Posted on 08/15/2003 10:23:44 AM PDT by Pubbie
Targeting State's Proposition 13 Is Unlikely Republican Stance
Warren Buffett, the billionaire financial adviser to Arnold Schwarzenegger's campaign for California governor, strongly suggested in an interview that the state's property taxes need to be higher.
Mr. Buffett, the chairman of Berkshire Hathaway Inc., took on California's famous Proposition 13, which has limited property taxes there since 1978. As an example, he pointed out the difference between his own property-tax bills for homes he owns in California and Nebraska.
His home in Omaha, he said, is valued at roughly $500,000. His current yearly property tax bill on that home: $14,401.
In California, he owns a Laguna Beach home valued at $4 million, or eight times as much. The annual property taxes on that home are just $2,264 -- a fraction of what he pays in Omaha.
More to the point, said Mr. Buffett, the taxes on his Omaha home rose $1,920 this year, compared with $23 on the Laguna Beach home. Mr. Buffett attributed the scant jump in California to the restrictions of Proposition 13, which generally limits property-tax increases to 2% a year, no matter how much the value of a property appreciates.
Mr. Buffett stopped short of saying he would urge Mr. Schwarzenegger to seek a reversal of Proposition 13 to increase property taxes -- a move that would almost certainly be attacked by many of Mr. Schwarzenegger's fellow Republicans. But he left little doubt that that is where he is leaning.
"This property-tax illustration, that tells you, you can draw certain conclusions from that," said Mr. Buffett. Noting that tax assessments also vary widely, he said of the tax system, "In effect, it makes no sense."
"But you've got to look at everything," he added. "I took the job yesterday. And it's going to be his [Schwarzenegger's] policies. Any advice I give is going to be to him."
The state has been roiled by financial troubles tied to the economic downturn and the recent state energy crisis, factors fueling the effort to recall Gov. Gray Davis. Standard & Poor's Corp. has downgraded California bonds to a triple-B rating, the worst in the nation and two notches above junk-bond status.
Proposition 13 limits on property taxes aren't directly responsible for California's current fiscal problems, which had the state facing a deficit of $38 billion for the fiscal year that started July 1. But in general, the limitations on property taxes have forced state government to rely on other taxes, such as the personal income tax, and to engage in complicated maneuvers to reallocate the state's revenue and help entities that faced funding gaps, especially schools. Even with those constraints, state spending grew faster than inflation in the 1990s, but then leveled off and is down this year.
Mr. Schwarzenegger, like other candidates, has vowed to improve the state's fiscal picture. But suggestions that tax increases could be an answer could represent a problem for Republicans and the Bush White House, who have pursued tax cuts as the best way to improve the economy overall. Democrats are sure to leap at the contradiction, and the Buffett comments may likely to deepen the biggest fear of many national Republicans: that the moderate views of Mr. Schwarzenegger, for all his appeal as a candidate, could spark infighting within the party.
Sean Walsh, a spokesman for the campaign, said, "The proposals and courses [Mr. Schwarzenegger] chooses will be his own." The campaign announced late Thursday that Mr. Buffet and former Secretary of State George P. Shultz will co-head an "Economic Recovery Council" to advise the campaign, and he said that Mr. Buffet's voice would be one among its members. "The breadth of economic and financial views will be presented to Arnold," Mr. Walsh said.
In the interview, Mr. Buffett also said people approached Berkshire Hathaway and other financial firms a few months ago on behalf of the state of California, seeking to secure buyers for the state's bonds if necessary. "California was looking in the financial market for, in effect, a 'put,' or guarantee, by financial institutions that they would be able to come to market with bonds about nine months hence," said Mr. Buffett.
A spokesman for the California Treasurer said the department had "no knowledge of any state representative approaching Mr. Buffett." Steve Peace, California's director of finance, said investment bankers might have initiated such a discussion, but not with any official authorization by the state of California. He said the bond issue most likely involved -- a $10.7 billion limited sales tax bond -- has not yet been issued.
Mr. Buffett said that in the discussion with Berkshire Hathaway, the state was willing to pay 0.75 percentage point, or about $80 million, to firms such as Berkshire if they would agree to buy between $10 billion and $11 billion in bonds.
"That's a lot of money to pay for a put," said Mr. Buffett. "It's a couple bucks for every citizen of California." Just a year earlier, said Mr. Buffett, the fee for such a put was just 0.18 percentage point. "I thought about doing it," he said, but decided against it. Berkshire, he said, owns no California bonds.
Mr. Buffett's comments come a day after he startled many political observers by jumping into politics in the nation's biggest state, especially on the side of a Republican candidate. He is usually associated with Democratic causes. "I don't worry about that," he said. "I vote for far more Democrats than I vote for Republicans. But I vote for plenty of Republicans."
Among Mr. Schwarzenegger's competitors for the governor's seat is a longtime acquaintance of Mr. Buffett, former baseball commissioner Peter V. Ueberroth, who sits on the board of the Coca-Cola Co. with Mr. Buffett. Mr. Buffett said he hadn't known Mr. Ueberroth would be a candidate. Referring to Mr. Ueberroth and former Los Angeles Mayor Richard Riordan, another candidate, he said, "Peter is very able. Dick Riordan is very able. But Arnold, he's a very smart fellow. He has brains and muscle. Some of us have neither."
Through Berkshire, in which he controls about a third of the shares, Mr. Buffett has billions of dollars invested in the state of California. Those holdings include about $2.67 billion in stock of San Francisco based Wells Fargo & Co., along with other businesses, such as See's Candies and MidAmerican Energy Holdings Co., the nation's third-largest owner of natural gas pipelines. MidAmerican does substantial business in California. Its Kern River Gas Transmission Co. operates a 926-mile pipeline from Wyoming to the San Joaquin Valley near Bakersfield, Calif.
"The truth is California has got very serious financial problems," Mr. Buffett said. "It's an economy that's the size of France and there's no way the U.S. is going to have a healthy economy if California continues to have the problems it has . . . I've got a selfish interest in this country doing well, no doubt about that."
Mr. Buffett said his preliminary assessment of California showed that the state's budget had depended on billions of dollars collected in capital gains taxes, much of it generated by the bull market of the late 1990s. "In effect," he said, "they set their financial planning based on a financial bubble." Now that those gains are gone, California's budget must be balanced by money from elsewhere.
(Excerpt) Read more at online.wsj.com ...
McClintock is a winner. Win or lose, Arnold is a loser--and you will lose too, if he wins.
I agree with you that Arnold is not that stupid, from his prior economic beliefs. But it seems that Buffet is. What is that old saying, "don't beleive your own press". Well since Buffett is a darling of Wall Street, Buffett probably thinks his words are the words of "God", especially while talking to the Wall Street Journal.
Arnold if you are reading this thread, dump Buffet.
Is that why something like $3-4 billion has been cut in Virginia over the past two years?
When Gilmore repealed the car tax, he still promised municipalities that needed that income that they would get it, because there was so much tax revenue. When that dried up as the economy slowed, Gilmore had to use some budget gimmicks to keep the repeal going. The lack of the car tax revenues (not that I'm defending it!) caused a big hole in the budget because the government spending that it paid for hadn't been cut. Essentially that's what Warner has had to do; cut the spending that the car tax used to pay for. And he's saddled by an antiquated tax code; even the Virginia Republicans admit it, but they aren't about to concede an issue during an election year.
1. Your property taxes are too low...
2. Your income taxes are too low...(future)
3. Your car taxes are too low...(future)
4. Your Environmental Fees are too low...(future)
5. Your School Fees on New Property are too low...(future)
Californians do not save enough (see items 1 thru 5)...
Thank you Mr. Buffett, now go home.
DD
These jerks had better see that this recall is as much a referendum on taxation as it is a rebuke of the puke, Davis. The problem is NOT that taxes are too low, but that government buffoons SPEND too damn much money - on things which they have NO business and NO authority to spend on.
If this SOB thinks he can waltz into the governor's office and simply repeal Prop 13, he is a lot dumber than I thought. The death of America will be on the hands of the rotten, liberal, spenders, mainly the RAT-bastards; but guys like Arnie will be the end of the Repubo Party. Why vote for a Repubo and get a RAT? Might as well vote for the RAT and bring on the collapse and the next civil war. I fear that is what its going to take to restore any sense of Constitutional liberty.
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