A Staff Report from the Straight Dope Science Advisory Board

Does the "Gallo Law" exempt the winery from estate taxes?

November 26, 2002

Dear Straight Dope:

Is it true that vintners Ernest and Julio Gallo got friendly politicians to pass a law for one day that allowed them to pass a large portion of their assets to family members without paying estate or gift taxes and the following day, after the exchange, the law reverted to its original state? The professor of a tax class I took around 1987 mentioned it, saying people referred to it as the "Gallo Law."

Some people might call it the "Gallo Law," Bob, but it's usually referred to as the "Gallo Wine Amendment." The story behind it just goes to show that when you make a fortune, make sure you give some of it to a politician or two--and it doesn't matter what party they represent, because, in the end, they're all members of the Green party.

Ernest Gallo has been the head of E&J Gallo Winery in Modesto, California, since 1933, when his parents died. (It was an apparent murder-suicide, in which Ernest's dad killed his mum and then turned the gun on himself.) His brother Julio handled production, and their other brother Joe was an employee.

Gallo wanted his company to be the "Campbell Soup company of the wine industry." Early on, Campbell's probably wasn't too happy with the comparison, since Gallo sought his goal by selling fortified wines like Thunderbird and Ripple. But Gallo's efforts succeeded. His company became the largest winemaker in the country, and eventually the world.

As the company grew, the Gallos gave lots of money to politicians--Julio gave more to Republicans and Ernest gave more to Democrats, but let's face it, it all came out of the same wine vat. One of the many recipients was Democrat Alan Cranston, a California senator. The Gallos helped Cranston win a tough re-election bid, and in 1978 Cranston returned the favor. A Washington law firm custom-tailored some legislation to allow the family to spread inheritance tax payments over several years. Cranston submitted the new tax rule as an amendment to another bill and helped push it through the Senate (which wasn't that difficult--Cranston brought the bill to the Senate floor on a rare Saturday session where it was passed with only a handful of senators present). The measure was dubbed the "Gallo Wine Amendment" by then-senator Bob Dole of Kansas.

Dole was a Republican and Cranston was a Democrat, but the story hops over to the other side of the aisle eight years later. In 1986, the Democrats were rewriting the tax code (again). The Gallos decided that an amendment on the table could lower their inheritance taxes further still, so they lobbied for it. And who did they lobby but the very guy who had derisively labeled Cranston's amendment eight years earlier: Bob Dole. We don't know was said in private, but what a coincidence that when Bob Dole supported this second amendment, his political action committee (PAC) received four $5,000 checks from Ernest, Ernest's wife, Julio, and Julio's wife. The favorable tax treatment authorized by the amendment expired in 1990--maybe that's where your professor got the idea that the Gallo law expired the next day. He may also have confused the Cranston Gallo law with the Dole Gallo law. Easy enough to do--as you can see, there are a lot of Gallo laws.   

Ernest Gallo later helped raise $100,000 in a matter of days for a fundraising event for President Clinton, making it clear once again that he's willing to hop to the other side of the aisle whenever necessary. In this case it was apparently necessary because the U.S. was considering increasing Chilean wine imports. The fundraising effort--as well as additional contributions over the years to Senator Dole (who had become the Senate majority leader), foundations he supports, and his PAC totaling more than $1 million--apparently worked. Not only did Congress delay action to increase Chilean wine imports, but it increased funding for a program that gave Gallo millions of dollars to promote its wines overseas.

So, Bob, we see again that money is the grease that keeps the wine presses operating. I don't know about you, but after all this politics, I could use . . . well, normally I'd say a glass of wine, but right now I'd prefer some less sullied beverage. You think politicians get contributions from the makers of lemonade? 

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