce the wholly owned corporate veil and get to me anyway." Yes, that’s what many lawyers say, and they say that because in my opinion they are lawyers first, and working for you second. The advice I’m giving you is good for you, but not good for lawyers.
Think of modern warship design, everything is compartmentalized. The ship can be hit several times and still stay afloat. Your assets should be the same.
Here is the main factor. You must treat any closely held corporation as a real company, and as a separate company. If for example you pay rent to the corporation that owns the building, and they pay tax, and that corporation files tax with the rent as income and so forth. In other words, if you treat your other corporations like you’d treat a business not wholly owned by you then it becomes very hard to "pierce the corporate vale." Especially if you have been doing this for a number of years before any lawsuit.
I’ll tell you something your lawyer and account probably are not telling you, "piercing the corporate vale" works the other way around. Many small corporations, Sub-S or Regular Corporation, treat their company checkbooks like an extension of their personal checking account. Is that you? If you are sued, a lawyer could subpoena your company checkbook and say you treated your Corporation not as a true Corporation, but as an extension of your personal checking account, and thus the corporation was really you, personally. Once that’s done the corporation is "pierced" then all your personal assets are on the line for a judgement.
A few other important legal factors most CPAs and lawyers won’t tell you. With a Regular Corporation you can have a meeting of the Board, as per the corporate rules, and insert in the corporate record book minutes a resolution for the corporation to pay any immediate family medical bills, legal bills, and so forth. That’s legal, so long as its noted and written correctly in the corporate record book. On the other hand, if you are a Sub-S, all medical expenses, legal fees, etc. that a Sub-S pays that are related to you become personal taxable "income" to you. That income is charged back to you as salary and you are liable for all the FICA, Federal and state income tax.
Another highly valuable AFI suggestion is your home, or the building for your business. Go to a real estate lawyer and put 5% of your home, or business building, into your children’s, brother or sister’s name. Their name should be on the deed on file in City Hall. If worse comes to worse and you lose a big case, or have medical bills, and so forth. Even if somebody gets a court judgment against you they cannot sell 95% of a building, they need 100%. If they have a judgment against you and your wife, but no judgment against your brother or son, they can’t get a clear title and they can’t sell your building. This has to be done before any lawsuit is filed otherwise the other side will say you are hiding assets and will win that case. However, if you do the above years before any lawsuit, you are in a good position.
Don’t be surprised when the real estate lawyer you go to objects to the above. My suggested is to just tell him what to do. If he objects, ask him these questions: your home is 100% in your name, you have a big judgment against you, what’s his suggestion for keeping your home? If he won’t do it, find another lawyer. (PS-homes in Florida are protected from judgments so long you never specifically sign them over as collateral).
The above principle can apply to: machinery, cars, trucks, boats, airplanes and anything that cannot be divided without destroying its value. Lawyers will say, "There are always ways of going after you." True, the point is that lawyers are like thieves. If it’s easy, the lawyers will definitely go after you, but if you make it hard they will usually go someplace else. If you leave your keys in the car everyplace you go, you’ll be robbed. But if you have a car alarm you put the odds in your favor. That’s what it’s all about.
I’m sure a few people are asking, "Andy, isn’t your advice just a little unethical?" My answer is that we in the firearms industry have been on the receiving end of unethical legal attacks for years. Over the last dozen years, politically motivated lawsuits have cost our firearms industry half a billion dollars in direct expenses and indirect lost business. For the last 25 years Dan Rather, Tom Brokaw and Peter Jennings at CBS, NBC and ABC nightly TV news have deliberately and systematically lied about firearms and crime. You have an ethical responsibility to yourself in your old age, and also to your wife and children to not let some communist anti-gun lawyer steal your family’s money.
A recent example of "justice" is the Bull’s Eye gun store case as reported in the November issue of AFI. An AR-15 rifle was stolen from Bull’s Eye gun store in Oregon. John Allen Muhammed, and Lee Boyd Malvo, who admitted stealing the gun, used the AR-15 in several Washington D.C. area murders. Bushmaster Firearms sold the rifle legally to Bull’s Eye gun store, a major gun store in the area. Bull’s Eye and Bushmaster paid out 2.5 million dollars! Ouch! The former owner of Bull’s Eye is out of business!
There is the Glock case in California. Glock sold a handgun to a police department. After one of their officers used it for a time the department upgraded and the police department legally sold the used Glock to a firearms FFL dealer. The dealer sold the gun and it was used in a murder. The result? Glock was found guilty and fined several millions of dollars. Unbelievable isn’t it?
Individuals from all over the world keep asking. "How can America have a crazy legal system like that?" In my opinion the American legal system is the worse in the industrialized world. This is one of the main reasons why companies leave America. In America if you have money, and you or your product are connected in any way whatsoever with something that went wrong, the lawyers will be on you like hungry sharks.
In America, the best defense is to make your self as judgment unfriendly as possible. You need credit when you are young to buy a house, but after age 55 you should deliberately make yourself look poor. Deliberately don’t pay some of your bills and let that go on your credit rating. You need a few credit cards for traveling, or mail orders, aside from that keep your credit cards in the drawer at home. When a lawyer is deciding to sue you or not, the first thing he’ll do is look at your credit report. My advice is basic military tactics. Camouflage yourself.
Thousands of American manufacturers have already judgment proofed and camouflaged their factories by moving them outside of America. That’s not the only reason factories move out of America, but it’s one of the five main reasons. In a Chinese gun factory, if somebody stole a gun and it was used in a murder, the gun factory management would not waste one second worrying about being sued. It would be unthinkable.
America’s liability laws are a major handicap to America’s world competitiveness, and one of the reasons why every year tens of thousands of good jobs continue to leave America. Many types of factories have more de facto legal protection in Red China than they do in California. America must return to the pre-1950 legal liability principles that made America the greatest manufacturing society of that age. The bottom line is that America cannot afford the kind of tort laws we have today.
All over the world there are nations that are building new factories, adding millions of jobs, booming and they don’t having a massive negative trade balance like America. They don’t have a declining currency like America. What they do have are America’s pre-1950 liability laws. It’s time for Washington D.C. to get its head out of its ass.
As part of your legal preparedness, every gun store should be using the Professional Gun Retailers Association Form 77. That is a simple sales form to help prevent lawsuits. There are no absolute guarantees that you can’t be sued (in America anyone can sue anyone for anything), but to the best of my knowledge no gun store using the Association’s Form 77 for sales has been sued. In my opinion many lawyers are like crooks. The harder you make it
for them to steal something, the better your chances they will go someplace else. Call Alex or Stacy at the Association, 954-467-9994 and order your Form 77s today.
Fortunately most gun stores won’t be sued for a firearms related issue. However, there is a very high probability of something almost as bad in your future. There is a high probability that many people reading this page will have a personal bankruptcy somewhere in their future. You are saying, "No, no, not me." Well, you don’t know, and taking AFI’s advice over the next few years could keep you out of the welfare soup line.
Corruption of every kind spreads like a cancer. The lawyers have been raping everyone, especially the doctors and hospitals for a quarter century. Now the doctors and hospitals have doubled or tripled their prices and are charging everything back to their customers, and suing to collect. In most big cities it’s easy to run up a $100,000 hospital bill IN ONE DAY!
Suppose you are looking at a $500,000 hospital bill. Suppose you didn’t take my advice and your home, bank accounts, stocks, gun store, cars, land, everything is in your name and totally exposed to a lawsuit judgment? When all your assets are in your name, after declaring bankruptcy, the lawyers still have a legal claim to everything you have. The mortgage company will foreclose on your home and sell it. The auto dealership will tow your car away. The lawyers will get a court order and legally take the cash out of your checking account and the stocks out of your brokerage house. Without some of the precautions I’ve mentioned, the sheriff will come one morning with a moving van and take everything in your home, and then charge you for his time.
You should become an Association member, or subscribe to AFI Magazine. Members receive all the issues of AFI. In the years to come I will give you valuable survival advice. For example, in the short term we are in a housing bubble that has already started to end. I’ve written about what to do in past issues, and will continue to give you suggestions in this column. As to personal bankruptcy issues, America is in a gigantic credit bubble. The Federal government, states, cities, corporations, individuals, everyone and everything is eyeball deep in debt, it’s unbelievable. The majority of Americans are living in a dream world. They sincerely believe that 30 trillion dollars in government and private debt will somehow just magically go away. Most middle-class Americans are going to be blindsided and they will lose much of their wealth. However, a few people will save themselves, I’ll tell you how.
In future issues I’m going to write about a lot of personal survival topics that will only appear in the pages of AFI. An Association membership is only $65 for 2 years. That helps us fight the good fight for firearms retailers and America. A subscription is only $25 for two years. Fill out the form in this issue and mail it back, or call Alex at 954-467-9994 and put it on your credit card.
Going way back to 1964, I predicted that America would lose the Vietnam War. In June of 2004 I predicted President Bush as the winner. I never bought the weapons of mass destruction scam even before the recent Iraq invasion because for years I’ve known that the CIA was being duped, and is still being duped. In the mid 1970s I went to Washington D.C. trying to sell the idea of armed airline pilots and bulletproof doors on airplane cockpits. I gave that up when it was clear that people in Washington D.C. thought that I was some kind of dangerous nut. In 1998, I said we were in a stock market bubble. In 2000 I said the stock market could stay around 10,000 for a long time. Over a year ago I said we are currently in a real estate bubble and that too will end someday. Shortly after President Bush took office in 2001, I wrote him a letter suggesting a task force to maintain the value of the dollar. I reported that letter again on the front protective cover of the June 2003 issue of AFI. In early 2001, I predicted the eventual raise of the Euro against the dollar. I’m still predicting the Euro will eventually go up towards 2 to 1, but that will take a few years and it definitely won’t get there in a straight line. What all this and more means to you will be in the future pages of AFI.
On a personal note, I have during the last few years spent a lot of time working on my series of John Dagon novels. The Dagon novels are, as you might guess, very pro-firearms. Because of my recent novel writing a few people have asked if I’m retiring. Absolutely, "No," I truly enjoy working on the novels. They are a mind adventure in themselves. I also love working in the firearms industry. I sincerely look on my past 36 years as an honor. It’s been an honor to be even a small part of the industry. I’m planning to continue my work in the firearms industry, God willing, until my 50th industry anniversary in 2018.
I am disappointed about one thing in our industry. This election was vitally important. AFI was crystal clear as to where it stood. On the other hand, there were a few gun publications that were at best medium warm. I was born a Democrat and worked as a kid for the original Major Daley. The Daley family has controlled Chicago as a one party dictatorship for over half a century. They have three simple rules as originally told to me by the late Major Daley: 1. You do something for me and I’ll do something for you. 2. You don’t do something for me and I won’t do anything for you. 3. There is no such thing as neutral. You are either with us or against us. One of my personal peeves happens to be the people in our industry who think they are above politics. Or worse, they don’t want to get involved! If you "don’t want to get involved" then become a florist.
There will be a lot of great issues of American Firearms Industry Magazine(AFI) in the future. The future isn’t going to be what most people think. AFI will continue to have unique, original-thought, one of a kind editorials that will be very important to your business and to you as an individual. Fill out the membership application today and mail it in, fax it in, or give Alex or Stacy a call on the phone at 954-467-9994.
Best wishes
Andrew Molchan, President
INDUSTRY
INSIGHTS
