Did anyone else see Stusrt Varney on FoxBusiness this morning? I didn't quite catch his argument, but he was saying Berkshire Hathaway's core business relies on selling instruments (insurance? bonds?) that act as tax shelters and the higher the taxes go, the more demand for their services. Can anybody flesh this out?
It reminds me of the Soros scam, funding all the US groups that weep over drilling for oil in poor Mother Earth (keeping US production constricted) while investing big-time in overseas producers (Petrobras and Hess).
Actually, I just want to deal with Buffet’s arguments which are these :
1) He pointed out that he pays a lower tax rate than anybody in his office, including the secretary.
Well, what Buffet does not tell us is WHY this is so.
When Buffett receives dividends and capital gains, it is true that he pays only 15 percent of that money on his tax return.
Companies that have made a profit can do one of two things with the excess cash. They can (1) take the money and reinvest it to earn even more money, or (2) take the excess funds and divide them among the company’s owners, the shareholders, in the form of a dividend.
If the company decides to pay out dividends, the earnings are taxed twice by the government because of the transfer of the money from the company to the shareholders. The first taxation occurs at the company’s year-end when it must pay taxes on its earnings. The second taxation occurs when the shareholders receive the dividends, which come from the company’s after-tax earnings. The shareholders pay taxes first as owners of a company that brings in earnings and then again as individuals, who must pay income taxes on their own personal dividend earnings.
So, dividends and capital gains are both forms of double taxation. So if Buffet wants honest effective tax rate numbers, he needs to show the 35 percent corporate tax rate that has ALREADY BEEN PAID.
2) Buffett also completely ignores the impact of the death tax, which will result in the federal government seizing 45 percent of his assets. To be sure, Buffett may be engaging in clever tax planning, so it is hard to know the impact on his effective tax rate, but it will be significant.
BTW, didn’t Buffet try pledge most of his money into the Bill and Melinda Gates Foundation? Well, this is simply a way of NOT giving to the government.
If he wants the government to take more of his money for “fairness”, why does he not just leave it alone so that when he dies, the government will take close to half of it to make him happy?
3) Buffett says that he doesnt consider the tax implications for his investments.
I call BS on this. one of the major tenets of the value investing practice Buffett follows, which he wrote in his book, is to hold equities as long as possible to minimize the impact of taxes and therefore maximize internal returns.
WHY DOES HE WANT TO MINIMIZE THE IMPACT OF TAXES AND MAXIMIAZE INTERNAL RETURNS IF HE WANTS THE GOVERNMENT TO TAKE MORE OF HIS MONEY?
Buffet might be a different breed of investor ( although as I said, I can’t believe him here ), but the rest of the investing world is solely concerned with after-tax returns to their investments. Tax rates including the capital gains rate, dividends rate, corporate income tax rate, and individual tax rate are major determinants of after-tax returns.