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.
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
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