Buffett At Odds With Himself On Taxes

Discussion in 'Politics' started by pspr, Nov 30, 2012.

  1. pspr


    By Daniel Shuchman

    Having a net worth over $40 billion may command some authority and attention for one’s views on economics and taxation. But it should not buy one an exemption from basic logic, intellectual integrity, or consistency.

    Such seems to be case with Warren Buffett, who yet again took to the op/ed pages of the New York Times this week to call for higher taxes on citizens earning more than $500,000. The idea that higher income people should pay more in taxes, whether born of a desire for greater progressivity and/or a desire to raise more revenue, is certainly a legitimate viewpoint. However, any serious person espousing such an argument should be expected to address several basic questions: What will the standard of fairness be? How is it to be determined that any particular income group is paying its “fair share?” And if taxes are to increase, whether to address the deficit or for “fairness,” what degree of negative impact on economic growth and investment is one willing to tolerate? Regrettably, the recent presidential campaign featured much demagoguery but few answers. Mr. Buffett is no more illuminating.

    The so-called Oracle of Omaha begins by making the manifestly absurd assertion that tax rates do not influence investment behavior. Astonishingly, Mr. Buffett claims that when he was a fund manager, “never did anyone mention taxes as a reason to forgo an investment opportunity….” “Only in Grover Norquist’s imagination,” he derisively contends, do investors adjust their plans based on the prospects for taxation. Such statements defy economic logic. The amount and nature of taxation, whether of the income stream generated by a particular investment, or that levied on interim dividends or capital gains realized upon the disposition of an asset, must be among the many complex factors considered by any rational investor in assessing the relative merits of an investment opportunity. If this proposition is not self-evident to you, you can go straight to the authority himself.

    Mr. Buffett has left extensive and contemporaneous documentation of his investment thinking going back five decades. And it is clear not only that Mr. Buffett has always understood this fundamental economic axiom, but that tax considerations have been a critical animating factor throughout his business career. (Indeed, during the period when he was initially accumulating great wealth, Mr. Buffett was quite passionate about the desirability of low tax rates.) As early as 1963, he wrote a letter to the investors in his hedge fund, The Buffett Partnership, Ltd., in which he laid out some of the fundamental tenets of his investment philosophy as it relates to taxation. One was the following:

    “I am an outspoken advocate of paying large amounts of income taxes – at low rates.”

    He goes on to note that in the real world not all investors share his approach: “A tremendous number of fuzzy, confused investment decisions are rationalized through so-called ‘tax considerations.’” One would think this behavior has meaningful economic consequences in the aggregate. Mr. Buffett assures his partners that he is utterly disciplined and rational, though no less aware of the importance of taxation to investment results:

    “My net worth is the market value of holdings less the tax payable upon sale. The liability is just as real as the asset unless the value of the asset declines (ouch), the asset is given away (no comment), or I die with it….Investment decisions should be made on the basis of the most probable compounding of after-tax net worth with minimum risk.”

    That oblique reference to giving assets away is highly revealing, and we’ll return to it in a minute. Scarcely a year later, the emerging star fund manager reported to his investors that the Buffett Partnership had sold some investments and thus would incur taxable realized gains (the quaint sum of $2,826,248.76 in total, as it turned out). But he assured them that virtually all of his gains qualified for long term tax treatment. “We make investment decisions based on our evaluation of the most profitable combination of probabilities. If this means paying taxes – fine – I’m glad the rates on long-term capital gains are as low as they are.”

    Sensitivity to tax rates and structures, if not extensive efforts at tax minimization, has been a consistent focus for Mr. Buffett. In 1990, he shared with his stockholders the sample of a letter he had sent to a business owner whose company was a prospective acquisition target for Berkshire Hathaway. In it, Mr. Buffett explained to the potential seller why it was essential that the seller’s family retain a 20% interest in their business:

    “We need 80% to consolidate earnings for tax purposes, which is a step important to us.”

    One can only wonder, whether the deal would have happened, and at what price, if the seller had insisted on retaining 21% or more.

  2. wildchild


    Look at Tiger Woods, Joe Paterno and David Petreaus and see how they used the media to portray an image of themselves that was completely divorced from reality.

    Now look at the master of media manipulation, Mr Warren Buffet. Buffet is one of the biggest low life, back stabbing, pieces of shit to ever grace us with his presence.

    Buffet is not this nice grandfather type who made his money the old fashioned way. If you did business with Warren Buffet he made sure that you were left profusely bleeding from the asshole by the end of ordeal. Can we please stop this charade that Warren Buffet is this nice gentle old man who cares about people?
  3. I'm going to throw an office party when this fvck-wad dies.

    Just like I did for yassir arafat.
  4. jem


    great article...

    I have pointed out that his investment officer Charlie Munger calls EBITDA earnings bullshit earnings because taxes must be taken into account when making investments.

    Last I read the two faced sob's company is fighting the IRS over a billion dollars in taxes. Which is fine... but then don't go around asking for higher taxes.

    1. He is either a get in the boat and then pull up the ladder crony socialist - or
    2. This whole thing is about helping his company vs the IRS.
  5. hughb


    I have to admit I was completely duped about Buffett's image in pre-internet days. I believed he was a humble, introverted, aw-shucks Nebraska farm boy. Nothing could be further from the truth. There's no greater hypocrite than a wealthy man bellowing for higher taxes on the wealthy, (well except for homeless advocates). He himself gives millions to private charity which proves he himself doesn't trust the government either. He could back up his own words by turning those millions over to the government instead of private charity.
  6. jem


    he talks a good game made a pledge of charity to Gates' foundation but has he given away billions? last time I checked I saw no info about it on the net.
  7. hughb


    At the Berkshire shareholders meeting he disclosed that he gave away $41M worth of stock to various unnamed charities in the second half of 2011.
  8. hughb


  9. hughb


    My point being - if he wants other wealthy people turning over more money to the government, he should lead by example and stop giving it to charity. He should turn it over to the government and allow them to use it as they see fit. The government could probably pay for two or three little wars, or maybe another big one with that kind of money.
  10. jem


    good point... thanks for the info.
    #10     Nov 30, 2012