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Warren Buffett, Tax Hypocrite
The Buffett Rule, named after its impresario, billionaire investor Warren Buffett, is simply this: a guaranteed minimum tax for individuals who “make” over $1 million per year.
Warren likes it, Obama likes it — it’s a very popular rule. Forget, for a moment, that the rule doesn’t really specify what “make” means. Rich people tend to make a lot of money in a lot of different ways. Some of it is “income,” but a lot of it is other stuff, like capital gains. Investors and hedge fund dudes make it and call it “carried interest,” which (as far as I know) isn’t taxed as income. Okay, well, forget those troublesome details. Focus just on the “fairness” issue that the Buffett-Obama axis likes to use.
“It’s not fair,” they say, “that the richest among us pay such a small amount into the national kitty.”
From Bloomberg, via the Zero Hedge blog:
President Barack Obama has criticized American companies that move to other nations in search of lower corporate tax bills. Between mid-June and late July, at least five large American companies announced plans to make such a shift — known as an inversion. That includes AbbVie Inc. and Medtronic Inc.
Buffett has supported Obama’s push to increase personal income taxes for the wealthiest individuals while striking deals that reduce Berkshire’s obligations to the government. This year, his company limited taxes on more than $1 billion of gains in Graham Holdings Co. stock by swapping the shares for assets owned by the former Washington Post publisher.
And now Buffett is helping finance the “inversion” deal joining Burger King and Canadian doughnut empire Tim Horton’s — a business move that makes sense only as a way to minimize the company’s (US) tax bill, again from Bloomberg:
Warren Buffett is helping to finance Burger King Worldwide Inc.’s planned takeover of Tim Hortons Inc., according to people familiar with the matter, backing a buyer that would move its headquarters to Canada where corporate taxes are lower.
You see, taxes are something that you should pay. Higher ones, especially. Tax avoidance, tax-related economic behavior, the basic conservative idea that low taxes create (and higher taxes destroy) incentives to build businesses and take financial risk — these are all things that, according to Buffett, only apply to gajillionaires. From Zero Hedge:
…the “Buffett Rule” appears to have one caveat… if you are making over a $1 billion, you’re good to go with tax-avoidance strategies. In one of his career’s most hypocritical moves Warren “tax-me-more” Buffett has decided that putting his money where his mouth is no longer makes sense.. and is funding $3 billion of Burger King’s “tax-inversion” takeover of Canada-based Tim Hortons. Somewhere on a golf course, a Presidential Putter is being snapped across a knee…
Look, this isn’t wrong: any company should be allowed to do whatever it wants to maximize its value. What’s wrong is the way pious and smug billionaires talk about “paying more” when they know that they’re not going to.
If Buffett thinks that corporate tax rates are too high (and they are), have him call his friend Barack Obama and get them lowered.
If Barack Obama thinks tax moves like this are “unpatriotic” — and he’s said that before — have him announce to the world that his friend Warren Buffett is un-American.
I won’t hold my breath. Both of these guys understand each other.
Published in General
Somethin’ like this?:
To the True Leftist, who believes appearances, good intentions, and progressive rhetoric matter more than reality and results, there is no hypocrisy in Buffett’s self-serving actions. He is, after all, publicly opposed to the very thing he is now doing. He says all the Progressively-Correct things to the media. He gives his money to all the proper causes.
Buffett could kill a puppy with his bare hands on live TV and the Left would defend him.
The richer you are, the more leftist you become it seems. Most of the billionaires that come to mind are leftists. Millionaires and those who want to become millionaires are not, at least not to the same degree. The billionaires stand at the top, kicking rocks down on all those climbing up.
The reason Buffett pays so little in taxes is that he has almost no salary. Similarly his company pays no dividend. If he were paid a standard CEO salary, and if Berkshire paid a, say, 1.5% dividend, Buffett would pay a good deal of taxes.
(Buffett probably wants the dividend tax raised, so he will feel less pressure to pay a dividend. Berkshire has a pile of cash it sits on, and has to keep buying companies, since it won’t pay a dividend, returning that case to investors).
Similarly, Berkshire makes a good deal of money off the estate tax–their life insurance policies are, sometimes, a means of estate planning, no?
In sum, Buffett is very much concerned with using tax laws to his advantage, and he is smart and, often, effective in getting and keeping laws that help him.
Candidate Obama famously told Charlie Rose that even if a lower capital-gains tax-rate yielded more revenue for his government, he would reject it, out of a sense of #fairness.
The problem with folks like Obama and Buffet is their rhetoric. Neither of those individuals, especially the President, speaks of increased tax-rates as an inherently financially prudent thing for the country to enact. No, their arguments , almost exclusively, consist of telling the country we need to act morally. As it pertains to taxes, they don’t so much propose balancing our budgets, but rather realigning our souls.
It was Dennis Miller who said (paraphrasing): “Look, when Buffet and Obama personally deduct what they legally can, and pay the lowest rate they legally can, it’s not my standard they are falling short of, it is their own! Every time one of them signs one of their watered-down tax forms, by their own standards, they are actually bad people.”
…and to the benefit of Berkshire Hathaway shareholders btw.
In a speech in July, Obama called inversions an “unpatriotic tax loophole”. He also said (emphasis added):
L,
This isn’t fairness but psychosis. If you pay less taxes and the gov. collects net net more taxes then it is win win. Rejecting this over an imaginary fairness is the equivalent of medieval self-abnegation.
Actually, I’ve always found that if you think of socialism as the medieval great chain of being supported by a pseudo-scientific ideology (instead of the church) you come out just about right.
Regards,
Jim
I wonder how the press, business and mainstream, would react to a CEO stating his company would not be doing an inversion but would rather spend resources fighting to improve the situation here?
(note that the Koch brothers spend a lot of resources pushing pro liberty, pro small business, and very patriotic agendas as well pay lots of taxes and give huge amounts to charitable causes).
And considering that the companies that Berkshire owns tend to be high-cash-flow and high-profit-margin companies rather than high-growth companies, it’s almost criminal that BH doesn’t pay dividends.
Yes. I had always considered income taxes as a tradeoff. Less money in the private sector is bad, but more money for government programs is good. Obama apparently sees income taxes as a win-win, because it’s bad when a private individual has too much money, while the government can always use more money. I’m moving towards seeing income taxes as a lose-lose, because I’d rather the Koch brothers and the Waltons keep their money. I’m not afraid of the Kochs or the Waltons, but I am afraid of the federal government.
Nicely done. (Or perhaps I should say, well-done).
Not just that. BH also targets family-owned companies for takeover, because the families often do not have the liquid cash available to pay the taxes when the family scion passes away.
I vaguely remember reading that’s how BH got its hands on companies like Dairy Queen and U-Haul, but you might want to double-check my memory.
I was afraid that nobody was going to get the pun. Faith in Ricomanity restored!
As a BH shareholder, I appreciate share-value appreciation and am grateful that I can avoid paying tax on dividends every year. If one is investing for current income there are other places to go.
BH doesn’t do takeovers. It does buy selected family-owned businesses that want to join. BH then butts out as far as managing those businesses goes.
Are they all family owned? I don’t recall who owned Burlington Northern. Buffett’s hoard of cash comes in handy, and he was able to make money off it as a lender during the recent crisis. On the other hand, Berkshire is sitting on a great deal of cash just now, and is adding $20 billion per year. Is Buffett hoarding cash to avoid taxes, or is he making good use of th $55 billion he’s sitting on?
http://www.thestreet.com/story/12832307/1/warren-buffetts-berkshire-hathaway-has-the-most-cash-in-america.html
Com’on, I didn’t say that all BH businesses are family-owned. Someone wrote that he ‘targets’ family businesses for takeovers, and I said he doesn’t. BTW he doesn’t.
And so what if BH is accumulating cash? The market certainly has no problem with that.
I’ve got a question and I’m not asking sarcastically. I’m truly ignorant on this topic. Say I’ve got money to invest in a business. I can invest in one that will pay dividends when they make a profit or in one that is in expansion mode and will not pay dividends for many years but eventually hopes to. What is the value in owning stock in an enterprise that will never, ever pay dividends? Yeah, the share price will go up and I can sell it at a profit, but why does the next guy want it? Why is a business worth something if it never repays the investors anything?
The next guy would buy on the assumption that he can sell at a profit also. It really is that simple. It’s good as a long-term strategy, but isn’t right for all situations.
I look at it this way. If there is no dividend I don’t have to pay tax and I also don’t have to figure out how to invest the proceeds of a dividend.
The question is whether Buffett’s public arguments about what our tax policies should be are biased to policies that are best for his own business. They may or may not be good for the country as a whole.
Buffett’s business benefits from the estate tax. The charge that he buys family owned businesses because the estate tax often forces children to sell on the cheep is an old one, perhaps it’s not true. It’s mentioned here. Perhaps it’s a canard. I am not so sure. But it might be that he no longer buys many businesses that way.
http://www.professorbainbridge.com/professorbainbridgecom/2012/12/more-rich-liberal-hypocrisy-on-the-death-tax-from-you-will-have-guessed-warren-buffett-et-al.html
Similarly, Buffett’s call for a higher tax on dividends might also be self-interested.
But his support for the estate tax and for higher dividend taxes are seldom presented as good for his business plan. His views are simply presented in the elite press as nobles oblige.
I understand your concern. I too don’t like everything he says. And I don’t like that the progressive press highlights their favorite parts. But let’s keep in mind that Buffett doesn’t make public policy. To the extent (small) he has any influence he uses it to further the interests of BH and its shareholders. If Congress and POTUS had the will to reform the death tax there is nothing Buffett could do to stop them.
It’s worth something because it could pay dividends, and even if the current CEO says “we will never pay dividends as long as I’m in charge!” he won’t always be in charge.
Suppose a company makes enough profit that it could afford to pay a dividend of $1 per share. Instead the board reinvests all profit in growth, and after 5 years it can afford to pay $2 per share. The price of the stock should go up accordingly: all else being equal, the company has doubled in value.
Now a rational investor will compare the appreciation in equity vs. the value to him of the dividends invested elsewhere. As long as the company’s stock is beating the market, he’ll be happy, but most businesses reach a point of diminishing returns. New stores open in less desirable locations and make less profit, some operate at a loss. Growth slows. After 5 years the earnings per share are only $1.10 instead of the projected $2. The stock price is only up 10%. (cont.)
At this point either the board will change its tune and declare a dividend to keep the shareholders happy, or the company will become a target for a hostile takeover, or the shareholders will get so mad they refuse to re-elect the board members. It seldom goes that far, though, usually the board sees the writing on the wall and changes policy or agrees to accept a buyout offer.
OK, so it really is as simple as I suspected. As long as everyone believes a stock has value, it has value, even though in reality you will only profit if the next guy believes it, too. It’s kind of like buying and selling milk cows that actually give no milk. Everybody knows that they’ll give no milk but still think them valuable because the cows could give milk if they really wanted to. I guess it all works until a critical mass of people ask “Why am I buying a refusenik milk cow?”
I was typing my previous comment while you were posting yours. This does makes sense to me. I have heard of tech company CEO’s saying that their company will never pay a dividend and it seemed to me that it just couldn’t go on forever like that.
On dividends, stock buy backs are another way to boost stock value. Non dividend stocks deserve more scrutiny because you can cook the books, but you can’t fake a dividend.
On hypocrisy, I read that they have groups who sell estate products to high net worth individuals, but all life insurance companies are in the biz of selling estate tax avoidance. Almost alllife insurance is a tax dodge, but on top of that, they all sell products that primarily act as legal tax reduction products.
Plus, us, he just acts like a two faced business man. I’ve been burned enough that I can pick them out better now.
I wouldn’t characterize it that way. The milk cows are giving milk. It’s just that instead of giving the milk to the shareholders the company is trading it for hen houses, furniture stores, railroads and stock in other companies. Shareholders then own the value of these investments in addition to the original milk cows.
Microsoft is a good example of that, it went public in 1986 and paid its first dividend in 2003. Now it pays regular quarterly dividends.
Back in the 80’s and 90’s the PC market was exploding, and Microsoft had a dominant share of that market — indeed a monopoly, according to the government. Now that market has leveled off, it still makes boatloads of money on Windows and Office, but rivals like Apple and Google dominate the hot new growth areas like mobile devices.
So it has to pay a dividend, but Google doesn’t… yet.