Despite planning to start a new job on Jan. 7 that pays $133,600 a year, Rep.-elect Merrill Cook, R-Utah, says his annual income is about to dive.
Fellow multimillionaire Rep.-elect Chris Cannon, R-Utah, however, says he doesn't face that problem - and expects no financial pinch from his new job as a congressman.The disparity comes from how House ethics rules and tax laws treat their differing sources of outside income and how each has structured his investments and corporations.
Ethics rules, designed to limit outside influences on House members, require them to give up day-to-day direction of their companies (and salaries forthat direction). House members are also banned from being paid members of any corporate boards of directors.
However, such rules do not limit "unearned income" from such things as stock dividends, interest on investment portfolios and capital gains from the sale of stocks or other assets.
Those rules forced action by the two freshmen that Cook says will force him to tighten his belt a bit but that Cannon says will not hurt him.
Cook is resigning as president and chief executive officer of Cook Associates and subsidiary Cook Slurry Co., which manufactures mining explosives. He also is leaving the boards of both but will still own 100 percent of their stock.
Because Cook can no longer receive a salary as company president or a director, he says about the only way his companies (as now structured) could provide him money would be to pay him dividends on his stock.
"The trouble is I would essentially pay double taxes on it," Cook says. That's because the corporation would first have to pay taxes on dividends it distributes - and Cook is sole owner of the corporation. Cook as an individual would then also have to pay taxes on dividends he receives personally.
"I don't want to do that unless I run into some emergency," Cook said. So he expects profits to simply be reinvested in the companies themselves during his years in Congress.
"That will make them worth more, and eventually I would reap benefits from that," Cook said.
"I have other investments that will still provide income, but they aren't as big as they once were because of the money I have spent running for office" - more than $3 million in recent years, Cook said.
So he says he expects a "significant" cut in his annual income - even with his new $133,600 House salary. He notes, however, that he is allowed up to $20,000 in outside "earned" income, which he may be paid as a consultant to his companies during the transition, which could help soften the income dip.
Exactly how much he has earned in recent years is unknown. But disclosure forms he filed earlier this year showed he received between $128,219 and $241,514 in 1995. During the first three months of 1996, he reported income in a range between $76,138 and $164,933.
Cook said he knew such arrangements would be needed when he ran for Congress, so he isn't complaining - but he does wish rules would be modified to allow keeping closer contact with the companies he helped found and build.
"I'd be willing to do this (serve in Congress) for free - but I will need the salary because of the limits on outside income," Cook said. "But this is the highlight of my life. It is so delightful to be in a position where I can make so much hap-pen."
Meanwhile, Cannon doesn't expect a dip in income because most of his money in recent years has come from interest on loans he made or the sale of stock - not his salary as president and CEO of Cannon Industries, a venture capital firm he founded.
Cannon had to resign those positions, and he also chose to resign from the boards of directors of five other corporations: Advanced Resin Systems, Cannon Engineering Technologies, CI Leasing, CI Technologies and LJ Development.
But his disclosure form filed with the House earlier this year reported no income from those positions anyway.
And rules won't affect interest income he reported from companies with which he is involved - such as the interest between $50,000 and $100,000 he made in 1995 on a loan to Cannon Industries - or from capital gains, such as more than $1 million he reported from the sale of Kyzen Corp. stock in 1995 (he once served as a director of that company).
Cannon even says that life in Congress may require less travel money and other expenses out of his own pocket - "so my cost of living might actually go down."
Cannon reported between $159,108 and $1.13 million in income in 1995. He eclipsed that, however, during the first three months of 1996 when he reported income between $1.04 million and $1.06 million or more.
Of note, while Cook and Cannon could have chosen to continue serving on company boards as unpaid directors, both said they chose against it to help avoid even the appearance of impropriety.