Tax Analysts Blog

Stop Listening to People Like Warren Buffett on Taxes

Posted on Nov 19, 2014

I admire Warren Buffett. I admire his genius. I admire his ability to create wealth. But the recent elections show that Americans do not want to listen to billionaires advocating for higher taxes. You may recall Buffett and President Obama saying that no person should pay taxes at a rate lower than their secretaries. Actually, the real ”Buffett rule” was Obama’s attempt to impose a minimum 30 percent tax rate on all income over $1 million. This was designed to negate the effects of the capital gains rates enjoyed by Warren and his friends. Redistributionists loved the Buffett rule. After all, it’s fun to take other people’s money. In any event, Warren is on record calling for higher income and estate taxes. In fact, he told CNBC earlier this year that he would be happy paying higher taxes. My liberal friends gush over Buffett’s noblesse oblige.

But it seems that almost every day, Berkshire Hathaway, the company through which Buffett became rich and famous, is involved in another tax avoidance deal. Berkshire had money behind the Burger King-Tim Hortons inversion. Buffett was a champion of economic patriotism but helped fund the departure of an American company to Canada. The Burger King deal was announced months after Buffett widely criticized companies that inverted.

The latest Berkshire tax maneuver is the cash-rich split-off involving Proctor & Gamble. The details are complicated. But basically, Buffett structured a deal in which he will buy a business (in this case, the Duracell battery division of Proctor & Gamble) with appreciated stock of P&G. The deal will save Berkshire about $1 billion in federal taxes. Economic patriotism indeed.

There have been other examples of Berkshire aggressively minimizing its tax burden. The Oracle of Omaha may talk like a populist, but he employs a small army of tax experts to make sure he does not pay too much.

I believe everyone has a right to minimize their tax burden – legally. Buffett and Berkshire do that every day. But we should take the preaching of people like Buffett (and other billionaires who would like to impose their beliefs on us) with a grain of salt.

Read Comments (3)

edmund dantesNov 19, 2014

Excellent post, I agree with you wholeheartedly. Still, two minor nits to pick.

First, I believe that every time someone reports that Buffett has advocated for
higher estate taxes, they should mention that Buffett himself won't be paying
those taxes, whatever the tax rate or the exemption. He's giving away the bulk
of his fortune through the shadow government of the Gates Foundation and
enjoying an unlimited gift and/or estate tax charitable deduction for doing
so. He is advocating for estate taxes only for those who do not share his
values.

Second, the low rates on capital gains are already 50% higher than when Buffett
first made that observation about his secretary's tax rate. The distance from
23.8% to 30.0 is not the big story. The item that really brings Warren's tax
rate down dramatically is the 0% tax on his muni bond income. Somehow,
whenever this story of the secretary's tax rate is reported, the tax-free
nature of Buffett's muni bond holdings is ignored, and it shouldn't be.

We have to watch what he does, not what he says.

Emsig BeobachterNov 20, 2014

Another case of do as I say; not as I do.

Fred Williams JrNov 23, 2014

a rich-ocryte- a hypocrite. And I don't hate the rich and try not to envy them
either; moreover I hope to become one myself, I do indeed, but hypocrisy is
bothersome. If I became rich through hypocrisy I'd like others to point it out
and expose me. That means I retain the right to expose others (without being a
hypocrite!)

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