Skip to comments.How Warren Buffet pays no taxes (virtually no taxes)
Posted on 11/01/2009 4:57:59 PM PST by dennisw
Arthur Laffer said--
"You can't raise taxes on the rich. These people know how to get around taxes," says Laffer. "Warren Buffett pays no taxes because all of his wealth is in unrealized capital gains. There's no tax on unrealized capital gains, so how do you get it? You have to tax poor people." LINK
Warren Buffet sure talks about taxes a lot for someone who essentially doesn't pay any since the vast bulk of his wealth consists of unrealized capital gains. Appreciation of Berkshire Hathaway stock that he just sits on and never sells any
Warren Buffet lives modestly for someone who is worth 50 billion dollars.
He has publicly stated that when he dies his children will divide up a billion or so
While the rest will go into the Bill Gates Foundation since they do such a bang up job (squandering it)
Lets say Warren leaves Gates Foundation 50 billion dollars and all of it is unrealized capital gains
Then it will enter into the Gates Foundation untaxed (?)
When Gates Foundation needs to spend some of Buffet's dough then it will liquidate some Berkshire Hathaway and spend it. I wonder if taxes will paid at this point
So what? If you don’t sell something, there’s no profit to tax. Nor should there be.
If you talk to Warren [Buffett], he'll tell you his preference is not to meddle in the economy at all -- let the market work, however way it's going to work, and then just tax the heck out of people at the end and just redistribute it.
What frauds they both are.
“There’s no tax on unrealized capital gains, so how do you get it?”
One way is by levying a tax on net wealth. Such taxes tend to be very unpopular.
Re your post 3: Exactly.
To tell the truth, I would rather see the government get it ans piss it away than for liberals to get a hold of it.
Wealth taxes have normally been used to prevent or to eliminate concentrations of resources outside of control by the ruler. A wealth tax in the US would remove private wealth and wealthy persons to locations offshore and reduce the effective tax base further.
No, the Bill and Melinda Gates Foundation is a 501(c)3 - tax exempt - entity. They can sell the shares tax-free.
How about if you set up a tax free foundation with the untaxed funds. Then you hire your kids to run the foundation at exorbitant salaries. You then essentially transfer the funds to your children, while avoiding the inheritance tax.
Berkshire Hathaway in 2007 earned $20,161,000,000 in pre-tax operating profit. It paid $6,594,000,000 in taxes to the Government. Buffett, as many know, is giving away his entire fortune a little bit at a time by transferring shares to the Gates foundation each summer. Nevertheless, he still owns 350,000 Class A shares at roughly $100,000 each and 2,564,355 Class B shares at roughly $3,300 each for a total of just shy of 30% of the company's total equity.
If Berkshire were to convert to an S-Corp or a privately held LLC with pass through taxation right now, Buffett's personal income tax statement would show, on his K-1 form, personal business sales of $6,048,300,000 and personal income tax of $1,978,200,000.
In other words, he is paying nearly $2 billion in taxes per year on his pro-rata share of Berkshire Hathaway's operating earnings. If Berkshire were a private partnership, that would go on his personal taxes. Because it is not, however, they are filed on the corporate taxes.
The point is that economic reality hasn't changed at all. Regardless of what his "personal" tax rate is, the man is indirectly paying $2+ billion in taxes every year. If you conduct all of your operations through a holding company or through trust funds or through private family corporations, you can have virtually no income but still make, and pay, huge amounts in taxes each year. You can be worth billions and show virtually no personal reported income taxes because the entities in which you have an equity stake are reporting those earnings for you.
Besides, if he wanted to avoid capital gains taxes, anyone with money knows one of the most effective ways is to simply transfer a decent amount of stock into a fully marginable account and arrange a loan backed by the securities. In effect, you could live off the money and only your estate would pay taxes after you died. Another way would be to contribute huge quantities to special types of charitable remainder trusts or charitable annuities with payouts listing him as the beneficiary. It's easy. The same way a smart real estate owner can place his properties in a self-directed IRA and pay only a small UBIT tax on his rentals, keeping nearly every dime tax-free in the retirement account.
My point is: For anyone with any knowledge whatsoever of tax rules, this is a very poor article. It is probably written by someone who has no business experience whatsoever or who, at the very, least, has never owned shares in a decently sized company.
Oh! I’m impressed. That is actually a technique used by a lot of people. Most people wouldn’t know about that. =)
One of my personal favorites is to create a limited partnership with family members, contribute shares of the stock, borrow a large amount from a bank, use the dividends from the stock to cover the interest payments, and then pay out the *loan proceeds* to the individual partners, effectively liquidating the shares without any tax. There are some complicating factors but if you know what you’re doing, it’s effortless.
A few years ago, you could also shop for the highest life insurance premiums possible because return on premiums often aren’t taxed in an estate. By paying, say, $2,000,000 in life insurance premiums, when you died this money was returned to your estate without a penny going to the government. This ticked a lot of people off, though, so it was targeted.
The point is, it’s so easy to manage your taxes well there is no need to cheat. I never understood people who did that.
Sorry about that idea of “no tax on unrealized capital gains” thing. Does your city/county taxing entity “reappraise” the value of your home on a yearly basis and tax you on it? Mine certainly does. So in reality no one really “owns” their home or land, we’re just renting it. WE CAN NEVER OWN IT OUTRIGHT FREE AND CLEAR. We haven’t realized any of those gains, but the city/county tax assessor certainly does. And by the way, those taxes are UNCONSTITUTIONAL.
This starts off with a quotation by Arthur Laffer. Maybe he has it wrong about Buffett but he also speaking generally about “the rich”
Below the Laffer excerpt was written by me and I raise questions, do not speak definitively. My point is Buffett pays very little taxes but likes to talk about taxation policy. You say he does pay a hefty tax bill
Thanks much..... I kinda doubted taxes would be paid since prior to that point Warren Buffett’s money became Gates Foundation money witch is 501c3 as you say
daughter Susie lives in Omaha and does charitable work through the Susan A. Buffett Foundation (another tax shelter)
The bulk of the estate of his wife, valued at $2.6 billion, went to that foundation when she died in 2004
Buffett backed Obama for president, and intimated that John McCain’s views on social justice were so far from his own that McCain would need a “lobotomy” for Buffett to change his endorsement
Buffett was also finance advisor to California Republican Governor Arnold Schwarzenegger during his 2003 election campaign
The Billionaire’s Black Sheep
What’s it like when your grandpa is the richest man in the world? For Nicole Buffett, it means forgoing cable TV and health insurance and making do on $40,000 a year. Here, she dishes on her upbringing and why her grandfather Warren Buffett disowned her.
Joe Schmoe who holds $900,000 in Berkshire Hathaway is also paying those same taxes. Indirectly, the same way Buffett is.
Difference being those are the last taxes Buffet will pay and Gates Foundation will get Buffett's shares tax free
Joe Schmoe cannot afford to fund a foundation. Those are not Joe Schmoe's last taxes on BH. At some point he will liquidate for retirement expenses and be taxed or his heirs (his estate) will pay inheritance taxes on the boodle
I remember reading about that. A granddaughter talked too much about Warren Buffet so he disowned her. Vindictive same as our thin skinned jug eared president
Warren Buffett’s daughter, Susie, is in her thirties and could pass for 25, ‘but she struggled with a few extra pounds. Her father made a deal in which, for losing a certain amount of weight, she could shop for clothes for a month, no limit. ‘The only catch was that she had to pay him back if she regained the weight in a year.’
Susie shed the pounds and her mother, also called Susie, posted credit cards to her with a note: ‘Have fun!’ The daughter duly went out and spent $47,000 in 30 days. Buffett paid up but then moaned like mad to his friends.
With his son, Howie, he did something similar. Howie ran a farm belonging to his father. Buffett determined that his son should weigh 182.5 pounds precisely. If he was over that figure he had to pay his father 26% of the farm’s earnings; under, and the tithe dropped to 22%.
How do I apply for a grant from the Bill Gates Foundation?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.