The Right Opinion

Buffettitis -- Is There a Cure?

By Larry Elder · Nov. 29, 2012

Once again, billionaire investor Warren Buffett urges his fellow high-on-the-hoggers to pay more in taxes. “Only in Grover Norquist's imagination,” says Buffett, do taxes make much of a difference in how people invest. “So let's forget about the rich and ultra-rich going on strike and stuffing their ample funds under their mattresses if – gasp – capital gains rates and ordinary income rates are increased. The ultra-rich, including me, will forever pursue investment opportunities. …

"We need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that.”

So taxes, says Buffett, do not deter the ultra-rich “from pursuing investment opportunities.” Really?

The Weekly Standard's Adam J. White writes about how tax considerations affect investment decisions by Buffett despite his assertion that tax considerations don't much matter when it comes to investment decisions. White gives examples from Buffett's biography “The Snowball,” written by Alice Schroeder:

“Early in his career, Buffett invested heavily – almost one-third of his early fund's capital – in Sanborn Map, a company that mapped utility lines and such. … Buffett amassed more and more stock, and with control of the company finally in hand, he pressed the board of directors to split the company in two. …

"Finally, the board capitulated. But with victory finally at hand, Buffett nearly scuttled the deal because of … taxes. As Schroeder recounts, quoting Buffett, one director proposed that the company just cleanly break the company, despite the tax consequences – 'let's just swallow the tax,' he suggested. To which Buffett replied (as he recounted to Schroeder): 'And I said, 'Wait a minute. Let's – 'Let's' is a contraction. It means 'let us.' But who is this us? If everyone around the table wants to do it per capita, that's fine, but if you want to do it in a ratio of shares owned, and you get 10 shares' worth of tax and I get 24,000 shares' worth, forget it. …'

"Later in the book, (Schroeder) recounts how Buffett chose to structure his investments under Berkshire Hathaway's corporate umbrella, rather than as part of his hedge fund's general portfolio, precisely because of the tax advantages (emphasis added).”

White quotes Buffett's 1986 letter to his investors, where Buffett warned about the consequences of the1986 tax reform act: “If Berkshire, for example, were to be liquidated – which it most certainly won't be – shareholders would, under the new law, receive far less from the sales of our properties than they would have if the properties had been sold in the past, assuming identical prices in each sale. Though this outcome is theoretical in our case, the change in the law will very materially affect many companies. Therefore, it also affects our evaluations of prospective investments. … My impression is that this important change in the law has not yet been fully comprehended by either investors or managers (emphasis added).”

Taxes matter – to Buffett.

Harvard's Economic Department chairman, Greg Mankiw, writes that “Mr. Buffett never mentions doing anything to eliminate the tax-avoidance strategies that he uses most aggressively. In particular:

"1. His company, Berkshire Hathaway, never pays a dividend but instead retains all earnings. So the return on this investment is entirely in the form of capital gains. By not paying dividends, he saves his investors (including himself) from having to immediately pay income tax on this income.

"2. Mr. Buffett is a long-term investor, so he rarely sells and realizes a capital gain. His unrealized capital gains are untaxed.

"3. He is giving away much of his wealth to charity. He gets a deduction at the full market value of the stock he donates, most of which is unrealized (and therefore untaxed) capital gains.

"4. When he dies, his heirs will get a stepped-up basis. The income tax will never collect any revenue from the substantial unrealized capital gains he has been accumulating.

"To be sure, there are pros and cons of changing the provisions of the tax code of which Mr. Buffett takes advantage. Tax policy always involves difficult tradeoffs. But it seems odd to me that whenever Mr. Buffett talks about taxing the rich more, the 'loopholes' that he uses never seem to enter into the conversation.”

Guess who else thinks Buffett should pay more in taxes: the IRS.

Buffett's Berkshire Hathaway has been fighting the IRS over the $1 billion in taxes the government claims it is owed, dating as far back as 2002. Last year, one of Berkshire Hathaway's companies, NetJets, sued the IRS, demanding that the feds return $642.7 million in already paid taxes. And this year, the IRS sued NetJets, claiming it is owed $366.3 million in unpaid taxes.

Meanwhile, scientists at the National Institutes of Health are working feverishly to develop a cure, vaccine or treatment for this disease – that appears to afflict guilty/super-wealthy liberals – known in medical circles as “Buffettitis.” It's early, and one risks being premature. But NIH just may have produced a workable solution: “Mr. Buffett, whip out your checkbook, and cut the U.S. Treasury a check. Given the state of the economy, let's hope it doesn't bounce.”

COPYRIGHT 2012 LAURENCE A. ELDER
DISTRIBUTED BY CREATORS.COM

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4 Comments

Kevin from Arkansas in USA said:

"Obama said. “I can afford it. Warren Buffett, he can afford it."

Well I say write a check. Better yet - don't claim any deductions and pay your taxes based on your gross income. Anyone who feels they don't pay enough - just write a check for more and leave the rest of us alone. Along with writing a check why don't you get the 47% who don't pay a single dime in federal income taxes to cough up some money.

Thursday, November 29, 2012 at 8:53 AM

Wayne in Hinesville, GA said:

Isn't it amazing that people like Buffett and the Demorats want the rich to pay more taxes but no a one of them has written a check to the Treasury Department. Also, most of them take advantage of every tax loophole available and them moan about the rich not paying enough tax. Most of the shameless stooges are rich and will continue to use the loopholes.

Thursday, November 29, 2012 at 2:47 PM

JHenry in NYSS, USSA said:

See Spot foam at the mouth. Run Dick. Run Jane. Shoot Spot dead. Dead Spot. Dead, dead, dead.

Thursday, November 29, 2012 at 2:48 PM

pete in CA said:

>"We need Congress, right now, to enact a minimum tax on"<

ON ALL INCOMES!

We need to get the 49% who pay no taxes at all back in the habit of sending Uncle Sugar a check every year. I don't care if it's 1% or 10% of their annual UNADJUSTED income.

There is no reason on God's green Earth why anybody who takes in money should not be supportive of the government they elect.

Tuesday, December 4, 2012 at 1:38 PM